keynote feature ‘At the end of the day the cost at the


shelf level and the resultant proitability will be themain drivers of the desire to outsource production’ –Menen


effective in regions like Europe and the USwhich could move theirmanufacturing centres to areas nearer home such as Eastern Europe andMexico/Latin America respectively – but any suchmove to a nearsource option would surely have an adverse impact on the fortunes of the air cargo industry, as the opportunities to prosper from the long-haul carriage of semi-fabricated items between different production centres and finished goods tomarket would be severely reduced.


NEARSOURCE ADVANTAGES Nearsourcingwould have added advantages for manufacturers. Processes taking place closer to home are often considered to be similar to one’s ownway of doing things and easier to control. It could help overcome the challenge of extendedworkdays for employees, high staff turnover, the horrors of long-distance communication breakdown – or just a plain lack of understanding in day- to-day communication involving different languages and cultures. Amove of production facilities to amuch nearer locationwhere the labour force is capable and, of course, the level ofwages still considerably lower than their own was an attractive idea. Such a relocationmay not necessarily overcome language or communication barriers, but the geographical proximitywould allowmore flexibility to align the organisations of the buyer, manufacturer and the retailer – and it shortens the time- to-market cycle of goods. Attractive though the nearsourcing optionmay seem,


the established outsourcing countries like China and India seemto have held on to the vast amounts of business that they quickly amassed. Kasarda considers: “Any reversal to


1 AIR LOGISTICSCHINA 2


the nearsourcing optionwould (need to) be influenced by labour force costs rising disproportionately at the traditional, low-cost outsourcing locations; shipping costs increasing, due to such factors as higher fuel costs; freight terminal costs increasing; and any large shift in foreign exchange rates favouring the nearsourcing option.” According to RamMenen, divisional senior vice


president cargo at Dubai-based Emirates Airline (Emirates SkyCargo), outsourcing/nearsourcing decisions are based on long-termstrategies and have to take into consideration short-termchallenges and spikes in costs and demand. “These include a spike in fuel prices, the cost of security, disruptions to the supply chain operations and many other factors,”he remarked. Hence, unless the effects of these challenges become


sustained for the longer term, it is the cost-efficiencies that can be achieved by globalised outsourcing that drive the strategic decision,Menen believes.Hewent on: “Whether the outsourcewill be inMexico or China, the decision is generally based on the efficiency of logistics and bottom line costswhen the goods arrive on the shop shelf. China and India benefit frombeing able to leverage economies of scale because of the growing domestic consumermarkets. “Strengthening economies do tend to add costs via


increased labour and infrastructure costs,”Menen said. “However, this should not be looked at in isolation. The productivity levels in places like China are extremely high and production/output costs should be reviewed at unit cost level. China is a large countrywith huge resources still untapped. As costs in themetropolitan areas go up, there will be amigration of production to the interior areas and thiswill continue to give theman upper hand in the longer


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