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Design for Location: The Impact of Manufacturing Offshore on Technology Competitiveness in the Optoelectronics Industry

Management Science, Vol. 56, No. 12, pp. 2323-2349

27 Pages Posted: 31 Jan 2010 Last revised: 19 Oct 2013

Erica R.H. Fuchs

Department of Engineering and Public Policy, Carnegie Mellon University

Randolph Kirchain

Materials Systems Laboratory, Massachusetts Institute of Technology

Date Written: January 30, 2010

Abstract

This paper presents a case study of the impact of manufacturing offshore on technology competitiveness in the optoelectronics industry. It examines a critical design/facility location decision being faced by optoelectronic component manufacturers. The paper uses a combination of simulation modeling and empirical data to demonstrate the economic constraints facing these firms. The results show that production location changes the relative production economics of the two competing designs – one emerging, one prevailing – that are currently perfect substitutes for each other on the telecom market, but not necessarily perfect substitutes in other markets in the long term. Specifically, if optoelectronic component firms shift production from the U.S. to countries in developing East Asia, the emerging designs that were developed in the U.S. no longer pay. Production characteristics are different abroad, and the prevailing design can be more cost-effective in developing country production environments.The emerging designs, however, have performance characteristics that may be valuable in the long term to the larger computing market and to pushing forward Moore’s Law. The paper concludes by exploring the dilemma this creates for the optoelectronic component manufacturers, and recommending a framework based on which the results may be generalized to other industries.

Keywords: International, Product Development, Design for Manufacturing

Suggested Citation

Fuchs, Erica R.H. and Kirchain, Randolph, Design for Location: The Impact of Manufacturing Offshore on Technology Competitiveness in the Optoelectronics Industry (January 30, 2010). Management Science, Vol. 56, No. 12, pp. 2323-2349. Available at SSRN: https://ssrn.com/abstract=1545027

Erica Renee Fuchs (Contact Author)

Department of Engineering and Public Policy, Carnegie Mellon University ( email )

Pittsburgh, PA 15213-3890
United States

Randolph Kirchain

Materials Systems Laboratory, Massachusetts Institute of Technology ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

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