Quiz 16: International Institutions From a Business Perspective
This Global Gauntlet explores "Is Offshore Outsourcing Ending Its Run?" Outsourcing is rapidly changing from low-cost products assembled by unskilled labor in third world countries to more highly skilled professional jobs and services that have traditionally been located in high cost countries. This serves as a starting point for discussion, stimulated by asking such questions as, "What factors will determine if manufacturing will remain or return to high-cost countries?" and "What are the implications on economic prosperity and job creation in these countries?"
Case Summary: The biggest manufacturer of clothes in the US, Balagny Clothing Company Inc. makes all types of apparels for men, women, and children and different varieties like casuals, denim, skirts, sweaters, jackets etc. The strategy of Balagny is to achieve low cost and it constantly works on achieving low cost, but Balagny has stopped all its domestic production of increasing labor cost and starts outsourcing its production from the country C. The cost incurred in C is less than in the US (as the labor in C is available at low cost) and it gives more profits to the company. It took two years to complete the transition and the company is ready to enjoy the benefits. The company gives all the control to the overseas company. The production was delivered in four batches and the company gives an order of 4 months in advance. When business slowed down the company did not refuse the shipments nor reduce the production rate. Another problem the company face is the delay in delivery due to transportation, however, the company planned two weeks prior to the delivery but the company had foreseen the delay due to formalities of custom on the port of LA. It increases the holding cost of the company. Also, customers are complaining about the quality and fitness of products. By considering this all, the CEO of the company called the urgent meeting of top managers and try to find the ways of solving this problem. They take the decision to set a wholly owned subsidiary in M. The specific case found is 'Outsourcing'. It is an agreement between two companies from which one company hires company of another country to manufactures goods and services on their behalf. It is done because of the following reasons: 1. Sometimes they are unable to find the products locally so they look in other countries globally to get the product. 2. Also, the products available locally are available at a high cost but it is available at cheaper cost in foreign countries. So, the company purchase from foreign suppliers. 3. When the companies found that in local the product is available at low quality or obsolete and it is available with high quality and latest technology, the company purchase from outside.
The commercial activities that cross national borders are known as international business. The goods, services, technology, personnel etc. all are moved from one country to another and also to many countries and vice versa. This movement is known as import and export in layman language. It is generally done through various modes of entry like licensing, franchising etc. Following recent development have made supply chain management important to international companies: 1. Now the business is not limited to domestic country, it has expended globally and increase competition in the global market. 2. It manages all the operations like (material handling, finance, supply etc. 3. It improves in lowering the overall cost of operations. 4. It also improves the quality of the product.