global manufacturing – The OM Blog by Heizer, Render, & Munson

OM in the News: India Moves Up the Value Chain

The first trade war, in 2018, helped India rise—and this second one could be transformative, writes The Wall Street Journal (April 19-20, 2025). “Is this India’s moment?” says the CEO of a major Indian electronics supplier. “Yes. But the country still needs improvement on the most important quality for a global supply chain: consistency. ”

With most Chinese exporters cut off for now from U.S. consumers by high tariffs, companies are looking for alternative places to produce and export to the U.S.—adding up to a golden opportunity for India. Global high-tech firms and retailers say India is a harder place to do business than China or Vietnam, owing to government red tape, restive labor groups and an often-punitive approach to compliance and taxation. Vietnam, a country of 100 million people, exports $50 billion more in goods to the U.S. than India, whose population is 1.4 billion.

Smartphones offer an example of what India can do when it puts its mind to it.

But now India wants to emulate what has made China the world’s unparalleled manufacturing powerhouse by offering not just manual assembly of goods but also design, parts and other knowhow. “We are looking at building the entire value chain in India itself,” said a government official.

For the moment, most Indian goods face only the 10% tariff the U.S. has imposed globally, and certain exempted electronics such as iPhones have no tariff. The tariff on most Chinese goods is 145% while those electronics items are subject to a 20% rate.

Apple is already moving to export more iPhones to the U.S. from India, and the country currently accounts for about 20% of iPhone production. A decade ago, when India started focusing on building phones, its annual mobile-phone exports were only $250 million. Now the figure exceeds $22 billion.

A second factory operated by Taiwan’s Foxconn is coming on line this year which will add annual production of 20 million phones, rivaling Foxconn’s first Indian plant. Smartphones are benefiting from the government’s attention and support, including manufacturing subsidies and upgrading its freight terminals to address bottlenecks.

A network of suppliers is also growing up to feed the final assembly. New York state-based Corning, which has long made scratchproof glass for Apple phones, plans to start production in India this year.

Classroom discussion questions:

What is needed in India to match China’s manufacturing prowess?
What other companies have made moves to relocate to India?

OM in the News: China or Mexico?

“We needed to have a near-source option to complement our supply chains out of Asia,” said one U.S. manufacturer. “The supply-chain crisis taught us that it’s crucial to have critical components close to home.”

More and more companies seek to navigate a world of mounting geopolitical and business uncertainty that has exposed weaknesses in far-flung supply chains. For many manufacturers, that has meant returning production closer to home, a push toward nearshoring that is chipping away at the offshoring drive over the past few decades that moved a swath of production from Western countries to low-cost centers in Asia, and most of all to China.

Mexico appears to be ideal for some companies seeking sites outside Asia to make goods more cheaply than in the U.S., reports The Wall Street Journal (April 25, 2023). It has a relatively cheap labor force compared with other North American workers and is a member of a free-trade agreement with the U.S. and Canada, saving the cost of tariffs that are imposed on a raft of imports from Asia. Although the cost of manufacturing in Mexico may be higher than in some parts of Asia, the country also delivers cost savings from shorter shipping distances to U.S. consumers that reduce the need to carry so much inventory. This also offsets the risk of production disruptions and lost sales because of freight delays.

But Mexico also has drawbacks that make factory decisions far from certain. The electrical grid can be unreliable and the lack of locally produced parts and raw materials mean manufacturers still must source components from Asian suppliers. Building up similar ecosystems in Mexico will take years. And physical security is a concern in a country notorious for drug cartels and violent crime.

Although China is losing its share as an exporter to the U.S. of goods such as electronics and apparel to countries like Mexico and Vietnam, it remains the global manufacturing leader. “China’s losing out, but it’s not lost,“ said an industry expert.

China’s advantages go beyond the low-cost production that initially lured manufacturers to the nation. A vast network of suppliers has sprung up since then—companies providing everything from refining commodities for factory production to makers of the inner components of manufactured goods—offering a sprawling ecosystem of businesses for a variety of sectors.

