Essay on Scott Miracle Grow Speader; Make or Buy
Electricity (Energy) Costs
Energy costs are still cheaper in China, by more than half the cost. However, the majority of energy which China uses is from coal plants and not environmentally friendly, more and more companies and US consumers are becoming sensitive to the issue of reducing one’s carbon footprint. Outsourcing based on energy costs is typically not the sole driver. However, if energy cost between China and the US become more competitive, such as in the case of the US using natural gas (i.e.fracking) to supply electricity to their plants the argument to bring manufacturing back to the US may become more compelling.
The cost of overhead or Governance at the Temecula Plant is approximately $5M annually vs. China $500K (excluding $1M in year one for start-up costs) these are costs associated with Scott’s management to monitor, track and visit China to oversee operations.
Due to the uncertainty in the future economic trends, there are three uncertain factors playing important roles in the decision making. They are labor cost in China, electricity price in China