Global Business (Germany Industry) - Essay Example

? Global Business (garment industry) Introduction Global business consists of transactions devised and done across national borders so as to enjoy economies of scale and increased market for products. This involves importation and exportation of products including foreign direct investment of which are highly interrelated. A key tenet to global business is delivery of value and satisfaction (Dunning, 2011). Companies involved in these transactions face various environmental factors including constraints and conflicts with laws and cultures of the world. Businesses that venture into global transactions have to modify their applications, complexity and intensity in the way they operate to be able to cop up with challenges brought up in the global business (Rugman, 2009). 2 Overview of Garment industries in U.S.A Garment industry specializes in production of wear products. It is also referred to as ready-to-wear industry. Early garment industries relied greatly on hand production due to low level of technology during those periods. Acceptance and use of these garments did away with the custom clothes resulting to growth of the industry. It draws its workforce from the neighborhoods which are protected by trade unions. It employs several people due to the nature of activities involved in production of clothes. It is also rated among the countries income earner industries. This indicates that countries invested in garment production have a higher gross domestic product because of income received from export. Globalization has opened up markets for products and therefore countries whose labor costs are cheap have an advantage over those whose labor cost is expensive. Countries outside U.S.A like china can afford cheap labor hence regulate their production costs. Competitions from other countries selling garments in U.S.A which are cheaper than what is sold by indigenous firms create stiff competition. Open market activities across borders have been the major challenge leading to decline in garment production in U.S.A. A decline in production of garments results to firms reducing workers to reduce labor costs hence increasing unemployment rates (Mitchell, 2009). 3 Issues affecting garment industry 3.1 Garment industry going overseas Overseas trade results to outsourcing of resources and wealth maximization. Garment industry trade overseas because operational costs are cheaper. Foreign countries, due to free market, have provided cheap labor, locations and enabling firms to be in good control of their operational costs. From this perspective, US firms enjoys an increase in profits since they have more access to a large market. Garment firms therefore end up relocating to foreign countries that provide cheap and ready resources to produce same quality of products produced in U.S.A. U.S.A garment industry continues to decline due to relocation of firms to seek favorable ground for wealth creation. Garment firms in regions like India have a higher competitive advantage in that they are able to operate at low costs while producing quality products which meet international standard. Such low priced products are preferred than what is locally produced in U.S.A. Current market trends indicate a serious decline in production capacity and size of the garment firms in U.S.A. 3.2 Labor cost Reduction of labor cost by garment firms has been the forefront of their operation. This has been done by completely laying off workers and obtaining experts in fields that require expertise. Labor cost affects final profits to be generated and therefore high labor costs incurred by garment industry prove to be a threat to their efficient operation. In U.S.A the labor laws are strict protecting workers from exploitation (Rugman, 2009). The set minimum wage for every worker makes the firms to equalize their operations at the provided cost that comes with this law. When comparing with garment firms in India and other countries like Philippines labor laws are not strict enough to protect workers hence firms are in a position to operate at the lowest cost possible. This translates finally to final price of their products that finds conducive place in global market and a higher competitive advantage than U.S firms. Take an example of producing a quality product where a qualified expert in India might be paid $20,000 while in U.S.A producing the same quality of Product a qualified worker gets paid $ 50,000. Such a determinable difference makes garment production in U.S.A to decline because it provides little competitive advantage if any, and rate of return is quite low (Mitchell, 2009). 