Overseas Manufacturing Costs Drive Business Home

Written by Tamara Monosoff of Entrepreneur.com

During the past year, the economy has changed dramatically. As gas prices go up and the value of the dollar falls, your spending habits and decisions as a consumer and an entrepreneur change. Among them is the decision of where to manufacture. While this decision has been relatively easy in recent years for many young or start-up companies -- based on the low cost of producing goods overseas -- the global economic changes in the past year have propelled many companies to reconsider manufacturing at home in the U.S.

China has been a popular choice for manufacturing in recent years, mainly because of the low cost of labor and materials. Even with greater shipping costs, the low labor costs still made it worthwhile and far more profitable for many companies to manufacture overseas.

While people are not likely to stop producing goods overseas, the cost gap is shrinking. With the rising cost of oil, freight and shipping costs have gone up dramatically. Production costs, as well, have risen, based on petroleum used in both raw materials and in the manufacturing process. While labor costs still remain significantly lower overseas, the rising cost of shipping from China is quickly eroding that advantage. And the falling dollar isn't helping matters.

If you're already producing goods overseas, you've undoubtedly felt the pinch in recent months (or the punch, as some entrepreneurs would contend). Prices you haven't necessarily projected are driving up the per-unit cost of your goods, and your retailers aren't necessarily sympathetic or ready to raise their prices to preserve your profit margins as their customers are looking to save money. The result is significantly lower profit margins that make business more challenging.