In September 2010 Suresh Krishna, vice president of operations and integration at Polaris Industries Inc., a manufacturer of all-terrain vehicles, Side-by-Sides, and snowmobiles, needed to recommend a location for a new plant to manufacture the company's Side-by-Side vehicles.

The economic slowdown in the United States had put considerable pressure on Polaris's profits, so the company was considering whether it should follow the lead of other manufacturers and open a facility in a country with lower labor costs. China and Mexico were shortlisted as possible locations for the new factory, which would be the first Polaris manufacturing facility located outside the Midwestern United States. By the end of the year Krishna needed to recommend to the board whether Polaris should build a new plant abroad (near-shored in Mexico or off-shored in China) or continue to manufacture in its American facilities.

1. Why does Polaris outsource the manufacture of most components but in-source final assembly?

2. Which manufacturing location provides Polaris with the greatest cost savings?

3. Would your recommendation change if foreign exchange rates increased or decreased by 15 percent?

4. Assuming all else is constant, would your recommendation change if labor rates in Mexico increased by 20 percent annually instead of 7.1 percent?

5. What other factors should Suresh Krishna and his team consider when making the manufacturing location recommendation?