As the follies of the Thatcher-Reagan bubble creep sheepishly into the history books, I expect a chapter or two to be reserved for the flight offshore. This thought is prompted by the weekend news of the impending decampment from its factory in Livingston, West Lothian, of contact-lens maker Bausch & Lomb, one of the area's largest employers.
What makes this closure particularly poignant for the 500 workers who may lose their jobs by 2011 is that production is being moved not to China, Poland or any of those other low-cost-economy clichés but to Waterford, Ireland, and B&L's US headquarters in Rochester, NY.
No doubt B&L will present this simply as a case of a company having to face the unpleasant truth that it has too many factories and, in recession, too little demand to fill them. It's easy to see how newly down-at-heel spectacles wearers might put off an investment in contact lenses. But my own take on it, for what it's worth, is that you can staple this in the folder of footloose private equity firms—B&L has been part of $25bn Warburg Pincus since 2007—who, as the summer ends, go through their lists and delete this or that factory with one stroke of an Aurora Diamante.
This is not a company having to retrench a large inward investment made from scratch. B&L is in Scotland because it bought an existing vigorous local competitor, Award, in 1996. Award had developed a highly thought of single-use soft contact lens with help from the British Technology Group. BTG, set up to commercialise publicly-finded developments and now just A N Other medical company, funded not only the development of Award's technology but the implementation of the firm's worldwide patenting strategy, this at a time when BTG had not yet passed from ownership by the UK Treasury. In 1993 more public money, from Scottish Enterprise and British Coal Enterprise, built Award's factory, which began production the next year and eventually exported to 100 countries.
Naturally B&L's website groans with such CSR guff as the need to treat its employees fairly and with respect, but we'll pass over all that to note why this story may mark some kind of memorial to the offshoring boom. B&L chairman and chief exec Gerald Ostrov gave a list of reasons for favouring the two other sites over Livingston. Chief among these was, "proximity to established research and development resources."
This goes to the core of the offshoring dementia. It may be merely a plausible excuse. On the other hand, please tell me it means that, somewhere in the lucre-benumbed porridge calcifying in the private-equity cranium, the penny has dropped. There are sound reasons for manufacturing offshore. Unhappily, the offshoring dementia infected far too many for whom the sound reasons were nowhere in sight. My summary of one strong case against is that if, as a western manufacturer, you are innovating as you should, your R&D and manufacturing staff should rub shoulders daily in the same restaurant, not brush past each other in a monthly S&OP teleconference.
It's not straightforward. In a large company, not every factory can have its own R&D department, and what you make where has a lot to do with where any product is in its lifecycle. But, in summary, there should be a presumption against separating production and R&D.
The years have taught me not to expect the Diamante wielders to understand any of this and to assume that that crack about R&D proximity is, after all, just an excuse for getting out while the going is good. If I'm being unfair to B&L, and they really mean and understand what they are saying, the Livingston employees may not weep entirely in vain. Even so, it's a high price for them to pay so that B&L should learn something so obvious.
But then, when those history books do appear, I suspect the lesson of the last three decades will be that, if something's obvious, no amount of technical piffle will stop the chickens coming home to roost. If you have huge balance of payments deficits and, in the UK, personal indebtedness approached £2 trillion, a correction is inevitable. If a whole sector is encouraged to lend money to people who can't pay back the loans, nemesis will follow, no matter how many times the debt is sold on. And, on a sudden but long term currency swing, the yield from investment in low-cost economies can turn from egregious profit to unspeakable black hole.
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