How did U.S. manufacturers become vulnerable to offshore outsourcing? Give examples to support your answers.
Wall Street demanded continuous increases in profits of publicly traded companies. Many of these companies found that they could outsource a lot of their manufacturing to low-wage countries and get nearly the same quality as before.
Examples? Check clothing, automobile, and high-tech companies.
U.S. manufacturers became vulnerable to offshore outsourcing mainly due to several factors. Here are some explanations and examples to support this:
1. Cost competitiveness: One of the primary reasons for offshore outsourcing is the lower cost of production in other countries. U.S. manufacturers, facing higher labor costs and operating expenses, sought to reduce costs by moving production to countries with lower wages and cheaper resources. For example, in the early 2000s, many U.S. clothing manufacturers outsourced their production to countries like China, India, and Bangladesh, where labor costs were significantly lower.
2. Globalization and trade policies: The reduction in trade barriers and the advent of globalization allowed manufacturers to seek opportunities in new markets. Trade policies, such as free trade agreements, made it easier for companies to establish operations in foreign countries. The North American Free Trade Agreement (NAFTA), for instance, contributed to increased outsourcing of manufacturing jobs to Mexico.
3. Technological advancements: Advances in transportation and communication technology made it more feasible and cost-effective to coordinate production across long distances. This enabled manufacturers to outsource different parts of the production process to various locations globally. A classic example is the electronics industry, where U.S. manufacturers often outsource assembly and component production to countries like China, Taiwan, or Vietnam.
4. Access to new markets: Offshore outsourcing also allowed U.S. manufacturers to enter new markets and cater to local demands. By establishing production facilities closer to target markets, companies gained a competitive advantage in terms of reduced shipping costs and faster response times. For example, automobile manufacturers like General Motors and Ford have established plants in Mexico to serve the Latin American market more efficiently.
5. Competitive pressures: The increasing global competition forced U.S. manufacturers to continuously seek cost efficiencies to remain competitive. If a company could not find a way to reduce costs through outsourcing, it risked losing market share to competitors who did. An example is the technology industry, where companies like Apple and Dell have outsourced their manufacturing to contract manufacturers in countries like China, allowing them to offer competitively priced products.
It's important to note that these factors are not exhaustive, and other circumstances, such as tax incentives, regulatory environment, and access to specific expertise, can also influence a company's decision to outsource manufacturing.