In their struggle to drive down manufacturing costs, many companies look to relocation overseas as a possible solution. The immediate labor cost savings from such moves can be tempting. But they also involve great risks. Siting a plant at a distance from other functions can damage the vital relationships that sustain an organization's proficiency in those critical, hard-to-develop business processes that deliver value to customers. Though often underrated, geographical proximity is a powerful ingredient in the mix of factors that keeps a company flexible and responsive.

Many plant location decisions are tactical, stop-gap actions which result in short-lived benefits and create facility networks that are unbalanced, inefficient, or ineffective

The transition to global competition in many US manufacturing industries has made deciding on facility locations more complex than ever. Unfortunately, few companies have responded well to this challenge. Many plant location decisions made during the past decade could be characterized as tactical, stop-gap actions which resulted in short-lived benefits and created company facility networks that are unbalanced, inefficient, or ineffective. The financial performance of the plants themselves has frequently been disappointing. Typical management comments include:

"Our savings were significant initially, but wage rates at our overseas plants have risen...