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SHOULD YOU JUMP ON THE MADE-IN-AMERICA BANDWAGON?
BY HUTCHINSON AND BLOODGOOD | September 2, 2020 | TAX TIPS
 
 
 
 


The "Made in America" label can provide a decisive edge in the current competitive business environment. Notably, advertising homegrown products is likely to appeal to consumers from all walks of life and political affiliations — no small feat in these divisive times.

Here's a closer look at the pros and cons of using this differentiation strategy. 

Potential Upsides
Developing and producing products that qualify for the Made-in-America designation provides numerous benefits. Examples include:

Job creation. Producing homegrown goods creates jobs that the country desperately needs during the COVID-19 pandemic. Plus, consumers typically prefer products that are made in their communities, and some will even pay a premium for American-made goods. This, in turn, can help boost profits — and stimulate the overall economy. 

Reduced delivery costs and lead times. Some U.S. manufacturers have moved production and procurement overseas in recent years to lower direct labor and material costs. However, global shipping expenses and tariffs have been increasing. What's more, the global supply chain has been shown to be less nimble during 2020's volatile market conditions. 

Relying on a local supply and delivery network can help lower costs, improve responsiveness and increase customer satisfaction. Plus, if you work with American supply chain partners, you can eliminate the risk of miscommunication due to differences in language, cultural norms or currency. 

Environmental issuesFor manufacturers, "green" business practices are an important part of being a responsible corporate citizen. International shipping is one of the biggest emitters of greenhouse gases. Producing goods closer to the end user cuts down on long-distance deliveries, which reduces your plant's carbon footprint. Plus, U.S. manufacturers are subject to more stringent environmental regulations than many foreign firms are, leading to more eco-friendly products. 

Quality control and safetyWhen manufacturers produce products domestically, they have greater control over quality. They also exercise more control over safety procedures that protect workers. If a quality or safety issue happens at a nearby plant, you can catch and fix it quickly.

Additionally, certain risk factors may be mitigated by operating solely within the United States. For example, compared to global operations, domestic manufacturers have less risk of intellectual property theft and IRS investigation into foreign sources of income. It's also easier to comply with one country's financial reporting standards, government regulations and tax laws than with the rules of multiple jurisdictions.

Possible Downsides  
Made-in-America may not work for every company or every component of the production process. Some drawbacks to consider when deciding whether to pursue a Made-in-America strategy include:

High direct costs. Labor, tooling and supply costs may be more expensive in the United States, especially for low-tech aspects of the production process that don't require skilled workers. U.S. regulatory costs can also be burdensome. The COVID-19 pandemic has caused widespread financial distress among businesses and consumers. During times of economic stress, customers may be especially price sensitive, and low-cost production may be essential to staying afloat.

Reduced production capabilitiesOverseas manufacturers can often produce goods in larger quantities at a lower cost per unit than domestic manufacturers can. Some foreign producers are also adept at scaling capacity quickly to respond to customer demand — in some cases, overnight. Higher volume production and enhanced scalability help businesses meet market demand. 

What's Right for You?

Deciding whether to produce goods domestically vs. overseas is difficult. To determine the best approach for your business, conduct a comprehensive analysis with assistance from your professional advisors.

What Does It Take to Be "Made in America?"

Before you redesign your packaging to include the American flag or launch a Made-in-America advertising campaign, review the relevant Federal Trade Commission (FTC) standards with your legal advisors. In a nutshell, you can't legally claim that a product is American-made unless final assembly takes place here and the majority of total manufacturing costs are spent on domestic parts and processing. This may require you to consider where your company physically produces goods and which suppliers you use. 

Compliance with these rules is more complicated when a product's components are manufactured in multiple locations. The FTC allows qualified claims when a product is made in several countries. For example, you can spell out clearly the percentage of a product's content that's made in the United States. Or you might use qualified phrases such as an appliance that is "assembled in the USA from imported parts," or a pillow that is "made in China, filled in the USA."

A Made-in-America claim can also be implied. For example, images of an American flag or an outline of a U.S. map may convey domestic origin. The same may be true of a company ad in which a manager describes the "true American quality" of products that come from its factories.

© 2020

 
 
 
 
 

HOW CAN WE HELP?

With the uncertainty of the situation surrounding coronavirus (COVID-19) continuing to evolve, we understand that it is affecting businesses and individuals in many different ways. 

At Hutchinson and Bloodgood, we value the relationships we have built with you. We will continue to be accessible so that we can serve and assist you while providing the level of attention that you deserve.

We will work alongside you throughout this ongoing situation to develop and build the optimal solutions for you.

Please contact us with your questions and concerns.

 
Disclaimer: This material has been prepared for informational purposes only. It is not intended as a substitute for speaking to your accountant, tax planner or financial planner. All information is provided “as is.” With change happening on a daily basis, we do not guarantee completeness, accuracy, timeliness or results obtained from the use of this information.
 
 
 
 
 
 
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