Globalization of Production

Question 1

Identify 5 risks encountered when engaging in foreign outsourcing.

Answer 1

Quality risk - goods/services so not meet buyer’s standards;

Security risk - foreign provider misappropriates proprietary information;

Export/Import risk - trade barriers prevent transfer of goods/services;

Currency exchange risk - Exchange rates change unfavorably;

Legal risk - Home country or foreign country laws are violated.

Question 2

Identify and describe the two major ways goods may be acquired internationally.

Answer 2

1. Foreign outsourcing - acquiring goods from foreign suppliers;
2. Foreign direct investment - producing goods in facilities owned or controlled by U.S. companies but located in foreign countries.

Question 3

Define “globalization of production”.

Answer 3

Globalization of Production : The sourcing of goods and services from around the world to take advantage of differences in cost and quality of the factors of production, and thereby, gain competitive advantage.

Question 4

Why might “outsourcing” be used by an entity?

Answer 4

Outsourcing may be used for a number of reasons, including:

1. Cost savings;
2. Improved quality;
3. Reduce time to delivery;
4. Enable focusing on core business;
5. Scalability;
6. Access to knowledge, talent and best practices.

Question 5

What is “outsourcing”?

Answer 5

Acquiring a good or service from a separate or external provider.

Question 6

___ ___ ___is a alternative to outsourcing for acquisition of goods.

Answer 6

Foreign direct investment

Question 7

Define “foreign direct investing”.

Answer 7

Establishing owned or controlled facilities in foreign locations to produce goods or provide services through the acquisition of property, plant, equipment and other assets in a foreign location or locations.

Question 8

The fundamental intents of establishing foreign production or service facilities may be to?

Answer 8

The fundamental intents of establishing foreign production or service facilities may be to:

1. Lower the overall cost structure and/or improve the quality of the good or service;
2. Expand markets;
3. Increase growth potential.