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Three major categories of reasons for an ongoing transfer of manufacturing and service operations from Western countries, such as the U.S. and Germany to regions such as Asia-Pacific and Eastern Europe are
(i) lower labor costs,
(ii) lower raw materials and energy costs, and
(iii) less strict rules and regulations pertaining to employee rights, social responsibility and environmental protection.

Discuss the following issues:

What are the long-term strategic consequences to the U.S. economy resulting from outsourcing core manufacturing and service operations?

Do you think that the outsourcing trend should be controlled/reversed? Why or why not?

Solution Preview

Let me discuss the second question first, do you think outsourcing should be controlled. My answer is no.

In economics, we believe that wage represent the marginal productivity of labour, which means that say if your wage is $20 per hour, this means that if you did not work, the amount of goods and services generated on this planet would be $20 less than if you worked. Obviously, this is only a model because it is not always true (in fact most of times, it is not true). And here, we see the problem, why is wage rate in Asian countries much lower even though Asian workers do the same jobs ...