Decentralized Manufacturing the Global Economy

¶ … Decentralized Manufacturing

The global economy that exists in the world today requires most firms -- and all firms that wish to supply a global market -- to maximize the strategic placement of their manufacturing and operating facilities. There are two primary strategies that can be employed in the overall geographical design of a given firms manufacturing structure. Concentrated manufacturing takes place at a single, or at least relatively few, locations throughout the world, which can provide greater control and oversight of all manufacturing processes the company is involved in, as well as providing other benefits. Decentralized manufacturing strategies, on the other hand, utilize multiple locations scattered throughout the regions where a given company does business, which can provide faster service to the purchasers of the manufactured goods and other benefits as well. The benefits and drawbacks of each of these general strategies as they apply to a microprocessor manufacturer with an estimated global market of ten-fifteen billon dollars over the next ten years, and construction costs of new manufacturing facilities estimated at five-hundred million dollars will be discussed below.

A decentralizes manufacturing strategy for this firm would represent a massive initial capital outlay, with every two manufacturing facilities built requiring up to ten percent of the estimated available earnings for the company over the next ten years. To put it more simply, every two factories built eliminate one year's worth of earnings. The amount that the company will save on reduced shipping costs, avoidance of tariffs and other trade barriers, as well as other logistical expenses are unlikely to offset these rather exorbitant construction costs.

A concentrated manufacturing strategy, however, will incur far higher distribution costs due to the very same factors that create a cost savings in a decentralizes strategy. There will also be a greater negative impact on the environment from the increased amount of shipping that will necessarily take place in order for the companies products to make their way into all regions of the global market. The increased profitability that is expected from this strategy will likely make it possible to overcome these barriers and even to offset carbon emissions through cap and trade, though, making it more ideal for the company. Tariffs and trade barriers are also likely to be relatively low for this product, as the microprocessors the company manufactures are utilizes in many different technologies necessary for the running of modern businesses -- preventing or limiting entry of microprocessors into individual regions or countries would have an inhibiting effect on the economies of those countries/regions. Shipping costs would also likely be minimal as the products themselves are quite small and lightweight and many thousands of units could be shipped to major distribution centers around the world and from thence broken up into smaller shipments with this process handled almost entirely by third party logistics providers.