Introduction
AutoEdge decided to outsource manufacturing to a well-known facility in South Korea to maintain a competitive edge in the expanding auto component supply business, due to high labor costs, American restrictions, and increased competition. The choice would benefit AutoEdge over the ensuing couple of years. However, because macroeconomic values in the US and South Korea differ, choosing whether to keep the manufacturing facility in South Korea or move it to the US is crucial. Before becoming familiar with the business’s operations, the new Chief Executive Officer (CEO) will use the information from the study to make decisions that are best for the organization. As a result, macroeconomic variables such as the US and South Korean GDP, unemployment rates, interest rates, and inflation will impact AutoEdge’s future manufacturing potential.
Gross Domestic Product
The total market value of all manufactured products and services generated within a nation’s boundaries during a specific time period is known as the gross domestic product (GDP). The United States’ GDP was $ 22.790 trillion as of September 2022, and the Bureau of Economic Analysis’ most recent data indicates that it will reach $ 22.7900 trillion by the end of 2022 (“United States GDP,” 2022).
Due to the decline in the coronavirus outbreak, the GDP grew by 1.8% in the last quarter of 2021. The US economy saw two years of negative growth following the effects of the COVID-19 infection, and the US economy is seeing a rise in consumer spending, which accounts for two thirds of GDP, grew by 0.35% as of September 2022 as a result of businesses’ opening up as a consequence of the pandemic’s decline (“United States Consumer Spending,” 2022).
On the opposite end of the scale, as of September 2022, South Korea’s current GDP was estimated to reach 1.710 trillion US dollars (“South Korea GDP,” 2022). Because of this, the United States’ GDP value is the highest.
Unemployment Rate
By definition, the unemployment rate is the proportion of the workforce that is qualified but unemployed. One must be a physically fit, non-institutionalized individual at least 16 years old, working, or actively seeking employment to be considered capable of labor. Generally, a percentage is used to describe unemployment, and this proportion fluctuates based on the state of the economy. A strong economy typically results in a lower unemployment rate, while a weak economy tends to have a higher unemployment rate.
U-3 stands for the official unemployment rate of the United States. According to this definition, those who are eager to work and actively seeking employment within the previous four weeks are considered jobless. In September 2022, the US unemployment rate decreased to 3.5%, falling below market expectations of 3.7% (United States Unemployment Rate,” 2022). The unemployment rate has significantly improved, in contrast to the GDP.
Although South Korea’s unemployment rate has been gradually increasing, the country has not experienced a significant impact. The nation’s unemployment rate increased from a historic low of 2.5% in August to 2.8% in September 2022 (South Korea Unemployment Rate,” 2022). South Korea’s unemployed persons decreased from 721,000 in August 2022 to 817,000 in September 2022 (South Korea Unemployed Persons, 2022).
There was no decline in participation exceeding 1% for the labor force or employment rate. Given the additional stimulus the Korean government is providing, which amounts to about 10% of their GDP, it seems improbable that the jobless rate will continue to decline. According to the analysis, it is essential to note that the unemployment rate in the US is higher than in South Korea. With the lack of employment, the circulation of money is reduced, which can affect AutoEdge’s financial performance.
Interest Rate
The Federal Open Market Committee (FOMC) established the federal funds rate as the benchmark interest rate at which financial institutions can lend and borrow each other’s excess reserves overnight. This rate is established eight times a year and is based on indicators of inflation, recessions, and other problems that could influence economic growth. US interest rates have steadily risen to 3.25% since September 2022, driven by the pandemic threat (“United States Fed Funds Rate,” 2022). This was due to the Fed’s decision to increase the federal funds rate by 75 basis points to a range of 3%-3.25% during its September conference (“United States Fed Funds Rate,” 2022). As such, this decision will ensure that the interest rate remains near zero to support the economy during the pandemic.
South Korea is managing the coronavirus pandemic with comparable lower rates than the US. Before the virus changed the economic paradigm, South Korea had recently maintained an interest rate range of 1-2%. However, the Bank of Korea signaled plans to ease interest rates further when it lifted the rate by 50 basis points during its meeting in October (“South Korea Interest Rate,” 2022). Currently, South Korea’s interest rate has been maintained at 3.0%. To help lessen the pandemic’s harmful effects, Korea has lowered interest rates and increased its bond-buying program.
Inflation Rate
Inflation is the rate at which prices of goods and services increase over a given period. The purchasing power of a country’s currency is determined by its inflation rate; the higher the inflation, the less it can purchase. In September 2022, the US inflation rate decreased for the third consecutive month to 8.2% (“United States Inflation Rate,” 2022). The rate has typically been kept between 9.1% and 8.0% over the previous six months, albeit (“United States Inflation Rate,” 2022).
Before the pandemic, South Korea’s inflation started to increase in January 2020, reaching 1.5%, after six months of deflation at -0.4% between August and October (“South Korea Inflation Rate,” 2022). According to “South Korea Inflation Rate” (2022), as of September 2022, the inflation rate was 5.6%, down from 5.7% in the same month the year before. The data presented above shows that the US inflation rate is marginally greater than South Korea’s.
Conclusion
Recessionary patterns brought on by the coronavirus pandemic and post-pandemic mitigations significantly negatively influence the contemporary economies of South Korea and the United States. When deciding whether to continue manufacturing their goods in South Korea or relocate to the United States, AutoEdge has several key considerations to weigh. The two countries’ substantial GDP and unemployment gaps currently represent their most notable differences. With these considerations in mind, and given the current rise in inflation and interest rates, both regions could offer long-term financial advantages.
References
“South Korea GDP.” (2022). Trading Economics. Web.
“South Korea Interest Rate.” (2022). Trading Economics. Web.
“South Korea Unemployed Persons.” (2022). Trading Economics. Web.
“South Korea Unemployment Rate.” (2022). Trading Economics. Web.
“United States Consumer Spending.” (2022). Trading Economics. Web.
“United States Fed Funds Rate.” (2022). Trading Economics. Web.
“United States GDP.” (2022). Trading Economics. Web.
“United States Inflation Rate.” (2022). Trading Economics. Web.
“United States Unemployment Rate.” (2022). Trading Economics. Web.