You're the manufacturing director at an appliance maker in Monterrey. A distant country offers wages a fraction of yours, and the board wants to move all production there to capture the wage gap. But comparative advantage isn't measured by the headline wage: it's measured by total landed cost —logistics, tariffs, defects, lead times, inventory. Whirlpool learned that globalizing well means deciding which activity goes where, not chasing the cheapest wage.
The situation
The logic of comparative advantage says: produce where the relative cost is lowest. But the headline wage is only part of the cost. The total landed cost adds logistics, tariffs, quality defects, long lead times, in-transit inventory, and intellectual-property risk. The farther away and more complex the product, the more those hidden costs weigh —and they can wipe out the wage savings entirely.
Here's the trap tempting your board. "The wage is a fraction, let's move it all" looks at the headline gap and forgets that hidden costs grow with distance and the volume offshored. The answer is neither offshoring everything (hidden costs eat the savings) nor keeping everything at home (you give up the real comparative advantage). It's sourcing by total landed cost: send offshore the labor-intensive, low-value part —where the wage gap truly dominates— and keep what's capital-intensive, IP-sensitive, or fast-cycle where it's relatively better. Each activity where it truly belongs.