This paper examines the forces behind the offshoring of American manufacturing and the conditions under which reshoring becomes viable. Drawing on Grossman's distinction between routine and non-routine tasks, Gordon and Rutt's analysis of globalization drivers, and Anderson's work on quality differentials, the paper argues that U.S. manufacturers can regain competitiveness through several strategies: incorporating non-routine, technology-intensive processes; leveraging near-sourcing and lean manufacturing for customization; reducing costs through strategic domestic plant location; and capitalizing on rising wages and declining quality in overseas production centers. The Tesla and Mattel examples illustrate how product positioning shapes which strategy is most appropriate.
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 so does the high cost of doing business in the United States 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 goods are cheaper even after accounting for additional shipping costs.
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. One of the key manifestations of this difference is that routine tasks can often be performed remotely, whereas non-routine tasks generally cannot. He used the example of Mattel: the company's design work (a non-routine task) is done in the U.S., while manufacturing is carried out across a variety of countries in Asia.
For American manufacturers, incorporating 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 become competitive. Another option is for U.S. manufacturers to produce higher-quality goods that command greater sales volumes and better margins. The Tesla case illustrates this approach — Tesla is a high-end producer and is therefore more concerned with delivering the highest-quality product than the lowest-cost one. Additional costs of production can be passed on to the consumer.
A company can also gain competitive advantage from lean manufacturing and near-sourcing if customization is an important element of its business model. By locating close to the supply chain, a company can offer a more customized product than overseas competitors can, while still delivering that product to the customer more quickly. Normally, there is a lag time between order, production, and delivery for goods made overseas. However, if a company makes faster delivery of a more customized product a core selling point, that differentiation could provide a meaningful competitive advantage in certain industries. Not all industries have consumers who value this — it would work much better for Tesla than it would for Mattel, for example.
"Location and customization lower delivery cost gaps"
"Slipping overseas quality narrows the cost advantage"
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