Classroom discussion questions:

Summarize the Mexico vs. China tradeoffs facing American manufacturers.
Figure 8.1 (page 357) lists six KSFs for country location decisions. Compare Mexico and China on each.

OM in the News: European Manufacturers Shift to the U.S.

“A big winner from the energy crisis in Europe: the U.S. economy,” writes The Wall Street Journal (Sept. 22, 2022). Battered by skyrocketing gas prices, companies in Europe that make steel, fertilizer and other feedstocks of economic activity are shifting operations to the U.S., attracted by more stable energy prices and muscular government support.

Steelmaker ArcelorMittal is cutting production at two German plants

As wild swings in energy prices and persistent supply-chain troubles threaten Europe with what could be a new era of deindustrialization, the U.S. has unveiled a raft of incentives for manufacturing and green energy. The upshot is a playing field increasingly tilted in the U.S.’s favor, particularly for companies placing bets on projects to make chemicals, batteries and other energy-intensive products. “It’s a no-brainer to go and do that in the U.S.,” says the CEO of Amsterdam-based chemical firm OCI NV, which just announced an expansion of an ammonia plant in Texas.

While the U.S. economy is facing record inflation, supply-chain bottlenecks and fears of a slowdown, it has emerged relatively strong from the pandemic as China continues to enforce Covid lockdowns and Europe is destabilized by war. New spending by the U.S. on infrastructure, microchips and green-energy projects has heightened the U.S.’s business appeal.

Danish jewelry company Pandora and German auto maker VW announced U.S. expansions earlier this year, while Tesla is pausing its plans to make battery cells in Germany as it looks at qualifying for tax credits in the U.S. And Luxembourg-based ArcelorMittal said it would cut production at two German plants after reporting better-than-expected performance in its Texas facility that makes a raw material for steel production.

Europe remains a desirable market for advanced manufacturing and boasts a skilled industrial workforce. Many companies that have seen exploding energy prices in recent months have passed them on to customers. The question is “how long can that last?” The continent could face high prices, at least for gas, well into 2024, threatening to make the scarring on Europe’s manufacturing sector permanent. European manufacturers may struggle to stay competitive without the lower energy prices or green incentives currently offered in the U.S.

Classroom discussion questions:

If you were an operations manager at a European manufacturer, what would be your 2023 strategy?
Is the U.S. advantage temporary?

OM in the News: Bringing Supply Chains Home

Large U.S. companies are increasingly talking up bringing workforces and supply chains back home—known as “reshoring,” reports The Wall Street Journal (July 26, 2022) “Companies’ mentions of reshoring skyrocketed recently amid supply chain challenges and we believe the 2020s will mark the beginning of de-globalization,” writes Bank of America. Executives have been using the buzzwords onshoring, reshoring or nearshoring at a greater clip this year than they did in early in the pandemic.

It’s the latest sign that companies are looking to move away from the globalized supply chains that have boosted profits and productivity for decades as worries about shipping delays and increased costs have changed the equation. The new focus on reshoring, combined with increased spending on capital expenditures, suggests many companies could be looking to replace overseas workers with technology rather than U.S.-based workers. Companies in the S&P 500, led by industrial firms, are increasing capital expenditures by 24% from the year prior year.

The construction of new manufacturing facilities in the US has soared 116% over the past year. There are massive chip factories going up in Phoenix. Intel is building two just outside the city. Taiwan Semiconductor Manufacturing is constructing one in it. And aluminum and steel plants that are being erected across the south, including in Alabama (Novelis); Arkansas (US Steel); and Kentucky (Nucor).

The tight labor market also points to companies’ need to automate. Historically, high wage inflation has led to increased labor productivity (i.e. automation) on a lagged basis. The pandemic and Ukraine war have demonstrated the vulnerabilities of global interdependence. They all point to the same thing — a major re-assessment of supply chains in the wake of port bottlenecks, parts shortages and skyrocketing shipping costs that have wreaked havoc on corporate budgets in the US and across the globe.

“Globalization is in retreat,” writes UK-based Barclays. “Governments and firms are examining connections to minimize exposure to possible causes of economic damage and social turmoil.” Barclays also found that large companies are recruiting more in their home countries, and that cross-border M&A activity has been cooling.

