The old model of manufacturing outsourcing

According to several newspapers articles, Ethiopia, one of the poorest country in Africa was transforming itself into a major manufacturing for clothing, shoes and other products. Many factories were owned and managed by Chinese as they moved their factory equipment to this country to take advantage of the very low labor cost to stay competitive in the world market. With huge tax advantages, significant cheap labor, and foreign investment, Ethiopia has opened 4 giant industrial parks for hundreds of thousand workers with 8 more to be completed in 2020.

An Ethiopia government officer explained: “Our plan is to create 2 to 3 million jobs in manufacturing by the end of 2022. We do not want to stay as an agricultural country anymore but moving quickly to adopt manufacturing and eventually to technology. We believe that industrialization is a good thing and could raise our standard of living up and eliminate poverty. We start with the clothing and shoes because these are easy to train workers and eventually to heavy industry. This model is no different from China in the late 1980s where this country transformed itself into a powerful economic force.” A company manager also added: “With millions of people needing work and willing to work at significant low wages, we believe we can make more clothes and shoes at better prices than any others.”

However, according to the news, this long working hours in factories are creating a stressful situation to most Ethiopians. A local reporter wrote: “They get only 30 minutes for lunch, but spend more than 10 hours in a very bad working condition. Many are exhausted and get sick but that is the only choice they can get since there is no other job in this country.”

Manufacturing outsourcing in developing countries has changed significantly in the past few years. When developed countries were using automation and technology to improve their productivity and cost, China moved many of its factories to other lower-cost countries to stay competitive. My question is for how long can this situation last? When automation and robots perform better and cheaper than human, it would be impossible to compete against technology. Basically, the low labor cost of outsourcing model is obsolete. The dream of being the “next China” is an illusion because without proper education and rapidly moving into technology, many countries will fell into the trap of the “latecomer” and never be able to catch up.

In my opinion, the evolution from agricultural phase to industrial phase then to technological phase is an old gradual model that no longer work in the era of the Internet. It is possible to jump forward by implementing a massive science and technology education change quickly to create a knowledge workforce ready to compete in this global economy. Without the proper education that focuses on science and technology but continues to rely on the old model of evolution is a mistake that could push the country in a backward situation in the world dominated by technological innovations.

Sources

  • Blogs of Prof. John Vu, Carnegie Mellon University