Question

1. why would any company choose to locate manufacturing facilities in the U.S., when U.S. companies are fleeing the country?

Take a foreign company that has built a plant in the U.S.   What incentives motivated the company of your choice? What were some of the long-term and short-term benefits of that decision?

Answer 1

The primary reason for a company to open a manufacturing facility in USA might be the proximity to the customer base. The major sectors where the manufacturing has been continuously shifted abroad are the sectors where there is a significant cost arbitrage. For instance, if its cheaper for Apple to assemble its products in China and then transport to USA, then it does not make economic sense to shift the assembly plants to USA. The essential hardwares are anyways produced in countries such Taiwan and South Korea. These countries are able to offer this cost arbitrage due to the economies of scale which they have due to such large markets (China, India, etc.) in their close proximity. In case of vehicles, since the raw materials are majorly imported from China, it makes sense to transport the finished good rather than the raw materials as China also provides the benefit of cheap labour.

Such a company which does not face these issues of cost arbitrage and values proximity to the customers more, will definitely open new manufacturing units in USA.

Another example is the Tesla factories. Tesla has manufacturing plants here in USA as they might not get the needed skilled labour in other places. The reason Tesla plans to start a new plant in China is to be able to compete that market by producing cars at lower cost (eliminating a large chunk of transportation cost).

Vistaprint is a wholly owned subsidiary of Netherlands based company called Cimpress N.V. It produces marketing materials, both physical and digital. It has recently announced opening of a new plant in Dallas, its second in USA.

Long term benefits:

1. Closer to the market - Vistaprint has been growing steadily in USA and thus wanted to increase its presence in USA.

2. It will be in a better position to capture the growth opportunities available in USA.

3. Redundancy - Since the company will have 2 plants in USA, it will provide an option to continue serving its critical clients in case of a natural disaster or any other mishap at any of its plants.

Short Term benefits:

1. Lower transportaion costs.

2. Better client serviceability due to proximity to the customer base.