stdreb27
Active Member
1. Why companies are moving over seas?
2. Is outsourcing really bad for the country as a whole?
As an international Business major and an economics Major, this is a topic that recieved much heated debate in my classes. And good debate either way.
Why companies are moving overseas?
There are several factors boiling back down to one cause, Cost. It has become cheaper to produce a good overseas then ship it back to the USA then to produce the exact same good in the USA. Why you might ask, there are some non-controllable factors such as technology. But the majority of them are socio/political factors.
·Downward Pressure on Prices
·Cost of Labor
·Cost associated with Government regulation
·Cost associated with Green Movement
·Taxes
In today’s American market we are ever more price conscience. The most successful retail models no longer focus on service but on cost control. The American people, you, me, and your neighbor shop for the lowest price with little regard for service provided along with the product. We no longer by durable products, but disposable ones. If something breaks we no longer go to a repair shop and have it repaired but toss it and go buy a new one. The market (being you and me) has evolved into a place where price is the deciding factor in a purchase. Thus to be competitive in our quazi-capitalistic markets, manufacturers and retailers are forced to minimize costs. From new logistical strategies, lower quality goods to labor we are seeing costs cut everywhere. This phenomenon has lead to increasing pressure to lower costs.
Today in the USA we have a high cost of labor compared to many non-industrialized labor. Fortunately we are the most productive work force on the planet, but many companies still feel that this is not worth the higher costs associated with our labor force. Lets face it there are some companies that have set up systems due to their own bureaucracy or unions have overpaid for manufacturing jobs. When someone is paid $70,000 dollars to assemble a TV, or companies pay workers who are no longer producing, we are going to have a market failure (controls in the market don’t work no matter who imposes them). And this is what you are seeing in places like Michigan. It is hard to compete with someone from China who is willing to do the work for a fraction of the price. (Now at this point you can go argue about the fairness of the difference in wages, but that is an entirely different subject with a multitude of different views and whole books have been written on the subject. But lets keep in mind which party granted China the Most Favored Nation Status which basically eliminated all barriers of trade with China)
In addition to having to deal to compete with workers willing to work for pennies on the dollar, companies also have to jump through all kinds of government regulations regarding labor, the environment, possibly government mandated healthcare, corporate taxes. This all adds to the cost of the product that you pick up off the shelves. And the ever price conscience American consumer is forcing companies to lower costs in an attempt to lower prices.
Looking at the whole picture it outsourcing may be good for the consumer. There is little argument within the economic community that prices would be higher with purely American made products. Today if you do find an American made product it usually comes at a premium. But lower prices that have resulted from lower costs, of foreign made goods dollar goes farther. The real question is does the cost associated with outsourcing, (pockets of now unemployed workers) outweigh the distributed savings that we experience with foreign made products. Using economic models it does.
2. Is outsourcing really bad for the country as a whole?
As an international Business major and an economics Major, this is a topic that recieved much heated debate in my classes. And good debate either way.
Why companies are moving overseas?
There are several factors boiling back down to one cause, Cost. It has become cheaper to produce a good overseas then ship it back to the USA then to produce the exact same good in the USA. Why you might ask, there are some non-controllable factors such as technology. But the majority of them are socio/political factors.
·Downward Pressure on Prices
·Cost of Labor
·Cost associated with Government regulation
·Cost associated with Green Movement
·Taxes
In today’s American market we are ever more price conscience. The most successful retail models no longer focus on service but on cost control. The American people, you, me, and your neighbor shop for the lowest price with little regard for service provided along with the product. We no longer by durable products, but disposable ones. If something breaks we no longer go to a repair shop and have it repaired but toss it and go buy a new one. The market (being you and me) has evolved into a place where price is the deciding factor in a purchase. Thus to be competitive in our quazi-capitalistic markets, manufacturers and retailers are forced to minimize costs. From new logistical strategies, lower quality goods to labor we are seeing costs cut everywhere. This phenomenon has lead to increasing pressure to lower costs.
Today in the USA we have a high cost of labor compared to many non-industrialized labor. Fortunately we are the most productive work force on the planet, but many companies still feel that this is not worth the higher costs associated with our labor force. Lets face it there are some companies that have set up systems due to their own bureaucracy or unions have overpaid for manufacturing jobs. When someone is paid $70,000 dollars to assemble a TV, or companies pay workers who are no longer producing, we are going to have a market failure (controls in the market don’t work no matter who imposes them). And this is what you are seeing in places like Michigan. It is hard to compete with someone from China who is willing to do the work for a fraction of the price. (Now at this point you can go argue about the fairness of the difference in wages, but that is an entirely different subject with a multitude of different views and whole books have been written on the subject. But lets keep in mind which party granted China the Most Favored Nation Status which basically eliminated all barriers of trade with China)
In addition to having to deal to compete with workers willing to work for pennies on the dollar, companies also have to jump through all kinds of government regulations regarding labor, the environment, possibly government mandated healthcare, corporate taxes. This all adds to the cost of the product that you pick up off the shelves. And the ever price conscience American consumer is forcing companies to lower costs in an attempt to lower prices.
Looking at the whole picture it outsourcing may be good for the consumer. There is little argument within the economic community that prices would be higher with purely American made products. Today if you do find an American made product it usually comes at a premium. But lower prices that have resulted from lower costs, of foreign made goods dollar goes farther. The real question is does the cost associated with outsourcing, (pockets of now unemployed workers) outweigh the distributed savings that we experience with foreign made products. Using economic models it does.
