Outsourcing refers to the action of a company to contract out its operations. Companies usually embark on this activity for various reasons. The foremost reason is to reduce the cost (Eltschinger, 2007).
Therefore, before venturing in any business operation, it is crucial to examine the threats as well the profits allied with it. Therefore, this document majorly analyzes the economic factors that might affect any company from U.S. planning to conduct such a venture.
The U.S. Company desiring to outsource its operations to china for purposes of cost cutback ought to look into factors likely to affect the product pricing. Amongst the key advantages, accompanying outsourcing to china include the unquestionable dimensions of the workforce. Additionally, their workforce has high skills required for the chore accomplishment.
The availability of the large size of proficient workers highly reduces the labor costs (Eltschinger, 2007). Therefore, the outsourced company benefit from competitive recompenses due to reduced prices for the goods.
Economists argue that, companies undertaking their production activities in china are imposing devastation on U.S. companies, because of the high competition resulting from good quality and lower pricing of its goods (Eltschinger, 2007).
Additionally, workers in China show much dedication, hard work, keenness when learning and have prowess of fulfilling the customer’s requests. Therefore, outsourcing to China provides surety as well as the worthiness. This is due to fewer costs that China demands for a successful completion of the operation.
Additionally, China is yet to experience inflation thus its capacity to recompense workers with ease in comparison to those in the U.S. (Eltschinger, 2007). Furthermore, the company ought to utilize the china’s telecommunication and business infrastructure that has tremendously developed thus the low costs. In varied countries, such resources are expensive; I therefore, recommend the company to contract out to China.
Secondly, the move for the idea of contracting out to china is economically viable because of the high technical expertise portrayed by its workforce, which is relatively cheap (Marcher & Mowery, 2008). Correspondingly, China has various highly trained engineers as well as electrical experts. In production, the second stage after mass production is to ensure that engineers manage the production process successfully.
If the company outsources production to china, it positions itself at a level of producing high valued goods at reduced expenses (Marcher & Mowery, 2008). Consequently, the company would enjoy a competitive edge in the markets, because of the customer’s tendency of preferring the cheaper and quality goods.
Furthermore, if the company is to outsource its production to china, it will prosper in any market situation whether oligopoly, monopoly or in a perfect competition because product prices drive all these market situations.
In analyzing the demand curve for pricing in an Oligopolistic market for example, basic hypothesis is that a competitor will pursue the price reduction though it will not make adjustments in response to the price increase. This means, the contracted out company will control prices in the markets since it will be in a position to offer the lowest possible price for the product (Jackson, 2008).
In conclusion, it is advisable for the company to pursue its outsourcing move, as this will bring benefits to both the exterior as well as the internal dealings of the company. The company will attain the capability goods at lower costs because of the cheap labor usually readily available in china. In addition, it will be capable to produce goods of higher quality and at a lower cost because of the many highly skilled engineers in China.
References
Eltschinger, C. (2007). Source code China: the new global hub of IT outsourcing. Hoboken, NJ: John Wiley and Sons.
Jackson, J. (2008). Energy budgets at risk (EBaR): A risk management approach to energy purchase and efficiency choices. Hoboken, NJ: Wiley and Sons.
Marcher, J. & Mowery, D. (2008). Innovation in global industries: U.S. firms competing in a new world: collected studies. Washington, D.C: National Academies Press.