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Manufacturing: Here, There, Or Everywhere?

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Your article may have identified a tip-of-the-iceberg phenomenon. Unfortunately, in this trend, the tax treatment will be the lever to stimulate more onshore manufacturing.

EDITOR-NOTE:

The author replies: The question of manufacturing in America is extremely complex and does not lend itself to easy answers. However, many of the critics here seemed to overlook the basic, strategic reasons why small, entrepreneurial companies should maintain a strong domestic manufacturing base.

Mr. Wakentin, for instance, extols the financial advantages for smaller companies contracting with offshore producers. Although often true in the short run, the evidence of recent years suggests that if the U.S. company fails to develop its own manufacturing prowess, it will fall prey to companies -- typically Japanese or such U.S. producers as IBM -- capable not only of designing good products, but of making them as well.

Mr. Warkentin also claims that it is safe to work with a purely contract-basis manufacturer that does not have its own product line. But, in fact, many Japanese companies originally did much of their work on an original equipment manufacturer basis for companies in the United States, only to emerge later as fierce international competitors.

I think Mr. McClure is misinterpreting the strategy of such companies as IBM and Hewlett-Packard in using offshore production. While they do maintain large offshore facilities, they do so not as a replacement for domestic sources, but as a complement to them, and a means of effectively penetrating such Asian markets as Japan. This is drastically different from a plan in which U.S. production is almost totally supplanted by facilities in the Far East. It is this form of offshore strategy, essentially giving up domestic control of the manufacturing function, that was the main source of the problems discussed in the article.

A key point that Mr. Wasserman seems to have missed about the Japanese strategy for offshore manufacturing is that while some production, particularly for export, has been shifted offshore, Japanese companies generally keep the bulk of their manufacturing facilities -- and advanced production technology -- at home. This is true even in such established product lines as televisions and radios, in which Japanese electronics companies have remained world leaders.

I certainly agree with Mr. Wasserman's criticism of Business Week's story on U.S. competitiveness. The story indicated that offshore production may provide the only out for American manufacturers. To me, that reflects the kind of comfortable, conventional wisdom that, in offering executives the path of least resistance, paves the road for their companies' long-term economic decline.

Joel Kotin

Last updated: Jun 1, 1985




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