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.
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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.
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Source: Area Development