If a company is considering switching production to a country where wage costs are lower, to what other factors will it need to take into account before doing so?
1.- If a company is considering switching production to a country where wage costs are lower, to what other factors will it need to take into account before doing so?Research has shown that the overall number one reason and motive for switching production to other countries is to reduce costs. In markets with limits in product differentiation price competition is more important, as well as being able to offer almost identical products at lower price. This has typically been the case with consumer products. A number of studies have also identified quality and availability as critical aspects (Cho & Kang, 2000)Switching production to a lower wage country appears to be a good strategy for firms seeking to control its costs. An organisation would need to compare the labour cost per unit produced compared to the existing location, also it is important to see if the workers are productive at the new location. Firms would face problems such as training costs, distribution costs and even more taxes.
There are both positive and negative aspects included in Global sourcing. It can lead to improved competitive advantage through lower costs and better geographical availability. The risks comprise that firms could get into problems with transportations, technology, confidential information leaking out, and that the cost reductions may not be as great as expected (Worthington and Britton, 2006). Further, firms may meet problems as transportation problems, technological and capacity weaknesses in production, and lack of management systems. Additionally, features such as languages barriers, customs and trade regulations are some of the factors that a firm would need to consider before moving its production to another country. The transportation and logistics networks are perhaps not as reliable as in the home country, which may cause unexpected delays (Cho & Kang, 2000; Smith, 1999).
For firms moving their production to another country, it is important to be aware of how their
There are both positive and negative aspects included in Global sourcing. It can lead to improved competitive advantage through lower costs and better geographical availability. The risks comprise that firms could get into problems with transportations, technology, confidential information leaking out, and that the cost reductions may not be as great as expected (Worthington and Britton, 2006). Further, firms may meet problems as transportation problems, technological and capacity weaknesses in production, and lack of management systems. Additionally, features such as languages barriers, customs and trade regulations are some of the factors that a firm would need to consider before moving its production to another country. The transportation and logistics networks are perhaps not as reliable as in the home country, which may cause unexpected delays (Cho & Kang, 2000; Smith, 1999).
For firms moving their production to another country, it is important to be aware of how their
References: Cho, J. & Kang, J. (2000). Benefits and challenges of Global sourcing: perceptions of U.Sapparel retail firms. International Marketing Review, Vol. 18, No. 5, pp. 542-561. Smith, J. M. (1999). Item selection for global purchasing. European Journal of Purchasing& Supply Management, 5. pp. 117-127Worthington, I and Britton, C (2006), The Business Environment fifth edition PearsonEducation Limited, Essex. Porter, Michael E. Competitive Strategy: Techniques for analysing industries and competitorsJonathan Barton, Rhys Jenkins, Anthony Bartzokas, Jan Hesselberg, and Hege Knutsen(2007) "Environmental Regulation and Industrial Competitiveness in Pollution-intensive Industries" in Industrial Innovation and Environmental Regulation Edited by Saeed Parto and Brent Herbert-Copley