In , U. In Mexico, the three U. The ability of the Japanese to manufacture in the United States raises serious questions about the rationale American companies use for going offshore. In particular, if the Japanese can manufacture in the United States and still be competitive, why do U.
More important, if U. Third and last, Japanese companies have managed to stay competitive over the years without resorting to offshore manufacturing. They stayed world-class competitors by investing in automatic wire-bonding machines and by using flexible manufacturing.
In the early s, while U. The few Japanese companies that chose to go offshore did so either to supply their export markets or, more commonly, to get around trade restrictions. Japanese textile companies went to Asia in the s, for example, to avoid OMAs orderly marketing agreements imposed on exports of apparel to the United States and Europe.
Similarly, Sanyo, Sony, and Hitachi have been moving manufacturing and assembly operations to Mexico to circumvent U. They planned to do so by upgrading their products, incorporating greater value added, and minimizing costs.
Nearly three-fourths of the companies expected to replace or had already replaced outside subcontracting with internal production. This behavior is in sharp contrast to that of American companies in the early s when the dollar was strong. Offshore manufacturing is not, then, the only option available to companies under competitive siege. It is, in fact, a poor option for many organizations. Managers should know that offshore manufacturing is not all roses and labor savings.
They should know that there are some powerful reasons not to go offshore. The savings can cost a lot. Granted, companies can often save money on labor and materials by purchasing or manufacturing overseas, but other costs—some not so obvious—may well offset the gains. Offshore sourcing usually involves larger inventories, for example, and higher administrative costs. Parts made overseas are less likely to meet specifications, so quality costs may be higher.
It takes longer to get supplies from an offshore location, so companies operating abroad are slower to respond to changing market demands.
That too has its price. In , some big U. These costs may seem obvious, but companies rarely take them into account when making the offshore manufacturing decision. Other costs are less direct.
Shifting some production operations overseas may prevent the company from exploiting economies of scale at home as well as abroad. The implications can be especially grave during a recession. Going offshore can also cause underutilization of existing manufacturing capacity and, ultimately, plant closings and layoffs.
Finally, companies that move outside the United States may lose valuable customers, who may switch to other U. Italian chip maker Dynamit Nobel Silicon is among the foreign companies that opened a factory in the United States to be closer to its American customers. On the surface, looking for low-wage sites for manufacturing is a logical way to reduce total production costs. But workers in less developed countries tend to be less productive than Americans, so a straight comparison of wages gives an inaccurate reading of the potential savings.
Worse, in most businesses, direct labor is no longer a significant portion of total costs. The wage savings are therefore unlikely to have a big impact overall. In some cases, they are offset by higher transportation costs alone.
The semiconductor industry has split into two market segments: commodity and semicustom. But a business cannot design in a vacuum. It cannot exploit new technologies if it has no chance to apply them. The fact is, design and manufacturing are linked. Moving engineering offshore along with manufacturing is not a solution; it just accelerates the process. When companies do that, they give potential competitors not only finances and managerial expertise but also engineering skills.
The U. Assembly of color TVs soon followed black and white, and manufacturing followed assembly. By , not one U.
Many people contend that the move offshore dispossessed U. The semiconductor industry has fallen into the same trap. Americans have all but given up on the production of high-volume semiconductors such as 64K RAM chips.
But memory chips are the cornerstone of semiconductor technology. Looking to expand your business to other countries? There are many benefits of taking your business to the international level, specifically in countries like China , Brazil, and Mexico. Moving your business to another country allows you access to markets previously untapped outside the United States.
Now you can get in on the ground floor, becoming a brand that the country trusts. Get that edge you deserve by catching them off-guard. Undertake market research to find out which countries are best for you to accomplish this. In China, the most popular markets are jewelry, fashion, beauty accessories and vitamins.
That may not be so in other countries. Do your research! You can realize big corporate tax savings when you funnel profits through overseas countries who may boast more lenient tax policies for businesses than the United States. Corporate taxes in Bermuda , for example, are at zero percent, which can be a very attractive option when faced with paying higher rates here. It just makes good business sense to move to another country with a much lower tax rate. Fewer regulations: Being compliant with environmental laws, safety protocols and labor codes is a pricey business; operating abroad can dramatically reduce such headaches for companies since OSHA, the EPA and other government entities have no jurisdiction beyond the U.
But there is no way to argue against the allure of such a steep tax savings, which motivates many companies to look beyond the American horizon for greener tax pastures. Perception: When Burger King shifted to Canada, it was perceived by many as an act of betrayal — highly unpatriotic.
But staying favorable in America is critical for global success. Cost: After things are running well, savings may come, but getting there is costly when opening new operations, learning relevant tax codes and even greasing all the bureaucratic wheels that must turn before such enterprises can get going. Political situations can drastically impact business outcomes. Go to market before your competitors do.
Expanding abroad allows you to get out of a saturated market. Expanding abroad gives you access to new customers and in a market where your competitors do not operate. One of the reasons why businesses expand globally is to be able to provide a reliable service to their international clients. A good global reputation will attract new customers. Expanding abroad allows a company to build name brand recognition and establish credibility internationally. By setting up in a new country, a business will be able to lower their operational costs and save money.
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