Sunday, August 27, 2006

Made in... [please insert country of choice]

An interesting article in the paper today, the short version of which was this:

Some companies today have to balance two things:

  • The potential cost savings (and deliverable price advantage that results) by having goods manufactured (or services provided - depending on the business) in cheaper markets (i.e. made in china).
  • The potential resistance/backlash of customers who prefer their product built in the USA, be it for reasons of protectionism/nationalism, or for belief in higher quality.

The article went on to outline a couple companies that chose to address this by offering their customers a choice. The examples given included a medical supply company (made in USA, or made in Mexico - the latter being 25% cheaper) and a company preparing tax returns (American accountant or Indian, the latter being 15% cheaper). With the exception of the tax example, most examples were business to business, and not to consumer, but that's beside the point.

It's an interesting approach, but I'm not sure it's a winning one. Hedging bets is always safer, but the risk is that if either of those approaches is the winner, then a competitor that had all their eggs in that particular basket will be ahead.

It's also not applicable to all businesses, as headaches like SKU managment, inventory, customer support, etc, could be difficult to manage.

However, one can sure imagine interesting control experiments coming out of it, and ones that protectionists wouldn't like.

Imagine you had your choice of Ford Mustangs. One made in Detroit, one made in China or Mexico, with the latter being, say, 15% cheaper. How many would opt for the higher priced one? Would they be tested by Car & Driver separately? What if the cheaper one ended up with better test results?

A more feasible example: "Welcome to technical support. Press (1) to talk to an underpaid high school grad wishing they were elsewhere, or press (2) to speak to an representative with flawless English and who considers this her dream job.


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