Economic Incentives And Global Competition Essay

2265 words - 10 pages

Economic Incentives and Global Competition
Florida Institute of Technology
MGT 5100

The primary goal of state and municipal governments offering economic incentives was intended to encourage job creation. Because global competition facing U.S. companies has progressively increased over the years, domestic companies have been faced with two primary options in order to remain competitive; move their operations to lower labor cost regions outside of the United States or invest in technologies that lessened the necessity for expensive labor within the U.S., in which both would result in reductions in jobs and earnings within states and municipalities. Job retention became the primary focus ...view middle of the document...

One of the most important reasons for a company to outsource is to reduce operating costs and increase profits. There are many economists that would argue that outsourcing is good for the economy, claiming that it is just another form of free trade, which increases wealth in the economy (Otterman, 2004). In general, free trade makes it so that countries are better off when they focus on areas in which they have a comparative advantage. Those areas are usually the ones that have the lowest opportunity costs of production. Globalizing also helps with suppliers. The growth that overseas expansion creates makes it so that many businesses are able to purchase supplies in large quantities. This allows a firm to have stronger leverage when negotiating prices with its suppliers. Now while reducing operating costs and increasing profits sounds good, there are some disadvantages to outsourcing as well. Offshoring has become a popular yet controversial means for trying to reduce costs. Offshoring is a means of relocating a business activity to a different country. Several American companies have closed down operations locally in lieu of creating new operations in other countries like China and India because they offer cheaper labor. While offshoring can reduce a firm’s costs of doing business, the job losses in the firm’s home country can upset local communities. Many US companies are discovering that offshoring is not providing the benefits they were expecting. In essence, the jobs that had been sent overseas are returning home. To piggy back off of that, keep in mind that by outsourcing, a company is turning over part of the operations of the business to another company; also tying itself to the financial well-being of that company. So, if the outsourcing service provider ends up having to close its facility, the parent company would then have to quickly transition to a new service provider or buy the process back, which a lot of US companies have done. It’s pretty risky I’d say. There are some instances where the quality provided by workers overseas is not good enough. Language barriers can become a disadvantage along with that. Some services require calls to be made to handle customer issues. If a company is located overseas with foreign-speaking employees, it’s often hard to understand what their employees are saying, which frustrates the person on the opposite end of the call and sometimes complicates the process of resolving issues. Another disadvantage to outsourcing is that if companies outsource all of their work, management can’t fully monitor the work of the employees, mainly because of their location. Management needs to be involved. And while the cost of research and development projects is ever increasing, it seems fair for top management to consider whether there is a benefit to advance outsourcing. Education plays a roll of its own in the realm of outsourcing. Let’s say a company decides to outsource a position that a...

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