David Teece Predicted the Perils of Outsourcing

Teece’s 1986 piece on profiting from innovation makes the following claim:

“The trend in international business towards what Miles and Snow call “dynamic networks” – characterized by vertical disintegration and contracting – ought thus be viewed with concern. (Business Week, March 3, 1986, has referred to the same phenomenon as the Hollow Corporation.) “Dynamic networks” may not so much reflect innovative organizational forms, but the disassembly of the modern corporation because of deterioration in national capacities, manufacturing in particular, which are complementary to technological innovation.

Dynamic networks may therefore signal not so much the rejuvenation of American enterprise, but its piecemeal demise.

Over 20 years later, Andy Grove, co-founder and former Intel CEO, makes the following claim in a piece about how to bring jobs back to America.

“I believe the answer has to do with a general undervaluing of manufacturing—the idea that as long as “knowledge work” stays in the U.S., it doesn’t matter what happens to factory jobs. It’s not just newspaper commentators who spread this idea. Consider this passage by Princeton University economist Alan S. Blinder: “The TV manufacturing industry really started here, and at one point employed many workers. But as TV sets became ‘just a commodity,’ their production moved offshore to locations with much lower wages. And nowadays the number of television sets manufactured in the U.S. is zero. A failure? No, a success.”

I disagree. Not only did we lose an untold number of jobs, we broke the chain of experience that is so important in technological evolution. As happened with batteries, abandoning today’s “commodity” manufacturing can lock you out of tomorrow’s emerging industry.”

CITES

Teece, D. J. (1986). Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing and Public Policy. Research Policy, 15(6), 285–305. 16/0048-7333(86)90027-2

Grove, A. (2010, July 1). Andy Grove: How America Can Create Jobs. BusinessWeek: Magazine. Retrieved from http://www.businessweek.com/magazine/content/10_28/b4186048358596.htm

Dwoskin, E. (2012, October 18). How to Sell an Airplane in China. BusinessWeek: Politics_and_policy. Retrieved from http://www.businessweek.com/articles/2012-10-18/how-to-sell-an-airplane-in-china

Fishman, C. (2012, December). The Insourcing Boom. The Atlantic. Retrieved from http://www.theatlantic.com/magazine/print/2012/12/the-insourcing-boom/309166/