Offshoring Gordon and Rutt (2008) Attribute the Essay

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Offshoring

Gordon and Rutt (2008) attribute the rise of globalization to cheap gas, but that is only part of the story. Cheap gas makes shipping around the world competitive, but does the high cost of doing business in the U.S. relative to other countries. For simple tasks like manufacturing, many countries around the world are capable of leveraging their cheap land and/or cheap labor to produce at a level of quality similar to that of the U.S., but with much lower costs. The cost differential is so great that even the goods are cheaper, even with the additional shipping cost.

Bringing manufacturing back to the U.S. depends on understanding why it left in the first place. The tasks that were offshored, and to a large extent this is still true today, are routine tasks. Grossman (2006) notes that there is a fundamental difference between tasks that are routine and those that are not, and one of the manifestations of this difference in that routine tasks can often be done remotely where non-routine tasks cannot. He used the example of Mattel -- the company's design (a non-routine task) is done in the U.S., but manufacturing is done at a variety of countries in Asia.

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For American manufacturers, being able to incorporate non-routine tasks into the manufacturing process is essential to winning back business. These companies can, for example, use technology to lower the cost disadvantage to a point where they are competitive. Another option is that U.S. manufacturers can produce better goods that will sell higher volumes and have better margins. The Tesla case is an example of this -- Tesla is a high-end producer and therefore is more concerned about having the highest-quality product than the one with the lower cost. Additional costs of production can be passed onto the consumer.

3. A company can gain competitive advantage from lean manufacturing and near-sourcing if customization is something that is important in their business model. By locating close to the supply chain, a company can offer a more customized product than competitors can, and still get that product to the customer faster. Normally, there is a….....

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