Manufacturing Dilemma: China vs. Ohio

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This chapter explores the decision-making process of Fu Yao Glass, a Chinese company, as they contemplate whether to fulfill a new bid from their US factory in Ohio or their established factories in China. From labor arbitrage to production complexities, the chapter offers insights into the trade-offs between using labor and capital in manufacturing processes, particularly focusing on the nuances of automotive glass production.

In today's global economy, what are the factors that go into choosing a production location?

In this episode, Harvard Business School professor Willy Shih draws on his case study about China-based automotive glass maker Fuyao to discuss this core strategic question. The company must decide between two options to fulfill its upcoming contracts: its new Ohio factory or its factory based out of Tianjin, China. Unlike the Ohio factory, the Chinese factory produces below the cost target, but it also incurs extensive shipping costs and requires a far greater amount of inventory holding.

Shih explains how to account for product life cycles and the length of your inventory pipelines when selecting a manufacturing location. He also discusses how to assess other possible risks that could cause delays or increase production costs—like customs delays and labor strikes.

Key episode topics include: strategy, cross-cultural management, global strategy, operations and supply chain management, China, shipping, production planning, inventory pipeline.

HBR On Strategy curates the best case studies and conversations with the world’s top business and management experts, to help you unlock new ways of doing business. New episodes every week.

· Listen to the original HBR Cold Call episode: China-based Fuyao Glass Considers Manufacturing in the U.S. (2020)

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