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

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. This 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 United States to countries in developing East Asia, the emerging designs that were developed in the United States 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. This 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.