We Are Paying the Price for Outsourcing Manufacturing

Last Updated Aug 18, 2009 12:43 PM EDT

Decades ago we began to outsource our manufacturing of consumer goods to countries such as Japan, Korea, and China. After all, manufacturing was industrial age stuff, very low value in America's high tech, information economy.

Turns out we were wrong. And we are now paying the price in a diminished capability to innovate.

The link between manufacturing and innovation is not well understood, argues Harvard Business School professor Gary Pisano, who coauthored Restoring America's Competitiveness in the current Harvard Business Review.

"Manufacturing and R&D are much harder to separate than we commonly suppose," Pisano says in this HBR podcast. "Very often there is a lot of innovation that has to happen in the manufacturing process."
In other words we learn as we build -- critical knowledge we lose as a country when we turn manufacturing over to others.

Power Up
Case in point. The U.S. can make alternative energy vehicles such as the upcoming Chevy Volt, but not a key component: the battery. Turns out that countries such as Korea, which built many of our consumer electronic products for us, also became in the process quite expert at making batteries that are smaller and lighter -- expertise and innovation that today is in great demand. Little of that capability resides in the U.S.

The article argues for new investment by government and business to redevelop our manufacturing smarts.

"Restoring the ability of enterprises to develop and manufacture high-tech products in America is the only way the country can hope to pay down its enormous deficits and raise its citizens' standard of living."
What do you think of this idea? If you were President Obama would you begin an investment program in high-tech manufacturing?

(Chevy Volt image by rockershirt, CC 2.0)

  • Sean Silverthorne

    Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

    Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.