Wow, the challenges of the world’s economy today!  Amazing— Anyhow, I was at an ISM (Institute of Supply Management) Seminar this week on International Sourcing.  Yes lots of business going to Third world countries.  Nothing new, we have been in this cycle for quite some time.  It was pointed out by the presenter of this program, Ronald C. Day, that foreign sourcing is being reassessed by many companies in the United States.  There are several areas that companies need to focus on to assess the overall benefit of setting up shop in a country outside the USA.

1. Technology—what is the difference between their current country of production and the lower cost alternative?  An example of this would be in the area of proprietary information or processes that may pose problems as many countries have lax laws regarding the protection of intellectual property.  This can also show up as a strong challenge in the technology sector when technology is changing rapidly and needs the discipline and expertise to incorporate these updates into production rapidly.
2. Overall picture—many companies turn to foreign sourcing as their only means of lowering production costs.  This is but a piece of the overall cost of doing business and should be assessed carefully. Labor costs, transportation, Project management, taxes, country politics and laws (or lack of), and other overhead costs should all be taken into consideration.
3. Supply Management Strategy-A steady supply of materials including all the dynamics involved can be extremely complicated and challenging especially when it is on the other side of the world.

A rule of thumb seems to be that if a company can’t realize a profit of more than 20% of the cost of manufacturing within the US, then it may very well not be beneficial in the long run to set up shop overseas.

With the present financial downturn seen in the United States today an upsurge of manufacturing in the US might be just what the US needs to get back on track to help rebuild its economy.