Why does the us manufacture overseas

ITI Manufacturing, Inc. New To China Manufacturing? By Mike Stewart. Share on facebook. Share on twitter. Share on linkedin. Lower Tooling Cost Injection molds, die cast molds, production fixtures, and other production tooling are not really seen as profit centers for China manufacturers.

Mass Production Overseas manufacturing, because it is less expensive, allows for goods to be produced in very large volumes.

Scale and Flexibility China has a unique ability to scale manufacturing capacity extremely quickly in order to respond to customer demand. Out of Sight, Out of Mind Opting for overseas manufacturing allows business owners to turn over manufacturing responsibilities to the professionals and focus on other areas of building the business.

About ITI Manufacturing. The new investments are not complementing domestic production; they are replacing it. Manufacturers defend sourcing from overseas as the only way to compete with inexpensive, high-quality imports.

They say that moving to cheap-labor countries like Mexico, Taiwan, and Malaysia for export back to the United States is allowing U. Economists generally approve. They consider the migration to low-wage areas an adjustment caused by changes in international comparative advantage. Others are less enchanted by the trend. Labor unions claim that it deindustrializes the country and destroys American jobs.

In the debate over whether offshore manufacturing is good for the nation, it is always assumed that it is good for an individual company. But we challenge that notion.

Going overseas is hardly the panacea many people think it is. At best, it is just another quick fix. In their rush to save money, managers often lose sight of the high penalties of moving abroad.

And by continually shifting manufacturing to the areas with the lowest labor costs, they are merely postponing the inevitable day of reckoning when they must confront the parts of the business that really need reform. American manufacturers claim that going offshore is their only alternative if they are to stay competitive against foreign rivals.

First, an increasing number of U. They are convinced that creating long-term competitive advantage requires a commitment to a new way of doing business—not just a shortsighted attack on labor costs. Take Eastman Kodak.

While still relying on some offshore manufacturing, Kodak also embarked on an aggressive and multifaceted program to restore its competitive position at home. It made an all-out attempt to create long-term competitive advantage by addressing the business as a whole, not just isolated parts of it.

Litton Industries is making similar changes in its operations to fight foreign competition in microwave ovens. The company has redesigned its product line, improved the quality of its products, cut down on labor costs, and introduced new models. Some companies have embraced automation to stay competitive. In , GM had more than 4, programmable robots in operation; it expects to have 10, in place by the end of Second, more Japanese companies are building manufacturing plants in the United States at precisely the time when many American companies are claiming it is impossible for them to stay home and be competitive.

Every major Japanese automaker has an assembly plant in the States. By one count, there are more than Japanese plants operating on American soil. Japanese electronics companies are also operating in the United States. The Japanese are investing in the United States for four reasons: to increase their political clout and prevent further trade restrictions by creating jobs for Americans; to ensure access to the American market in case exports to the United States are restricted further; to get a better feel for their most important export market so they can be more responsive to it; and to hedge against fluctuations in the value of the dollar.

To be sure, the Japanese in the United States enjoy some advantages over existing U. Because of a younger work force, they have low pension expenses and low insurance costs. They also have newer facilities. But these benefits are not the chief reason Japanese factories are competitive. The plants are successful because of their manufacturing techniques. Studies have shown that the main reason the Japanese were able to dominate the market for small cars over the last decade was not because of higher capital investment rates or more advanced technology but because of management philosophy and excellence in manufacturing.

Now, using the same techniques, the Japanese are outperforming domestic rivals on their home turf. The evidence is all around us. Although no one set of statistics accounts for all the forms of offshore manufacturing—be it setting up plants abroad, purchasing from a foreign subsidiary or joint venture, subcontracting from a foreign company, or buying from foreign companies through market transactions—the available data are persuasive. The best information on products manufactured or assembled abroad is a set of numbers from the U.

International Trade Commission on imports entering under tariff items These provisions permit the portion of the product made of U. A quick glance at the and statistics shows a dramatic rise in the value of offshore manufactured imports the accompanying table of selected years illustrates the trend.

Their share of U. The electronics industry has invested mostly in East Asia, while the textile investments are concentrated in Latin America and the Caribbean. These figures grossly underestimate the true extent of the phenomenon. They exclude, for example, products of a U.

Similarly, products of a foreign company under contract with a U. And much of what a U. The Growth of and Imports Sources: U. Department of Commerce, Survey of Current Business, various issues. Obviously, U. Meanwhile, U. Aggregate statistics aside, evidence abounds. In , some 70, workers were employed in plants along the Mexican border under the in-bond, or maquiladora , program.

By , the figures had grown to , workers and 1, factories. American businesses, operating of these factories, account for most of the production. In , U. In Mexico, the three U. The ability of the Japanese to manufacture in the United States raises serious questions about the rationale American companies use for going offshore.

In particular, if the Japanese can manufacture in the United States and still be competitive, why do U. More important, if U.

Third and last, Japanese companies have managed to stay competitive over the years without resorting to offshore manufacturing. They stayed world-class competitors by investing in automatic wire-bonding machines and by using flexible manufacturing.

In the early s, while U. The few Japanese companies that chose to go offshore did so either to supply their export markets or, more commonly, to get around trade restrictions. Japanese textile companies went to Asia in the s, for example, to avoid OMAs orderly marketing agreements imposed on exports of apparel to the United States and Europe. Similarly, Sanyo, Sony, and Hitachi have been moving manufacturing and assembly operations to Mexico to circumvent U.

They planned to do so by upgrading their products, incorporating greater value added, and minimizing costs. Human resource outsourcing particularly benefits small businesses by offering a wider range of benefits. Surprisingly, the recession may cause some human resource outsourcing firms to hire American workers.

Unfortunately, it also sent around , jobs to Mexico. Mexico is now the seventh-largest auto manufacturer in the world. But did that growth come at the expense of U. Or is something else the real reason? Like 11 free trade agreements with 46 countries? India has three qualities that attract American companies. First, the labor force already speaks English. Second, its universities are among the highest-ranked in the world.

Third, its legal system is similar to the U. China is the world's largest exporter. A lot of U. One reason is that U. Perhaps the U. Imagine if all our imported products were partly manufactured in America? Other foreign companies should be required to follow the lead of Japanese auto makers, who already do this.

Of course, if the United States did that, it would mean higher prices for consumers. Workers in many manufacturing industries have been replaced by robots. To get new jobs, workers need training to operate the robots. Innovations in technology are what actually allowed U. If technology is the culprit, it is also the answer. It's made the U. Education, rather than protectionism, is the best way to both take advantage of technology and create jobs for U.

In , there were 34 million people living in poverty in the U. Technology, globalization, and a passion for "low prices" above all else are others. It makes it easier to outsource jobs to workers who are not full-time. The phenomenon of job outsourcing in the United States provokes great economic contention. On one hand, this prevalent practice lowers costs for U. The benefits also extend to countries on the outsourced end, many of which have grown their economies through U.

On the other, it has hurt employment, raising the unemployment rate particularly in these hardest hit sectors:. Although U. Outsourcing may not be the biggest threat to unemployment though. Technological growth in automated intelligence could very well replace many human jobs, enormously impacting the U. Bureau of Economic Analysis. The White House.

Economic Policy Institute. Automotive Parts and Supplies. Congressional Research Service.