3.3 Unemployment rate Garment industry in U.S has seen a decline in production rate due to competition and outsourcing. This in turn has affected the employment rate because jobs are pulled out of the country (Mitchell, 2009). Increase in unemployment rates has led to low living standards of citizens. Garment firms as they strive to reduce operational costs by obtaining cheap labor from other countries results to deprivation of jobs from U.S.A. Foreign countries which have resources in plenty offer U.S firm’s attractive incentives to operate in their countries. This increases employment levels in these foreign countries yet in turn leaves mother country with little jobs for its citizens. Analysis of trends and their estimates indicates that US is losing jobs when garment industries relocate. This is at a rate of 12,000-15,000 per month. This is an alarming rate. 3.4 Economic effects Economy of countries depends on income received from exports of its products. When foreign countries offer incentives to U.S garment firms and promoting their relocation, they reduce amount of products produced in the country. The end result is a total reduction in income received which affects the countries budget. Tax levied on products is hence increased resulting to a high cost of living. This still makes foreign products cheaper and local firms striving to acquire resources in regions that provide them cheaply (Dunning, 2011). 4 How issues are being addressed 4.1 Provision of incentives The government has put in place incentives to enable companies to continue operating in the country. This has been through support of cotton plantations and reduced tax on other materials required in garment industry. This will help in reducing garment industries going overseas (Shenkar, 2005). 4.2 Recruitment of experts Labor cost still remains high but the companies strive to spread costs in ensuring that workers selected are well qualified to handle various tasks. Recruited experts are trained to be able to handle numerous activities within the firm to cut down labor costs. 4.3 Reduction in outsourcing of jobs Garment industries take advantage of the incentives given by the government to establish themselves within U.S.A to be able to provide employment opportunities to citizens. Reduced job outsourcing is enabled by importation of production materials to be used within U.S.A for production and ensuring farmers are encouraged to grow cotton to reduce production costs (Rugman, 2009). 4.4 Tax reduction Taxes imposed on garment production materials are being reduced so that existing price level of garments in the market can be provided at same level. This is intended to stimulate production in companies and make them obtain returns from their investment. Encouraging establishment of clothe firms to boost level of country’s export will help in stabilizing U.S economy (Harris, 2012). 5 Challenges to global business 5.1 Uncertainty in upturn of events U.S garment industry is affected by huge swings and shifts in prices of the clothes. Various parameters control prices of clothes in the industry ranging from political reasons to rise and fall of international currency. Inflations within U.S.A increases prices of items hence sales in global market. Economic disruptions make firms to seek potential grounds where they can conduct businesses without problems. Weakening of currency especial in U.S.A where costs of production are already high greatly affects garment industry (Mitchell, 2009). 5.2 Pricing volatility Costs or raw materials are considerably high in USA while labor cost still keeps rising as individuals require more wages to sustain their lives. When this is combined with costs of energy resources garment industry finds it difficult projecting long-time pricing strategies (Harris, 2012). 5.3 Outsourcing Garment industry is considering the option of outsourcing for the purpose of maintaining profits for the company. Economic conditions in USA and lack of enough resources and favorable costs make firms to think of sourcing. Mitigating risks seems to be the available options for shareholders of these companies (Shenkar, 2005). 6 Alternatives to challenges 6.1 Setting of contingency plans The industry can set contingency plans to cover up every forecasted potential disruption of economy so that any up-turn of event that was not expected can be well controlled and directed within the set parameters (Dunning, 2011). 6.2 Stable pricing strategies Garment industry can also resort to stable pricing strategies since volatility of prices cannot allow projecting of long-term prices. Stable pricing will ensure that prices are kept at the current market prices which can be determined (Harris, 2012). 7 Conclusion Globalization of garment industry in U.S.A has resulted to both positive and negative consequences both to the companies involved in production and the country. As discussed in the paper globalization opens markets for commodities and those which can attain a competitive advantage will lead the market. References Dunning J. H. (2011). New challenges for international business research: back to the future. Massachusetts, USA: Edward Elgar Publishing, Inc. Harris, S. (2012). International Business: New Challenges, New Forms, New Perspectives. New York: Palgrave Macmillan Publishers. Mitchell, C. (2009). A Course in International Business Ethics: Combining Ethics and Profits in Global Business, 3rd Edition. USA: World Trade Press Rugman A. M. (2009). The oxford Handbook of International Business. New York: Oxford University Press. Shenkar, O. (2005). One More Time: International Business in Global Economy. Journal of International Business Studies, Vol. 36, No. 4, pp. 452-469. Read More