I see many business plans during the course of a year. Recently I have noticed that fewer and fewer business plans are for manufacturing businesses. Even those plans that involve making a product indicate that more and more entrepreneurs plan to subcontract the manufacturing of a product rather than make the product themselves.

Many of the products we purchase every day are not manufactured by the company whose name is on the product. Major companies whose names you have probably never heard of manufacture the products that well-known companies sell. For example, Flextronics manufactures some products that sell under the Hewlett-Packard brand. Flextronics has manufacturing plants in Latin America and Asia that can produce products substantially more cheaply than they can be made in the United States. Similarly, manufacturing in China is growing at incredible rates, primarily because products can be made so much more cheaply there than in developed countries.

Manufacturing in the United States has shrunk from 26 percent of jobs to less than 10 percent of jobs since 1952. Which begs the question: Should we be concerned about the loss of domestic manufacturing? Should entrepreneurs try to manufacture their products in the United States even when it would be so much less expensive to subcontract the manufacturing to a plant in China?

Of course the first principal of strategy is to focus on your "core competence." Entrepreneurs must determine what part of the product or service they do better than anyone else. Often that is design and marketing, not manufacturing. In such cases, it makes sense to subcontract that part of the value-added structure to someone who has a core competence in manufacturing and does it better than you. But as in most business issues, there are advantages and disadvantages that must be considered.

Evidence suggests that governments should not try to block the trend by imposing tariffs, quotas or other restrictions on free trade. A recent World Bank report ("Globalization, Growth and Poverty") indicates that, over time, countries that allow free trade grow substantially faster than those that try to block free trade. Indeed, the countries that tried to protect local jobs by blocking free trade had negative economic growth, greater unemployment, falling tax revenues, falling standards of living and increasing poverty over long periods of time.

Of course, trade restrictions help save some jobs in the short run, but statistics show that in the long run more people are hurt than those who benefit from restrictions.

The issue for individual entrepreneurs is more complex. In many cases, Chinese factories may offer dramatic savings. For example, not only is Chinese labor significantly less expensive, but there are also savings in quality control, accounting and other costs that are not part of the direct manufacturing cost.

However, some companies have discovered that inconsistent quality, intellectual property rights issues and transportation problems outweigh the lower production cost of foreign manufacturing. Companies that have been successful using this approach have had to carefully coordinate with their foreign partner.

Consequently, entrepreneurs should look at the advantages of subcontracting without ignoring the risks.