Classroom discussion questions:

What problems do firms face in bringing their manufacturing home?
Why is reshoring becoming a hot topic in OM?

OM in the News: The Battle for Chip Manufacturers

A Taiwan-based company plans to build a $5 billion factory in Texas to make silicon wafers used in semiconductors, but the deal hinges on financial incentives bogged down in Congress.

GlobalWafers said its planned factory in would be the first U.S. silicon wafer-facility in more than two decades and create as many as 1,500 jobs, as well as helping fuel the expansion of the U.S. chip-making industry. But the firm said the plant will require financial incentives included in the Chips Act, which is aimed at increasing chip production in the U.S. “If the Chips Act is not passed, we have to pivot to South Korea, as costs there would be substantially less,” said the CEO. (The Chips Act would provide $52 billion to build up the U.S. semiconductor industry).

South Korea, Japan and members of the E.U. are all offering hefty subsidies to ensure stable supplies of chips that power consumer, industrial and military products amid a global shortage, reports The Wall Street Journal (June 27, 2022).

The GlobalWafers plant in Texas would contribute to a U.S. effort to boost domestic production of advanced semiconductors and reduce reliance on imports by supplying materials to companies such as Intel and Taiwan Semiconductor (TMSC). These leading semiconductor manufacturers have pledged significant investments in new U.S. factories to make chips to meet strong demand, and to relieve shortages that have disrupted production of a range of products, including automobiles.

Silicon wafers made by TSMC, which is among the leading semiconductor manufacturers that have pledged significant investments in new U.S. factories

The existing U.S. manufacturing capacity of silicon wafers will be able to supply only 20% of the estimated domestic demand by 2025, and the wafers won’t be suitable for some of the advanced chips planned to be manufactured at the new production facilities currently being built by Intel, TSMC and Samsung. Most advanced semiconductors, as well as silicon wafers, are manufactured in Northeast Asia. In 2021, 92% of the world supply of advanced semiconductors came from one company, TSMC.

The U.S. share of the global semiconductor market has fallen to 10%-12% from 40% previously. “In search of cheap labor, we’ve watched a lot of our manufacturing leave our shores,” said the U.S. Commerce Secretary. “As a result, the lack of chip production in the United States is hurting our economy and also our national security.”

Classroom discussion questions:

Why is this an important OM issue?
What might happen if the Chips Act fails to pass Congress?

OM in the News: International Supply Chains May Prove Hard to Break

The supposed rush to reshore global supply chains may end up going nowhere. Those expecting large-scale deglobalization and the return of domestic production for many goods might be disappointed, writes The Wall Street Journal (April 23. 2020), with reports suggesting that global sourcing remains in full force.

Bringing some manufacturing home for medical or security purposes might make sense. Amid the U.S.-China trade war, reshoring was already a major issue of discussion before the coronavirus arrived. American imports of Asian-made goods (as a percentage of domestic manufacturing output) dropped in 2019, falling from a record high to the lowest level in 5 years. But that decline was due to a sharp fall in Chinese imports. Imports from the rest of low-income Asia actually rose, and U.S. manufacturing output was roughly flat.

This isn’t exactly deglobalization. Manufacturing shifting from one country to another as countries grow richer and pivot to higher-value manufacturing isn’t new. Just as China took a greater share of manufacturing once done in S. Korea and Japan, Bangladesh and Vietnam are well placed to take a portion of manufacturing that, for now, is done in China. It is inefficient for wealthy countries to attempt to resume much low-value production currently done abroad, as we point out in Ch. 2’s discussion of the theory of comparative advantage (see p.46).

Even in high-value sectors, a lack of knowledge, experience and competitiveness in niche areas are difficult to surmount. For example, Japan last year restricted exports of smartphone screen components to S. Korea. (Despite Korea’s dominant position in electronics, screens are largely produced in Japan). Manufacturers such as Samsung and LG were left hanging. Korea managed to reduce its Japanese components modestly (from 92% of the total to 85%) by massively expanding imported parts from the U.S., Belgium and Germany.

