Published by:
Harvard Business Publishing
Length: 7 pages
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Abstract
Some U.S. companies have moved manufacturing operations overseas to take advantage of lower wage rates, defending the practice as the only way to stay competitive. For many companies, offshore manufacturing is a poor option for gaining competitiveness. It involves extra transportation, communication, and paperwork; these costs can offset any potential savings. Also, when direct labor is a small percentage of total costs, as it is for much of manufacturing, labor savings are less critical to the bottom line. The only sure way to get more competitive is to strengthen the business as a whole.
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Abstract
Some U.S. companies have moved manufacturing operations overseas to take advantage of lower wage rates, defending the practice as the only way to stay competitive. For many companies, offshore manufacturing is a poor option for gaining competitiveness. It involves extra transportation, communication, and paperwork; these costs can offset any potential savings. Also, when direct labor is a small percentage of total costs, as it is for much of manufacturing, labor savings are less critical to the bottom line. The only sure way to get more competitive is to strengthen the business as a whole.