Huba 1 American companies are continually striving to have the most competitive price for their products. As always, having low prices always comes with a cost some way or another. One way companies lower production costs is by moving production to another country. When companies move production to other countries, many problems can arise. For instance, when a company moves they must lay off hundreds, sometimes even thousands of employees.
In spite of China being a leader in promoting globalization and even the open markets, but it is very difficult to invest businesses in China. This is because there is lack of domestic regulations and transparency which challenges business community. The Chinese may bicker on the restrictions in oil sands investment, lack of infrastructures and restrictions on bids from the enterprises owned by the state. In addition, high-tech sector with inclusion of anti-dumping measures such as steel products are big deals for
This foreign investment method divides the production chain perpendicularly whereby outsourcing some production stages oversea. The fundamental concept of this approach is that a manufacturing system includes at various stages with different input needed. Therefore, if the input costs are varied across the region, it can be able to gain some profits for the company to divide the manufacturing chain (Lipsey, 2003). Vertical FDI divides into two categories know as backward and forward (Figure 1). Regarding backward FDI,
Comparative advantage is having the ability to perform an activity at a lower opportunity cost than another person or business, it’s the fundamental force behind international trade. Globalization is the practice of international trade and production of goods and services to other countries. Globalization is the financial aspect and is associated with the world’s economy. Outsourcing is a practice used by different companies to reduce the costs by transferring portions of work to outside suppliers rather than producing good within. The way Globalization and economic comparative advantage relate to the practice of outsourcing is the benefit of less-developed countries use comparative advantage in labor costs.
In addition, these local companies gain access to technology which is vital to higher growth (Asid and Khalifah, 2016). This economic growth is reflected in an increase of gross domestic product and exports for developing countries such as Africa and East Asia. For example, much of Latin America’s middle income level countries have paired with countries such as China resulting in financial system improvements. (Chen and Emile, 2013). Hence a shift in manufacturing industries is evident due to the attraction of investors to said country.
Without government intervention infant industries will not benefit from low taxes and incentive for exports and will fail to compete in the free trade causing unemployment in the country. Secondly with resource allocation, Chinese government controls the resources based on comparative advantage helping domestic firms to specialize based on cheapest resource available. The availability of the resources increases the output of domestic firms; this will improves the balance of payment of a country because of the increase in value of export compared to the import. Lastly the dynamic mechanism states that growth can be sustained by introduction of new technologies, foreign investments and from imports. The increasing number of foreign direct investment has benefited China in
Globalization is the process of increased interconnectedness among countries most notably in the areas of economics, politics, and culture. McDonald 's in Japan, French films being played in Minneapolis, and the United Nations, are all representations of globalization. The topic of globalization has become a hotly contested debate over the past two decades. In today’s marketplace conducting business internationally is as much of a defensive play as an offensive play. In examining the upside of going global, consider the sheer size of international markets as contrasted with the size of the domestic market and you will likely find that the majority of your potential customers live abroad.
Economical Factors China is seen as one of the most energetic countries in the world when it comes to economic development. The new reforms in 1978 stimulated the Chinese GDP growth from 364 billion RMB to 63.6 trillion RMB within 30 years (chinability.com, 2015). China has persisted to be a primary beneficiary of the world’s destination of Foreign Direct Investment in the latest period. FDI reports 27% of the value added production, 4.1% of national tax revenue, and 58% of foreign trade (usi.edu, 2010). China was facing an economic growth and a huge development, even though the international financial crisis of 2008 left some marks on several aspects of China, above all the export-oriented light industry in southern China (chinapolitik.de, 2009).
International outsourcing is a most common activity in today’s global world because of uneven geographical structures and availability of resources such as raw materials, human resource and financial resource (Hamed, Kara, & Ibbotson. 2014). “International outsourcing is one of the key activities in global manufacturing, where manufacturers or organizations transfer the products and services previously conducted internally, to an external party in another country” (Horgos, Hätönen and Eriksson, Ellram and Billington. Cited in Hamed, Kara, & Ibbotson 2014 pp. 463.). It’s clear that companies outsource their facilities in other countries to reduce cost in order to increase profitability of the
In the case a firm decides to opt for a direct export mode, it can choose to open an office abroad as a way of FDI, in this way the company can organize marketing activities with the aim of supporting distributor's sales, (Terpstra, V. et al. 2012). Authors also argue that another way to create a FDI is by installing a distribution facility, with the aim of storing products in a central place, and later on distribute them to the external markets. This enables to reduce freight costs, to depend less on distributors and to control inventory and to adapt the products to consumers. Furthermore, foreign manufacturing is when a firm produces in a foreign market to supply all consumers; e.g. when the national production is not enough or when the transportation cost is high Terpstra, V. et al.
The final fallacy is based off the traditional concept that in order to export, firms are obligated to sell to foreign countries. In contrast to what is traditionally considered, modern economies dominate global value chains. Each organization adds value to different components of the chain even though a firm is not frankly engaged in the selling process to a foreign buyer as it may be part of the chain that exports. According to the authors the global value chain contains three sets of firms. Tier 1 consists of specialized suppliers for specific parts that rely on tier 2 for components.
As a result of significantly lower production costs in China, compared to those in the United States and the fact that Chinese manufacturers could replicate product designs by hand, forgoing costly machinery compelled Somerset to come up with a new market strategy. This is supported by the reading, “The average labor rate for furniture manufacturing in the United States is between $9 and $20 per hour, whereas the average labor rate for furniture manufacturers in China is $2 per day” (Russell, R.S., & Taylor, B.W., 2014, p. 449). All in all, Somerset was able to create a supply chain that facilitates the transport of raw materials to their Chinese manufacturers who ship the finished product by freight to the U.S, which is stored at Somerset warehouses. From the reading it was understood that Somerset was able to overcome problems by improving productivity, while simultaneously reducing inefficiency. We can conclude that Somerset’s new global supply chain was initially
The Journal of World Business article states there are disintegration-related advantages, location-specific advantages and externalization advantages (Kedia & Mukherjee, 2009). Disintegration-related advantages relate to the advantages that allow a company to focus on its core competencies by offshoring and modularity advantages. They allow the company to focus on innovation. They can do that by reallocating resources which can be benefitted by better quality of services and products. Offshoring a part of a company’s value chain can lead to modularity benefits of greater flexibility, speed and cost reductions.
Globalization is the process regarding an increasing interaction of people, states, or countries through the growth of the international flow of money, ideas, and culture. It can also be tied to business ventures where businesses or other organizations develop international influence or begin functioning on an international scale. The idea of globalization has become very controversial in the United States labor market. There are many pros and cons on how it affects the labor markets. Along with the labor market controversy people also debate over whether globalization is a threat or opportunity to the United States economy.
Globalization is a process of linking the world through many aspects, from the economic to the culture, the political. in different nations. This process uses to describe the changes in society and in the world economy, by creating a linkage and increasing exchange between individuals, organizations or nations in cultural perspective, economics on global scale (Globalization 101, n.d.). A process of creating many opportunities but also causes many challenges for all the nations in the world, particularly for developing countries. There are so many advantages that globalization brings to developing countries like free trade, technology transfer and reducing unemployment.