Ideological commitment to globalization didn’t drive the growth of major value chains in the first place, and its decreased popularity is unlikely to unwind them even with the current pandemic.

Classroom discussion questions:

What risks have operations managers come to discover with outsourcing?
What steps has the U.S. just taken to increase its supply of medical goods which are predominately manufactured in China?

OM in the News: China Is Turning Ethiopia Into a Giant Fashion Factory

“We’ve arrived at a new moment for the global apparel industry,” writes Businessweek (March 5, 2018). Ethiopia, a drought-afflicted, landlocked country of 100 million on the Horn of Africa is transforming itself into the lowest rung on the supply chain that pours out fast fashion and five-for-$12.99 tube socks. Lured by tax incentives, promises of infrastructure investment, and ultracheap labor, countries the Western world once outsourced production to, particularly China and Sri Lanka, are now the middlemen ramping up production here for Guess, Levi’s, H&M, and other labels. These industrialists like Ethiopia because the government wants them as much as they want cheap labor and tax breaks. Since 2014, Ethiopia has opened 4 giant, publicly owned industrial parks; it plans 8 more by 2020.

“The plan is to create a total of 2 million jobs in manufacturing by the end of 2025,” says a government official. “We are an agrarian nation now, but that will change.” The regimented days in factories are unfamiliar to most Ethiopians, though. “They get only 30 minutes for lunch,” one politician says. “Their backs hurt. They are exhausted. Those jobs, they make everyone sick.” Managers, primarily Sri Lankans brought in to impart the efficiencies achieved in their country’s sweatshops, would view this comment as epitomizing one of their main complaints: Ethiopia hasn’t equipped its citizens for the rigors of industry.

Outsourcing to the developing world has allowed Western consumers to ignore or remain oblivious to the environmental damage and working conditions behind the rising sea of inexpensive clothes. PVH, the parent company of Tommy Hilfiger and Calvin Klein, is the sole American manufacturer here. PVH views itself as a “supply chain pioneer,” because it sets out to develop the production capacity it needs and to directly oversee it. “If you believe industrialization is a good thing and raises people up, out of poverty,” says PVH’s Supply Chain Officer, “then the apparel industry has been the trigger in most developing countries.” As to doing business in Ethiopia: “This is no different from China in the late 1980s to 1990s.”

Classroom discussion questions:

What are the advantages and disadvantages of manufacturing in Ethiopia?
What are the main OM issues for a company opening a plant there?

OM in the News: Is Boeing “Partnering for Success” or “Pilfering from Suppliers”?

“So much goes into the development of a commercial aircraft—billions of dollars, millions of work hours, rivers of sweat,” writes Businessweek (Feb. 19, 2018). At Boeing’s rollout of the 777 in 1994, the phrase “working together” was an organizing principle because, said Boeing, “we realized that only by working together as a team—with our customers and suppliers, would we build a truly great airplane.” Boeing extended its embrace of globalism with its next airplane, the 787, introduced in 2011, relying on a far-flung network of suppliers that not only built but also designed many of the parts.

But togetherness goes only so far under new CEO Dennis Muilenburg. Boeing has turned hard-nosed amid the greatest sales boom in aviation history, and he’s insisting suppliers cut prices. This cost initiative is called Partnering for Success; some of its targets call it Pilfering from Suppliers. The initiative demands additional price cuts of about 10%. Says Muilenburg, “it is making our supply chain better, and 90% of our supply chain sees that.”

The company just spent $1 billion to erect the Composite Wing Center. But the first time Boeing developed a composite wing, it hired Mitsubishi to do the engineering and manufacturing in Japan, part of an effort to spread the enormous development costs of the 787 to multiple partners. Work on the fuselage went to Italy and the passenger doors to France.

Boeing had never handed off responsibility to its suppliers on this scale—and it was a disaster. The first plane out of the factory in 2007 was an empty shell, lacking plumbing, wiring, and electronics. Early models were built and rebuilt. An engine exploded, the carbon fiber frame had to be reinforced to support the wings, and an electrical blaze knocked out pilot control panels during a flight test. Battery fires grounded the global fleet soon after the plane was finally delivered, 3 years late. Boeing lost money on the first 500 787s it delivered and vowed to control its suppliers much more closely.

