But the news isn’t all good for those fighting the growth in offshoring. Application of the operations footprint metrics to back-office “knowledge” work explains the heavy push by many companies to outsource call centers, accounting, and software development to India. Telecommunication costs, which continue to fall, are the services equivalent of transportation costs for a manufactured product. And such work is largely labor intensive rather than capital intensive, so developing regions offer a significant cost advantage.
Even manufacturers that can gain an advantage in time and transportation costs from local production must still strive for productivity improvements in order to remain competitive.
The history of steel production in the United States over the last 20 years is a sobering harbinger for other domestic industries struggling to stay globally competitive: Investing in new process and product technologies and continuously improving productivity remain entry stakes into the game. No industry or company can sit on its laurels, or be too narrow in its decision making, if it is to succeed in today’s global economy.
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Tim Laseter (email@example.com) is the author of Balanced Sourcing: Cooperation and Competition in Supplier Relationships (Jossey-Bass, 1998) and serves on the operations faculty at the Darden Graduate School of Business Administration at the University of Virginia. Formerly a vice president with Booz Allen Hamilton, he has 20 years of experience in supply chain management and operations strategy.
Deb Chatterjee and David Eakes, students at the Darden Graduate School of Business Administration at the University of Virginia, provided research assistance for this article.