Theory of Production and Cost - Research Paper Example

Research paper, Micro & Macro Economics Yes, I do agree that effective reduction in costs of production is adriving force for the shift of manufacturing to U.S from china. Though china has been a choice for numerous companies for offshore manufacturing without consideration of other countries but these has started changing drastically due to increase in production costs among other factors such as rise in competition of talent, risk of intellectual property and diminishing incentives from the governments. There are costs which are related production costs which have led to increase in production costs hence forcing the manufacturing companies to move back to U.S due to decreasing in profits. Examples of these costs are labor cost, transportation costs and supply chain risks. Increase in the cost of production has made the businesses to move near to their customers or moving back home where the production costs will be lower (Shephard, pg.67). There are numerous specific drivers which may be either external or internal to china and which are forcing manufactures to seek another production locations; the major one is the increasing competition for talents and labor costs. The biggest advantage for china was that it had cheap labor though that benefit is dwindling. So the increase in labor costs has become a major challenge for the companies which are operating in china these is because every fast growing and foreign company in china are all competing for employees who are qualified mainly those employees who have skills thus making it difficult for business to entice and maintain top talents. The increase in labor costs has reduced profits of the manufacturers significantly (Janoski and Darina, pg 115). There are also other costs which have increased too. The costs of real estates have increased nearly at manic rates due to the government institutions which have delegated minimum land charges. Other factors like electricity costs has also increased and the rate of corporate tax has raised to 25% from 15%, also the tax associated incentives has disappeared or it has not been easy to obtain. Increase cost of these inputs of production has made it difficult for the businesses to operate in china which has decreased the profits. The other cost which is related to production of manufacturers in china is the risk which is associated with the protection of intellectual property. Foreign companies which have been operating in china have been in worry of guarding their intellectual property despite the significant attention it has been receiving only a small progress which has been completed. It has also raised a challenge to the foreign companies in protecting their intellectuals. This challenge also lowers the companies’ profits in comparison to the cost of protection. Another factor which has increased the cost of production in china is the steady improvements of china’s competitors. For instances other countries the likes of Asia have offered better rates in labor hence attracting incoming investment of manufactures. Many manufacturers have moved to the regions which have cheaper labor costs hence staying in china will lead to reduction of profits (Healtfield & Soren, pg.45). It has become too expensive for companies which have been operating in china to supply their products across the world. It is also risk and time consuming so many manufacturers is shortening or restricting their supply chains. The jittery economy has caused fluctuations in demand thus shortening the supply lines and accelerating the response times whereas decreasing exposure to unstable fuel prices is very important. Thus why numerous companies have shifted their production from china to U.S which is their domestic location thus reducing the risks and cost of supply chains associated with business therefore making it easier to manage the business. The increase in the cost of supplying the goods leads to decrease in profits margin. The value chains have become too complex thus requiring rapid urbanization and greater affluence by product makers for them to manage, produce and deliver a quality , diverse and modified products which will increase their supply to remote areas. Also another factor that has contributed to increase in complexity of value chain is the booming e-commerce and product proliferation. Increase in demanding consumers also leads to headaches in supply chains. Increase in value of chain supply complexity has also challenged manufacturers in china thus forcing them to move to United States because of the more labor intensive products, given the absolute goods they produce and whose main logistic networks are highly affected by booming infrastructure and urbanization (Farooki, pg. 35). Increase in wages has led to the dampening of exportation in china in regard to the focused international attention of making china a viable low cost center for manufacturers in the future. Numerous companies which are labor intensive in china are looking for other locations which they can diversify so that they may reduce the costs which are associated with production. The increase in wage rate in china will reduce the profits hence acting as driving force for manufacturers to relocate to U.S. The undefined global economic environment has made lives for manufacturers to be more complicated. Instability has made planning to be difficult for manufacturers in china making it to be a problem for those manufactures that are based in china thus forcing them to relocate to China due to poor performances whose returns are low profits (Shephard, pg.57). The international manufacturing dynamic forces are too favorable for those manufacturers in U.S; this is because the manufacturing in United States has covered many challenges in China which are supply chain, shorter cycle times, transportation costs, energy, market access and IP protection. In regards to technology as an associated factor of production the United states are at the forefront in regards to technology hence making it easier for manufacturers to relocate to U.S from China because of technological transformation. It will lead to increase of profits because the manufactures who are investing in U.S will have access to robotic technology and US computerization. The administrative costs in china are too costly as compared to the United States. The expenses which are incurred in running the organization in china are large because the labor is too expensive hence this reduces the profits of the company forcing it to relocate to a cheaper place like Unite States (Janoski and Darina, pg 110). Work cited Farooki Musuma. What are the implications for global value chains when the market shifts from north to the south? Washington, D.C: The World Bank, 2010. Web. Healtfield, David & Soren Wibe. An introduction to cost and production functions. Atlantic Highlands, NJ: Humanities press international, 1987. Print. Janoski, Thomas and Darina Lepadatu. Dominant divisions of labor models of production that have transformed the world of work. Basingstoke: Palgrave Macmillan, 2013. Print. Shephard Ronald. Theory of production and cost. Berlin: Springer-Verlag,1981. Print. Read More