Classroom discussion questions:

Is the supplier cost cutting strategy a good one?
Why is Boeing insourcing more parts?

OM in the News: The City That iPhone Built

Foxconn iPhone workers walk between Zhengzhou Foxconn factories

It was 2010 and the iPhone was coming to a new industrial town on the edge of Zhengzhou, China that would be known as iPhone City. One year later, Foxconn, the manufacturer, said the iPhone factory complex had 100,000 workers. Today, it employs 250,000 at the plant. The company makes 150 million iPhones each year, along with 20 million iPads.

“With Apple embracing outsourced manufacturing in Chinese cities, the iPhone’s success in the decade since it launched has fueled China’s rise at the center of the global electronics supply chain,” writes The Wall Street Journal (July 5, 2017). The explosion of higher-tech manufacturing was encouraged by Beijing as leaders sought to move factories up the value chain from making plastic toys and clothes. That shift transformed the lives of millions of Chinese, bringing jobs but also leading to complaints from workers of repetitive labor, restrictive work rules and poor living conditions.

The move to Zhengzhou followed a spate of suicides in 2010 at Foxconn’s other iPhone factory in Shenzhen, along the coast where wages were higher. “We hold our suppliers to the standard we hold ourselves: They must treat everyone with dignity and respect,” said Apple. Apple said wages and working conditions at its suppliers have improved significantly in the past 5 years.

Like American company towns a century ago—Pullman, Ill., Hershey, Pa., and Henry Ford’s Detroit—iPhone City revolves mainly around a single product, and it depends on that product for its wealth. During last fall’s rush to make the iPhone 7, when Foxconn was short-handed, state-owned coal companies lent workers to Foxconn. In past years, the province issued quotas to local authorities stating how many workers they needed to produce for Foxconn.

Classroom discussion questions:

Why doesn’t Apple manufacture iPhones in the U.S.?
What has China’s government done to assist manufacturers such as Foxconn?

OM in the News: Why GE Builds More Factories Overseas

The GE factory under construction in Marhaura is scheduled to produce 1,000 locomotives for Indian Railways.

GE could hardly have picked a less hospitable spot for its new locomotive factory—but then again, it didn’t have much choice. The land in Marhaura, India regularly floods in the rainy season. The facility required concrete pilings poured 82 feet below ground, on account of earthquakes. When finished, the factory—the centerpiece of a $200 million investment—will sit 600 miles southeast of Delhi in the state of Bihar, a place with a rich history of government corruption scandals.

“To win big contracts, GE is trading a global footprint designed for maximum efficiencies of scale for one that means greater face-to-face exposure in local markets,” writes The Wall Street Journal (June 30, 2017). The remoteness of the Marhaura factory adds cost and complexity to the locomotive project. This is GE in the age of localization—a series of factors that are forcing manufacturers to put down deeper local roots to win business.

Once-impoverished nations such as India, China and Indonesia are becoming economic powers and demanding that companies not just ship them goods, but invest/build locally, teach local workers new skills and share technological know-how. GE has established engineering and research centers in nations such as Poland, Mexico and Qatar, and flexible factories in countries such as Brazil and India, which can easily switch production lines in case political winds or market preferences change.

In 1982, 80% of GE’s revenue came from the U.S. Today, it’s only 30%. Back then, GE operated 135 factories in 25 foreign countries. Now it has 325 plants across 40 countries. Jobs have followed the changes. GE employs 104,000 workers in the U.S., compared 261,000 workers in 1982. In China, GE’s workforce has doubled in the past decade to 22,000.

Classroom discussion questions:

Discuss GE’s decision to locate in Marhaura–plusses and minuses.
What factors should a firm consider in global location decisions?

OM in the News: Chip Makers Plot a Future in the U.S.

