The U.S. competitiveness debate too often devolves into a cry for more Apples and more Ciscos on American shores, when what the country really needs is more Hospiras.

More what?

Hospira is an advanced contract manufacturer. A freelancer, if you will. It’s a private, independent company in the Chicago area that handles biopharma production for a number of partners. Hospira began life when Abbott Laboratories spun off its production division, and it is now the world leader in the production of injectable pharmaceuticals.

The United States pioneered the concept of contract manufacturing organizations in the 1980s when Japan was a fearsome economic power and Western companies were realizing they could no longer rely on the vertically integrated production philosophy that dated to Henry Ford. The idea quickly spread from electronics (Solectron was an early exponent) to automotive (GM spun off Delphi, for example) and biopharma. There are still quite a few CMOs around, but most of the truly successful ones aren’t American. They’re in Singapore, South Korea, Taiwan, Ireland, and even Switzerland.

That imbalance represents a huge missed opportunity for the United States in its attempts to regain global competitiveness.

CMOs do a lot of good. First of all, if you’re working for a start-up it’s great to have nearby access to a company that can manufacture your product. Second, the bigger CMOs tend to have specialized skills and knowledge that can help their partners innovate. Third, they create jobs — really good, high-paying jobs. The growth of CMOs in high-tech fields such as alternative energy and integrated photonics would be a significant boost to the U.S. economy.

And because so many manufacturing plants have closed down in the United States, facilities already exist that CMOs could take advantage of. For example, in biotechnology, a field in which the U.S. is the world leader, productivity improvements have led many companies to mothball their American facilities as production has shifted to Europe and foreign CMOs.

But CMOs tend not to be favored by private investors, because these companies are asset heavy — they need land, buildings, equipment, vehicles, and large illiquid investment in capital equipment. Hence, by definition, they tend to have lower ROA, even if they have significant revenues and very high absolute profits. Investors prefer companies such as Apple and Cisco that are light on assets.

So what’s needed is a policy approach to encouraging the growth of CMOs. First, that means tax incentives. Favorable tax treatment, rather than labor costs or any other factor, is driving American biotech to relocate production in Switzerland, Denmark, or Ireland. In fact, in many other countries, CMOs tend to have close relationships with governments, which provide not just tax incentives but easier ways to service debt and buy capital equipment — valuable benefits for companies that rely on investment in new facilities to the tune of one to five billion dollars a pop.

A policy focus on CMOs would require a new American mind-set, however. In the U.S., “innovation” typically means just one thing to people: novel gadgets. Few policy makers realize that much of the innovation that has propelled China’s economy, for example, is of the incremental or process type. Many of us admire Apple for its originality but tend to forget the importance of its power-supply innovations, all of which were done in China by a Taiwanese company. By shifting much of their production to Asia, Western companies have also offshored critical aspects of innovation. In photonics, offshoring has sometimes prevented U.S. start-ups from developing and using production innovations such as integrated design that could have cemented a U.S. advantage for years to come.

When it comes to process improvements, American companies are stagnating at best, and in many cases slipping backward. Policy makers need to appreciate the value of keeping incremental and process innovation in the United States. Germany certainly did, and its public Fraunhofer Institutions now form the innovation backbone of the world’s most successful exporters.

In a larger sense, many Americans also fail to grasp the true nature of modern production — that it is no longer about individual companies that can do everything, from design to manufacturing. Instead it is a distributed, fragmented universe of interconnected ecosystems. China understands this well. China’s economy consists of multiple pockets of connected companies that meet specialized needs. Apple produces in China because its entire supply chain is there. As this spread-out approach to production continues to grow, it will be important for the United States economy to have parts of these business ecosystems located onshore.

There is much for the United States to feel good about — it still leads the world in creating novel products, and its expertise in certain high-tech fields such as biopharmaceuticals and optoelectronics is so far unchallenged. But in order to translate these advantages into jobs, America must focus its incentives on supporting companies that make products under contract to other firms and excel in process and incremental innovation. These companies don’t have the cachet of Apple and Cisco, but in the long run they will drive prosperity.

This post is part of the HBR Insight Center on American Competitiveness.