Once a producer recognizes options beyond "domestic" production and international exporting, the multiple dimensions of production location and control decisions yield a complicated set of choices.

Daniels and Radebaugh [1998: 750] define operations management as "the direction and control of the processes that transform inputs into finished goods and services."   This is a much broader concept than that of logistics, the functions involved in acquiring, moving, and storing materials, components, and finished products from procurement and  production stages through distribution.  However, logistics (and analog processes in the production and distribution of services) are an important component in operations management.

The choices involved in global operations management can be organized along three dimensions:  the geographic and the organizational sources of each input and stage in a production process.  The table below relates these dimensions to one another, and provides illustrations of some of the cells.  "Inputs" refers to materials and services that are changed in production (like energy, steel, banking), while "components" refer to sub-assemblies that arrive in near-final form and appear in the finished product. (Note that "design" could be added as a set of three columns, like "inputs," "components," and "final assembly").
 
 

"Offshore" production refers to production located in a country that does not represent a significant market for the product, but rather is chosen because of immobile resources, such as low-wage labor or tax concessions.

The decisions among these multi-dimensional choices relies on:
1) the company's competitive strategy (how does the firm intend to compete in this line of business), along the dimensions of

• cost and price
• quality
• dependability
• flexibility
• innovation

• some raw materials need to be processed or used near their sources, because of transportation costs
• some processes are very labor intensive, and location in a low-wage labor setting reduces costs tremendously
• some processes require specially skilled labor, available in a limited number of locations
• some products must be finalized in the national market, because of
• flexible delivery schedules,
• the requirement that some services be provided at the client's location, or
• perishability

• widely different product characteristics
• trade barriers around the target market

FOREIGN  TRADE  ZONES
Key to the rationale and attraction of a foreign trade zone is the tariff-free importing of goods into the zone.  Until the imported goods leave the zone, there is no import duty to be paid.

• If the producer in the zone uses the imported goods in the zone and then exports the resultant products or components outside the host country, no import duties are ever paid to the country in which the zone resides.  These are sometimes called "export processing zones."
• If the producer in the zone stores the imported goods in the zone and brings them into the rest of the country as needed, import duties are paid only as the goods enter the rest of the country from the zone.
• If the producer in the zone modifies the imported goods (e.g., makes inputs into components, or components into finished products) in the zone and then brings the resultant product into the rest of the country, the applicable tariff is the tariff on that resultant product, not on the imported goods.

The U.S. has established particular tariff arrangements in particular industries that allow electronic components or garment pieces to be exported from the U.S. to an offshore production location, and re-imported as assembled electronic equipment or completed garments -- with a duty paid only on the value added abroad, not on the value of the equipment or garments.  If  the offshore assembly occurs in an export processing zone, then the U.S. producer engages in export, assembly, and re-import, paying tariff only on the value added abroad.

• The U.S. producer uses such provisions to locate labor-intensive assembly in low-wage settings.
• The export-processing-zone host country uses such provisions to increase labor employment.
• The U.S. uses such provisions to reduce the benefit of offshore location of the entire production process.