Nestled at the foot of Utah’s Wasatch Mountains, the IM Flash plant is a paragon of American high-tech manufacturing. Robots glide along the ceiling, moving silicon wafers the size of dinner plates between hulking machines that deposit and etch microscopic layers of material to build the most advanced memory chips in the world. For the 1,700 technicians and scientists who tend to the robots and troubleshoot problems in the delicate manufacturing process, the jobs offer generous pay and benefits.

For Intel and Micron Technology, the two American companies that jointly own and operate IM Flash, the venture allows both of them to sell cutting-edge, 3-D memory chips while sharing the multibillion-dollar costs of a modern semiconductor factory. In many ways, however, the IM Flash plant is an outlier. “While companies based in the U.S. still dominate chip sales worldwide, only about 13% of the world’s chip manufacturing capacity was in this country in 2015, down from 30% in 1990,” reports The New York Times (Feb. 27, 2017).

“It’s quite a bit more expensive to build a factory in the U.S.,” says Intel. The firm (which also has factories in Ireland, Israel and China) estimates that the extra cost for an American plant is more than $2 billion. Chip makers are hopeful that President Trump, who has promised large corporate tax cuts and a tougher approach to trade with China, will help them. The chip industry spends 1/5 of its revenue on R&D.

Looming in the background is China, which is currently a bit player in the industry but has committed to spend upward of $100 billion to create a world-class chip industry. “China is the largest market for us on the planet,” says an Intel OM exec. “It made sense to locate some production in China.”

Classroom discussion questions:

Why has chip manufacturing declined in the U.S?

2. Why is this a critical industry to retain?

OM in the News: China’s Factories Turn to Robots

A Chinese factory near Shanghai is relying on a new breed of workers to maintain its competitive advantage in assembling electronics devices: small robots designed in Germany. China’s appetite for European-made industrial robots is rapidly growing, as rising wages, a shrinking workforce and cultural changes drive more Chinese businesses to automation. The types of robots favored by Chinese manufacturers are also changing, as automation spreads from heavy industries such as auto manufacturing to those that require more precise, flexible robots capable of handling and assembling smaller products, including consumer electronics and apparel.

“At stake is whether China can retain its dominance in manufacturing,” writes The Wall Street Journal (Aug.17, 2016). The rush to buy robots comes in part because China’s population of workers aged 15 to 59 is starting to shrink, forcing manufacturers to turn to automation. The number of the country’s workers peaked in 2010 at more than 900 million and will fall below 800 million by 2050. In addition, the average hourly labor cost of $14.60 in China’s manufacturing heartland has more than doubled as a percentage of U.S. manufacturing wages, from 30% in 2000 to 64% in 2015.

China, in 2013, became the world’s largest market for industrial robots, surpassing all of Western Europe. In 2015, Chinese manufacturers bought roughly 67,000 robots, about a quarter of global sales, and demand is projected to more than double to 150,000 robots annually by 2018. China originally started adopting automation en masse in response to concerns over the quality of goods manufactured in the country. Now, however, Chinese factories—including those that make consumer goods—are buying robots to fill positions that would otherwise sit empty because of high job turnover rates.

Classroom discussion questions:

How does this impact the U.S. drive to regain manufacturing through automation?
How does automation impact the role of OM managers?

OM in the News: China’s Robot Revolution

Across China’s manufacturing belt, thousands of factories are turning to automation in a government-backed, robot-driven industrial revolution the likes of which the world has never seen. Since 2013, China has bought more industrial robots each year than any other country, including high-tech manufacturing giants Germany, Japan and South Korea. This year, it will overtake Japan to be the world’s biggest operator of industrial robots. “The pace of disruption in China is unique in the history of robots,” writes The Financial Times Magazine (April 28, 2016). And it is changing the face of the global manufacturing industry. In the process, it is raising broader questions: in emerging economies, will robots assume many of the jobs that once pulled hundreds of millions out of poverty?

In recent years, China has been promoting automation as a way to fill the approaching labor gap caused by the “one-child” policy. It has promised generous subsidies to smooth the way for Chinese companies both to use and build robots. In 2014, President Xi Jinping called for a “robot revolution” that would transform first China, and then the world. The march of the machines around the world has been accelerated by sharp falls in the price of industrial robots and a steady increase in their capabilities. The price of robots will drop by 20% over the next decade, while their performance will improve by 5% each year.

