specialreport
BY MATT JACKSON AND MATT HIGHFIELD
When picking a location for an overseas
plant, companies sometimes neglect to
factor in the foreign enterprise income tax.
That could be a costly mistake.
The tax factor
in global site selection
INTERNATIONAL SITE SELECTION FOR MANUFACTURING
plants is a complex proposition. Companies that are seeking to
build or lease manufacturing facilities across borders need to
investigate many factors to ensure that they make location decisions with the appropriate level of rigor, accuracy, and, ultimately, confidence.
One of the most important site selection factors—one that
sometimes is not fully considered—is the foreign enterprise income
tax. This is a corporate income tax that a company is required to pay to
federal, state/provincial, and local governments based on the level of taxable income it has generated in a country.
In our experience, it is important for international manufacturers to take a holistic approach
that considers both before- and after-tax profit when assessing the merits of potential plant locations. There are good reasons to do so. For one thing, direct-investment projects by manufacturing companies, especially those that produce high-margin products, commonly result in a large
amount of taxable income and a potentially significant tax liability in the country in which they
establish operations. For another, the answer to the question of which is the best location for an
investment can differ depending on tax factors.
FRAMING LOCATION TRADE-OFFS
Any company that is seeking to establish international manufacturing operations must carefully
weigh the impact of operating cost inputs that will affect the project’s financial performance.
Examples include labor, transportation, logistics, utility costs, land costs, taxes, and so forth.
Performance measures vary depending on the organization, but they often include return on
invested capital (ROIC), the project’s impact on earnings per share, and pre- and post-tax cost per
This story first appeared in the Quarter 1/2010 edition of CSCMP’s Supply Chain Quarterly, a journal of thought leadership for the supply
chain management profession and a sister publication to AGiLE Business Media’s DC VELOCITY. Readers can obtain a subscription by joining
the Council of Supply Chain Management Professionals (whose membership dues include the Quarterly’s subscription fee). Subscriptions are
also available to non-members for $89 a year. For more information, visit www.SupplyChainQuarterly.com.
