If you think the key to profitability is to outsource or locate operations overseas, think again. While many growing U.S. companies have sought greener pastures outside the nation's borders over the past couple of decades, the tide is turning. An increasing number of businesses are now looking to bring jobs back to the United States.
Several factors are driving this sea change, from rising shipping and transportation costs to quality control issues to a desire among U.S. companies with overseas operations to do their part in rebuilding the hurting economy at home.
When given the choice, most U.S.-based companies that outsource overseas would choose to move operations back home if it made financial sense to do so. Once business leaders learn that there are U.S. locations with qualified and affordable labor, low taxes, and attractive economic incentives, they are often eager to explore their options to relocate back to the United States.
At Ecodev, we are seeing a number of small- to mid-sized manufacturers rethinking their overseas operations and questioning the financial incentives that lured them there in the first place. One Minnesota manufacturer that produces its products in China recently decided to move a production facility back to the United States. It expects an approximately 25 percent savings on the overall cost of each item due to cost savings of shipping and transportation. And California-based Seesmart LED, which makes light-emitting-diode (LED) light bulbs in China, is scouting U.S. production locations. Its executives say that when they consider all costs, the difference to produce its product in the United States is insignificant, and they would prefer to create jobs here.
For small- to mid-sized businesses with overseas operations, the time is right to examine overall operating expenses and determine if these facilities are financially viable, or if a return to the United States better suits long-term growth.
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.
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.