Introduction
Every company that imports finished goods eventually asks the question: should we make this locally?
The answer is rarely obvious. Local production promises lower duties, faster delivery, and better margins—but it also demands capital, management attention, and capabilities your organization may not have.
When Local Production Makes Sense: The Short Answer
| Factor | Favors Local Production | Favors Importing |
|---|---|---|
| Volume | High and predictable | Low or volatile |
| Import duties | >15% of product value | <10% of product value |
| Freight cost | >8% of product value | <5% of product value |
| Lead time sensitivity | Critical (days matter) | Flexible (weeks acceptable) |
| Product customization | High regional variation | Standardized globally |
| Technical complexity | Low to medium | High specialized processes |
The Real Cost Comparison
Most localization analyses fail because they compare the wrong costs. Calculate the true landed cost of your imported product and compare to true local production cost.
Volume Thresholds: The Breakeven Calculation
Local production has higher fixed costs but lower variable costs than importing. The breakeven volume is where these cross.
Breakeven Volume = Fixed Costs of Local Production / Variable Cost Savings per UnitThe Transition Path
Moving from import to local production is a multi-year journey, not a switch.
- Phase 1: Preparation (6-12 months)
- Phase 2: Setup (6-12 months)
- Phase 3: Pilot Production (3-6 months)
- Phase 4: Scale-Up (6-12 months)
Conclusion
The decision to localize production should be made with clear eyes about both the opportunity and the challenges. Whatever you decide, make the decision based on analysis, not aspiration.