It would be great if a multinational corporation could run as mindfully and simply as an independent Mom and Pop. That’s the ideal the starters of those companies envisioned when they first started building. The fact is, however, that multi-national corporations cannot run as simply and as mindfully as an independent local company. There are just too many details to oversee.
Outsourcing often gets a bad reputation. It is associated with the idea of shipping American jobs overseas and pictures of children being forced to work in dangerous sweatshops. Sure, there are a few companies that operate that way, we won’t deny that. There are plenty, however, that do their best to run their companies fairly and treat their employees (of all levels) well.
To do that, CEOs take the following conditions under consideration when deciding where and how to expand their businesses:
Supply Chain Management
One of the reasons that many companies outsource is because other countries are more likely to have fully realized supply chains in place. For example, according to NAPS, experts in Mexico manufacturing, many automotive companies choose to center their manufacturing in Central Mexico because complementary companies that help complete the supply chain are setting up there as well.
The easier it is for a company to access the supplies it needs to make their products, the cheaper those products will be for consumers. These manufacturing supply centers aren’t as common in the US–many domestic companies would be forced to either import their supplies (which is a much different process than when you mail a letter overseas at the post office) or send the product out to different specialists to complete the manufacturing process.
The United States is a highly regulatory country. And, while nobody is going to dispute that regulation is needed to keep quality standards high and to protect citizens from harm, keeping up with regulation creep is expensive and time consuming. There is an entire industry within the US dedicated to developing the tools and processes necessary to help manufacturers more easily meet all of these regulations, but it’s simply not growing quickly enough. While it grows, manufacturers save money and time by making and importing their products from countries that aren’t as strict or as involved with the process.
This doesn’t mean that all manufacturers are making terrible products or are purposeful polluters! It could be something like one country allows a specific type of waste removal/storage that the US does not. And, sometimes those companies offer an environment in which they do less harm than they would do manufacturing everything domestically.
Cost of Living Vs. Cost of Goods
There is a pervasive stereotype surrounding the manufacturing industry. It says that companies outsource because they don’t want to pay their workers a living wage. A lot of attention is paid to how little multinational corporations pay their workers. What this argument leaves out is the cost of living in the country providing the workforce and supplies. The average consumer hears that someone is working in a factory for “a few dollars a day” and feel horrified. The fact is that, a “few dollars a day” here in the United States might equate to a perfectly livable wage in the outsourced countries. Remember: exchange rates and the cost of living are rarely 1:1.
That exchange rate is also important when considering the cost of manufacturing the products. The various supplies needed to build that product can be found at far lower prices overseas than they can be found here at home.
Taking advantage of these exchange rates and different costs of living is, from a CEO’s perspective, the best way to do business. Why? Because it allows them to sell their products for a fraction of what they would have to charge if their entire workforce and supply chain were domestic. And there is more that plays into that equation than an employee’s salary. The rate of income in the US is not rising as quickly as the cost of goods.
Manufacturing products 100% domestically will only ensure that nobody can afford to buy anything, which would put those companies out of business. It’s a snowball effect that nobody wants.