The stereotypical image of China’s factories can still be found in many places: tens of thousands of people in long lines hunched over sewing machines or slotting components into a printed circuit board. But that mode of manufacturing is starting to be replaced by partially automated production lines, with human workers interspersed at a few key points. Further, China is developing its own robot makers capable of producing machines that are 20-30% cheaper than those made in Germany and Japan.

Classroom discussion questions:

What are the implications for U.S. manufacturing?
What are the implications for developing nations?

OM in the News: China’s Underwear Cluster

In the Chinese town of Gurao, known as the “Town of Underwear,” there are thousands of factories, which churn out 350 million bras and 430 million pairs of underwear a year for sale in China and abroad. Underwear accounts for 80% of Gurao’s industrial output. During the past 30 years of rapid economic growth, one-industry towns like Gurao sprang up along China’s seaboard, often in what were once paddyfields. With investment from abroad, and a huge influx of migrant labor from China’s interior, they fueled the country’s export boom. There are now more than 500 such towns, making products such as buttons, ties, plastic shoes, car tires, toys, Christmas decorations and toilets (see map).

“The clustering of similar firms in the same place creates a critical mass of good suppliers and workers with relevant skills,” reports The Economist (April 16, 2016). Niche towns in China produce 63% of the world’s shoes, 70% of its eye glasses and 90% of its lamps.

China’s consumer goods grabbed a huge share of global markets thanks to their low prices. But that advantage is fading. Since 2001 wages have risen by 12% a year. Thailand and Vietnam, where labor is cheaper and taxes lower, now make lingerie for global brands such as Victoria’s Secret and La Senza. China’s biggest underwear firm, Regina Miracle, will open 2 factories in Vietnam this year, its first outside China, and 2 more there by 2018. Cambodia and Myanmar are also joining the underwear fray.

Gurao still has advantages, such as excellent supply chains. Factories there make components for underwear: elastic waistbands, dyed textiles, lace and the foam used to upholster bras are all produced locally.

Classroom discussion questions:

What are the advantages of clustering?
Name several industry clusters in the U.S.

OM in the News: Walmart Promises to Buy American

“We are committed to American renewal,” writes Walmart, with the announcement that it will purchase an additional $50 billion in U.S. products by 2023 . The commitment means a cumulative increase in U.S. manufactured purchases of U.S. products of $250 billion. Items that are made, sourced or grown in American already account for about 2/3 of what Walmart spends to buy products for its U.S. stores.

Walmart says that 1 million new U.S. jobs will be created through this initiative, including direct manufacturing job growth of 250,000, and indirect job growth of 750,000 in the support and service sectors. “Purchasing products closer to the point of consumption enables procurement of the best price, highest quality products and the most reliable sourcing of goods,” adds the firm. The effort allows Walmart to respond to the customer faster, respond to seasonal demands, and mitigates risks such as currency and volatility in port delays. Sourcing U.S. goods improves in-stock rates and sales.

Walmart states that Made in USA is important to its customers for 3 reasons:
– Made in USA is a strong driver of purchase decisions – 2nd only to price
– 85% of women said it is important for a retailer to sell Made in USA products
– Products are perceived to have higher quality if U.S. manufactured

Our coauthor, Prof. Chuck Munson, notes: “The most interesting aspect about this to me is that when Sam Walton was there and I lived in Bentonville back in the 1980s, Walmart had a big “Buy America” program. They were very proud about how they helped local business thrive. Then it was abandoned as they starting sourcing so much from China. Now we see them move back in the other direction. As the biggest retailer, their demand can move the bar on U.S. manufacturing jobs. And they are recognizing once again that their customers (many of whom are manufacturing workers) care about this issue.”

Classroom discussion questions:

Why is sourcing in America advantageous to Walmart?
What has Walmart’s impact been on the sustainability movement in the U.S? (see Supp. 5)