Conclusion on
Factories related to the establishment of an industry
Answers
Answer:
To assess the relative role of cost differentials and other factors in global manufacturing, the committee has relied on its members' experience in major multinational corporations, received input from experts in industries not represented on the committee
Explanation:
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Answer:
WHAT ATTRACTS MANUFACTURERS?
Based on its analysis of the onshore/offshore decision-making process, the committee has identified several attributes that attract manufacturers to a given location. These attributes fall roughly into three categories: access to low-costs, access to technologies and capabilities, and access to markets. Depending on how a firm understands costs and cost reduction, there are a variety of attributes that might make a location attractive for a new production facility. The attributes that are attractive
Suggested Citation:"5 CONCLUSION." National Research Council. 1992. Dispelling the Manufacturing Myth: American Factories Can Compete in the Global Marketplace. Washington, DC: The National Academies Press. doi: 10.17226/1890.×
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strictly because they determine the resources a firm must expend to make its product are included under the general heading of “Access to Low-Costs”:
Access to Low Costs
access to reduced factory costs in terms of direct labor rates, materials costs, and load costs that include indirect labor and fringe benefits
access to low transportation costs, duty payments
access to low-costs associated with decreased inventory requirements, a function of defect rates, work in process, and proximity to and relations with customers and suppliers
access to reduced distribution and sales costs
Although low production costs have long been attractive to manufacturers, the need to ensure access to advanced technologies and production capabilities is a relatively new phenomenon. Research and development capabilities have spread broadly around the globe, and no manufacturer can afford to rely Strictly on the domestic market to provide needed technology. Clearly, imports of equipment can ameliorate the need to venture offshore for new technology, but many manufacturers have discovered that timely access to technology often requires a physical presence in the market where it is developed. The same is true for some types of manufacturing capabilities: companies need not only access to advanced equipment but also the opportunity. to access the management and operations practices and knowledge and skills needed for effective utilization of the equipment. Consequently, access to technologies and capabilities is becoming an increasingly important attractor of manufacturers:
Access to Skills, Technology, and Capabilities
access to component technologies
access to design systems
access to process equipment
access to work force skills (management skills, engineers, technicians)
Finally, manufacturers choose sites for production facilities
Suggested Citation:"5 CONCLUSION." National Research Council. 1992. Dispelling the Manufacturing Myth: American Factories Can Compete in the Global Marketplace. Washington, DC: The National Academies Press. doi: 10.17226/1890.×
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as a way to cultivate new markets. This approach to expanding the business (1) offers new sources of revenue, (2) enhances exposure to a new customer base for more timely knowledge of consumer preferences, (3) provides opportunities to preempt competitors' revenue from uncontested markets, and (4) enables the firm to compete directly, in the same environment, against competitors that may have learned to cut costs more efficiently or to add more value to their products. Taking full advantage of these potential benefits sometimes requires building manufacturing facilities in foreign markets. Factors that would affect a decision to move manufacturing offshore to gain access to foreign markets include:
Access to Markets
avoiding import duties, tariffs, and other trade barriers
meeting in-country value-added requirements
closeness to customers and suppliers, better understanding of the market, faster response to the market
benchmarking products and processes against world-class competitors to improve management practices, learn about new technologies, and build skills
All of these attributes are attractive because they fit into a firm's overall strategy for maximizing total business potential (and are reflected in the model on page 14). However, the draw of each attribute is modified by the perceived associated risk—a concern in any site selection decision. By moving manufacturing functions abroad, a firm risks:
Risk Factors
losing expertise in technologies
losing expertise in manufacturing processes
losing management skills
losing control over product quality and development cycles
These risk factors are not always well understood and are typically difficult to quantify, but they need to be a fundamental part of the calculus behind any decision to locate offshore.
Although a huge number of factors affect any site location
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