In The Innovator's Solution 1, Christensen and Raynor suggest ways for a company to avoid losing to a smaller, but faster moving competitor that achieves success by following a process that the bigger business rejected as too small or too inadequate.
Although it is focused on companies within the US, their analysis explains why some are moving manufacturing from the United States to China. The analysis also suggests what American companies that remain in the US will do. It does not offer any hope for those who wish the overseas movement did not occur.
In their focus on domestic action, Christensen and Raynor suggest that most companies fail to innovate by moving down market. These companies middle managers do not pass on suggestions to people higher up that involve diverting resources from current customers. The managers understand that they have gained success by satisfying their current customers. In any event, a manager realizes that whatever is new must start small, which means the solution will neither reward the manager, at least not in any form that fits his current life, nor provide a big lift for the company.
Consequently, most companies support their customers and devote resources to improving what they sell them.
The only way for a company to succeed with an endeavor that goes against its existing mainstream culture and business methods is to set up a new organization that is separate from the old and to make sure that that organization has different business values, different rewards for success, and different goals.
Movement to China provides a way for a company to achieve this without consciously figuring out the mechanism.
The cost of building a factory is more or less the same in the US as in China. The cost of transport is higher because goods must cross the Pacific Ocean. The cost of energy is higher, too. However, the cost of labor is lower, as is the cost of land on which to build the factory (at least in many places). (From a business point of view, the lower cost for land reflects worse pollution and more corruption as well as higher energy and transportation costs.)
Clearly, an operation sited in China must be separate from one sited in the US. Similarly, the rewards for bringing a new factory on line in China must be different from those for keeping an old factory running in the US. Goals must be different.
Moreover, the quality of the product may be less — `more plastic, less wood' — but not so much less that the product will not sell to what may well be new customers.
The alternative is to sell a higher-priced product. This can be done. Generally, however, for people to be willing to pay more, a company must offer more customized product. This action, which is often called `micro-production', means the loss of the economies of scale of mass production. Leaving aside the possibilities of von Neumann machines and other technological dreams, moving up is the only action currently available.
It goes without saying that if the price of transportation, energy, or location changes dramatically, the equation shifts. For example, if China becomes less stable politically, the cost of location goes up because no one knows what will happen. Events like this may happen, but they are not likely to give hope to those Americans who wished to stop an overseas movement: the costs would be very high.
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