"Geopolitical risk: low". That's what CIO Magazine told us in its Buyer's Guide to Offshore Outsourcing in Thailand. Amazing how fast geopolitics can change.
Who's affected? Let's take a look at the company directory of the American Chamber of Commerce in Thailand. Hundreds... too many to list. Obviously some are properly locating their manufacturing facilities close to their customers in Asia, but others, particularly in the electronics industries, are exporting back to the United States. Co-located are several fellow Chamber members in the consulting industries... no doubt singing the praises of low geopolitical risk.
We don't know what the end result of the Thai situation will be. The coup leaders supposedly wanted to simply remove the current leadership, which some believe is corrupt, and rapidly return the country to democracy. But absolute power, without the constraints of a now-annulled constitution, has a habit of becoming addictive.
The flow of outsourced manufacturing to low-risk Thailand has been supported by the US-Thailand Free Trade Business Coalition, which is promoting a free trade agreement between the countries. And to no surprise, the co-chair of the Coalition is none other than the National Association of Manufacturers, NAM. To their defense, free trade also makes it easier for U.S.-based companies to export to Thailand, but think about the relative size of the respective markets.
So if Thailand is low, where do other havens of outsourced manufacturing rank?
- China: moderate
- Malaysia: moderate
- Vietnam: low
- India: high
- Pakistan: moderate
- Philippines: moderate
- South Korea: moderate
China and India are higher risk than Thailand... and are the new outsourcing meccas. Sort of makes you think. Especially when Canada is ranked the same as Thailand...
What is the potential cost of that risk? What would happen if you, as an executive of a company that outsourced overseas, woke up to find a new regime in place that has decided to simply take over foreign-owned operations? Unlikely? It happened just a couple months ago in Bolivia. How does that cost compare with the effort required to reduce internal process waste instead of chasing cheap labor?
Unfortunately most companies won't get it. Let the globetrotting begin.