The term "nearshoring" is becoming more common in manufacturing circles as U.S. companies seek the benefits of low-cost labor without extending their supply chains overseas.
Polaris Industries Inc. is one of the latest manufacturers that has announced plans to take advantage of Mexico's lower labor costs and proximity to its customers. Polaris will sell or close its Osceola, Wis., operations and move some of the plant's production to Mexico as part of a realignment effort.
The company is considering several locations in the Monterrey, Mexico, area for the new facility, which is expected to begin operating in the first half of 2011, Polaris said in a May 20 statement.
The Osceola plant employs 515 full-time workers who will have an opportunity to apply for jobs at the other Polaris facilities. Polaris is in negotiations with several suppliers that may continue some operations in the facility.
At A Glance
Polaris Industries Inc.
Primary Industry: Railcars, Ships & Other Transportation Equipment
Number of Employees: 3,000
2008 In Review
Revenue: $1.95 billion
Profit Margin: 6.03%
Sales Turnover: 2.59
Inventory Turnover: 6.82
Revenue Growth: 9.45%
Return On Assets: 15.25%
Return On Equity: 67.87%
The realignment will allow the company to focus on investments in painting, welding and assembly operations by outsourcing certain non-core functions, the company said.
The move also will bring the company closer to emerging markets in Latin and South America and the southern half of the United States, said CEO Scott Wine in a conference call on May 21. The company's power sports business has changed significantly over the years, with 40% of Polaris' ATV and side-by-side products customer base located in the southern U.S., Wine said.
The ATV and side-by-side businesses account for two-thirds of the company's total sales.
At the same time competitors have gained an advantage by moving to low-cost areas and closer to their customers, said Wine during the conference call. Some Osceola manufacturing processes will be moved into the company's Roseau, Minn., and Spirit Lake, Iowa, plants, as well as the new Mexico facility.
The realignment will begin immediately and is expected to be completed in 2012.
The moves are part of a larger goal to be a $3 billion, 8% net-income margin company by 2014, Wine said. By shifting some production to Mexico, the company will achieve a significant labor and material logistics savings, according to Wine.
The company expects to incur pretax transition charges of $20 million to $25 million and capital expenditures up to $35 million over the next few years related to the realignment.