Tech Industry

Offshoring's second wave

Half of factory work is headed overseas, according to a McKinsey report. Next on the list: telecom equipment, car parts and pharmaceuticals.

The shipment of white-collar jobs overseas is certainly a controversial and worrisome trend for many U.S. workers, but factory workers may soon have greater reason to fret.

Companies in the business of making car parts, communications gear, industrial machinery and medicine may soon join their compatriots in the electronics and apparel industries in tapping cheap overseas factory labor, according to a new McKinsey report.

The consulting company predicts that a new wave of offshore outsourcing is coming, and it's aimed straight at "skill-intensive" industries such as these. India and China stand to gain many of these jobs, the report said.

"Some industries will feel substantial pressure for the first time, and competition will lead many U.S. manufacturers to source products from these countries or even move plants abroad," McKinsey reports.

The shift will lead to nearly half of all U.S. manufacturing imports coming from a dozen low-cost countries by 2015--a chunk of the economy worth hundreds of billions of dollars--and would represent a sizable increase from 42 percent in 2002. The "new wave" industries will account for about half of those imports over the same period, compared to 37 percent three years ago.

McKinsey cites several reasons. For one, suppliers in some developing nations are gaining more sophisticated engineering and design capabilities, and rapid growth is spurring investment in world-class manufacturing capacity in China and elsewhere. Plus, Indian drug companies will continue to take advantage of expiring U.S. patents to produce cheaper medicines.