The Bad Business Club
Americans have all but given up on the production of high-volume semiconductors such as 64K RAM chips. But memory chips are the cornerstone of semiconductor technology. Because they are a high-volume product, they serve as a testing ground for engineers trying to produce new technologies for other applications and for manufacturers trying to perfect delicate processes.
Moving engineering offshore along with manufacturing is not a solution; it just accelerates the process. When companies do that, they give potential competitors not only finances and managerial expertise but also engineering skills. Offshore manufacturing is not, then, the only option available to companies under competitive siege.
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But managers should question the assumption that it is always right. Chances are, in their eagerness to save money on labor, many companies are giving up more than they bargained for, not the least of which is their future competitive position. Granted, companies can often save money on labor and materials by purchasing or manufacturing overseas, but other costs—some not so obvious—may well offset the gains. Offshore sourcing usually involves larger inventories, for example, and higher administrative costs. Parts made overseas are less likely to meet specifications, so quality costs may be higher. Factor in higher transportation expenses and tariffs, and don’t forget the cost of training foreign workers.