Globalization of Production

Question 1

What is the globalization of production?

Answer 1

Sourcing or producing of goods or services from around the world

Question 2

What is outsourcing?

Answer 2

Acquiring goods or services from a separate or external provider under contractual terms

• International outsourcing- provider is in a foreign country

Goods obtained

• Raw materials
• Intermediate goods
• Final Goods

Services- Call centers, data entry

Question 3

What are reasons for outsourcing?

Answer 3

Cost savings

Improved quantity

Reduced delivery times

Scalability

Access knowledge, talent, etc.

Question 4

What are risks of outsourcing?

Answer 4

• Quality Risk- Don’t meet standards
• Security Risk- Provider misappropriates intellectual property, trade, processes, data
• Export/Import- Home country our source country will restrict transfer of the goods
• Currency exchange risk- cost of goods or services might increase
• Legal risk- Violation of the country’s laws

Question 5

How can you mitigate outsourcing risk?

Answer 5

• Due Process “Check out the source country”

Use qualified lawyer in the foreign country

Determine legal requirements before entering into a contract

Execute thorough contracts with arbitration contracts

Negotiate for payment in home country currency

Strict policies concerning legal compliance within the foreign country

Establishing owned or controlled facilities in a foreign location to produce goods or services

Question 6

What are foreign direct investment (alternative to outsourcing)

Answer 6

Establishing or controlled facilities in the a location to produce goods are services

• Entity acquires PPE or other assets in a foreign country to carry out production or services
• Locate facilities based on country’s advantages- cost, quality, and quantity of factors of production/services

Objective:

• Lower cost for goods
• Improve quality
• Expand markets
• Increase growth potential