This case tests candidates' ability to evaluate a strategic offshoring decision by analyzing quantitative cost-benefit data (Exhibit 1), qualitative customer preferences (Exhibit 2), and infrastructure investment requirements (Exhibit 3). The key challenge is recognizing that while the financials support offshoring ($6M annual savings with 4-year breakeven), significant execution risks and potential quality/brand implications could undermine the decision.
Local Co. is a clothing company based in Los Angeles, California. Known for beachy chic sandals, t-shirts, and beach accessories, Local Co. management prides itself on its American roots. In fact, all products are designed and made in America with the softest fabrics sourced from all over the world.
However, Local Co. is experiencing some headwinds. Commodity prices are rising which can put pressure on margins and profitability. While Local Co. could raise prices, they want to keep Local Co. prices attainable for their average customer. Thus, Local Co is considering ways to decrease manufacturing costs.
Local Co. is currently considering off-shoring clothing manufacturing to South America, should they? In addition, what factors should they consider as they make this decision?