Chapter-Opening Case: TruckLabs

You are about to read a short case exploring the strategy of TruckLabs, a company producing products designed to increase the efficiency of long-haul trucks. Capitalizing on low-cost labor, TruckLabs initially developed manufacturing operations that included parts produced in China and Taiwan. Later, as the companys costs rose because of a shrinking wage gap and tariffs imposed on products imported from China, TruckLabs switched to a more domestic-oriented supply chain.

You will be asked to answer questions linking your knowledge from the chapter to the situation in the case. The goal of this activity is to demonstrate your understanding of globalization and how globalization creates opportunities for companies as well as challenges. This activity is important because managers must be able to identify and capitalize on the opportunities presented by globalization and take steps to minimize the disadvantages of globalization.

Read the case and answer the questions that follow.

Back in 2015, Daniel Burrows started TruckLabs in a garage. He was still in graduate school, getting his MBA from Stanford University, and funds were limited. Burrows' idea was to develop vertical panels that would automatically deploy at highway speeds, sealing the gap between the tractor and the trailer. This would significantly improve truck aerodynamics and save fuel costs. The product, which goes by the name of TruckWings, soon garnered interest from trucking companies. However, Burrows was faced with another problem: where should he source the various component parts from?

Like many companies over the last four decades, TruckLabs decided to set up its manufacturing operations in the Far East with an eye toward minimizing costs. Aluminum mounts were made in Taiwan. Pneumatic airflow systems, electronics, and wire harnesses were made in China. Much of the decision on where to locate these various activities was driven by lower labor costs. In addition, TruckLabs and their U.S. suppliers struggled to find good manufacturing technicians in the United States. The U.S. unemployment rate was very low, and the necessary supply of skilled labor wasn't there. Thus, it made sense to outsource these activities to other nations where skilled labor was in more abundant supply. Low tariffs on goods traded among the United States, China, and Taiwan, along with efficient shipping, also made the outsourcing decision logical.

At the same time, TruckLabs kept some key operations in Silicon Valley in the United States. These included advanced research, software, firmware, and cybersecurity. These activities were core to TruckLabs competitive advantage. TruckLabs did not want to give away any advantage it might have by outsourcing them. Moreover, the requisite skilled labor for these activities, such as software engineers, was available in Silicon Valley. Marketing and sales were also located in the United States.

By configuring its value creation activities in this manner, TruckLabs was following a well-worn path that many companies have taken in recent decades as globalization accelerated. Encouraged by lower barriers to cross-border trade and investment, fast communications, and efficient transoceanic transportation systems, large numbers of enterprises have outsourced many of their value creation activities to different locations around the globe where those activities could be performed most efficiently and effectively. This lowered costs and helped companies compete in a highly competitive global marketplace.

However, in 2017, there was a significant shift in the environment. Donald Trump had been elected President of the United States. Trump believed that outsourcing the production of goods to countries like China was tantamount to exporting jobs and created problems for the United States. In an attempt to bring production back to the United States, Trump imposed a 25 percent tariff on many imports from China, raising their cost. In truth, things had already started to shift before Trump's election. Labor costs in China had been rising as the country continued its rapid economic development. The cost advantage of producing in China was already diminishing prior to 2017. Trump's tariff raising brought this into sharper focus. As Burrows noted, "Tariffs made it very hard to operate and did a lot of damage. We didn't have the margin to suddenly spend 25% more."

TruckLabs responded by starting to move production back to the United States. Burrows did consider shifting production to other low-cost countries, such as Bangladesh and Vietnam, but he came to the realization that deciding where to produce and assemble the panels was more than a matter of comparing labor costs. Materials costs, shipping costs, operational complexities, the skills of local labor, and the risks of business disruption also factored into the decision. Moreover, since most of TruckLabs' customers were in North America, Burrows reasoned that bringing production back to North America could save time and money associated with shipping and clearing parts through customs and would enable TruckLabs to respond more quickly to customer demands.

When the COVID-19 pandemic hit in early 2020, and supply chains faltered as nations entered a lockdown, the value of moving production back home was increased. By late 2020, TruckLabs had moved 60 percent of its overseas production back to the United States. The company now works with parts suppliers in Ohio, Pennsylvania, and Arizona, and it assembles many of its TruckWings units at a site in North Carolina. According to Burrows, reshoring some activities has lowered costs for component parts by 10 to 20 percent and reduced lead times from 8 weeks to 4 weeks, which has enabled the company to fulfill customer orders more rapidly. The advantages come not just from avoiding tariffs on imports, but also from higher automation among the company's U.S. suppliers, which offsets the somewhat high labor costs of American workers. All this being said, whether these advantages will persist if the import tariffs imposed by Trump are lowered by a new Administration remains to be seen.

Sources: D. Burrows, "Why we are reshoring our manufacturing: A CEO's view," Industry Week, November 3, 2020; M. Braga, "American manufacturers pine for home as COVID disruptions, Trump tariffs shake up supplies," USA Today, December 18, 2020; S. Tengler, "Beyond Tesla's Gigafactory: Why some auto jobs are moving back to North America," Forbes, August 25, 2020.

Question:

Which was an important factor contributing to TruckLabs ability to set up a global supply chain?

Multiple Choice

A. the option to export jobs

B. rising labor costs in China

C. the limited availability of skilled labor in Taiwan

D. the shrinking wage gap

E. Low barriers to trade and investment