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U.S. Companies Reshoring Operations Back Home

American business executives are reconsidering their overseas operations and realizing that outsourcing may not be the best option.

2011 Directory
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Reconsidering Outsourcing
Here are three top reasons U.S. companies are rethinking their overseas operations:

Unrealized Cost Savings - Cheap labor remains a top factor companies outsource overseas. While the United States cannot compete with the low working wages for unskilled labor in some countries, a growing number of American workers with a wide variety of education and job skills are ready to work. Companies that require an educated or skilled work force may be better served by American labor.

Furthermore, cheap labor alone should not drive a company's decision to locate overseas, as more companies realize that overall operating costs of doing business in foreign countries are not lower. For instance, rising shipping and transportation costs can make outsourcing cost-prohibitive, particularly if a company has a high volume, lower priced item. Others may find unanticipated expenditures, such as added security in certain parts of Mexico that are experiencing drug trafficking violence. When companies consider all of their operating costs, they may find that they are not actually saving money.

Quality/Reliability Issues - Companies with production overseas can be vulnerable to quality control issues, as foreign countries do not have the same standards as the United States. In terms of reliability, these companies struggle with producing and shipping products on time. China experiences rolling power blackouts that hinder production and delivery timelines. Increased quality control and the management of unreliable fulfillment dates negatively affect the company's bottom line.

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Consumer Perception - Companies that uproot U.S. operations and move jobs to other countries have never been met with favor on the home front. Companies that do so in today's depressed economy may tarnish their own reputation. When Polaris Industries, an ATV, snowmobile, and motorcycle manufacturer, recently decided to move its Osceola, Wisconsin, plant to Mexico, many customers told the company they would never buy a Polaris product again.

As consumers grow more conscious of where products are made and use their buying power to support American-made goods, more businesses recognize the value of a "Made in the U.S.A." label. Others, like Seesmart LED, attempt to help the U.S. economy and recognize that the benefits of operating stateside offset the meager cost savings of operating overseas.

Outsourcing is not what it used to be. Whether it's an altruistic motive, or realizing the unforeseen costs and downsides of outsourcing, companies with overseas operations should consider how a move back to United States may improve profitability and reputation in the long run.

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