Outsourcing of Automobile Materials - Report Example

The Causes and Effects of Outsourcing Materials Outsourcing of Automobile Materials The act of getting materials for a production process in a market situated across the manufacturing company’s border is known as outsourcing. For a production process the materials could vary from human labor to raw naturally found products, rubber in this case study. Outsourcing is always done by an organization for a various reasons, all meant to cut down the production cost, improve efficiency and improve quality. The motivation for a nation to import products and services from foreign countries is conceivably less apparent than its exports according to Boone and Kurtz, (1992). Among the many products that us imports from outside are the automobile materials and this is due to various reasons. The major reason as to why US imports automobile parts is due to lack of enough raw materials. Currently compared to other countries such as Japan US lags behind in as far raw materials for automobile materials are concerned. This has forced the country to import this material from foreigners. Another reason the U.S. imports automobile materials is due to lack of highly developed industries which produce large quantities of great quality automobile. The US mostly gets these imports from Japan which possess greatly developed industrial base. This is particularly based on the United States compared to countries like Japan is less capital intensive in order for it to establish these automobile manufacturing industries. The high production cost associated with automobiles is also another cause for these importations. Automobile materials require a lot of technology as well as adequately skilled labor as suggested by Brue and McConnell (1993). As a result countries like the United States opt to import these materials in order to cut on the cost of production. It is also deemed better option and less costly to import the automobile materials rather than importing the technology and the labor associated with their production. Related to this cause are the labor issues. In the US, the cost of labor is high thus leading to the country opting to import automobiles which utilize a lot of labor. In such a case the United States is able to save for other jobs Changes in the market are also another cause for instance after the world war and in the in the early 1970s, the United States was dominant in the automobile industry. However with the increasing technology, the market has changed and now countries like Japan have overtaken in these countries. As a result the United States is being forced to import high quality automobile from the prevailing automobile markets in foreign countries. Additionally, self-imposed restrictions in trade have contributed to the cause for the United States importation of automobile products. These trade restrictions promote a deficiency of automobile products that are produce in the country. As a result the nation is forced to import such products which have deficiency or production in the United States. These restrictions are essential in the country’s economy as enables maximization of both local and foreign opportunities. Effects of Purchasing Automobile Parts from Other Countries The Economy First, the effect of automobile parts imports on the economy depends on whether a country’s balance of payment is in surplus or in deficit and on the power of its currency. If the balance of payment of an importing company is in debit but its currency is powerful, it imports are cheap and are sold more cheaply to the consumers thus inflation decreases and the local economy grows. If am importing country’s currency is fragile, products and services will be costly thus increasing inflation while the local economy undergoes recession. Secondly, outsourcing provides the economy with new products (automobile) which may be cheaper than the domestically manufactured ones. This thus caters for the needs of those in need of automobiles not manufactured locally but highly demandable. The existence of a variety provides one with an opportunity to choose to ones liking and preference rather than be restricted to certain lines of products (automobile) Importation of products creates competition in the economy of the importing country according to Churchill and Peter (1995). This is due to the fact that such imports may be of higher quality and/or sold at a cheaper price compared to the locally manufacture automobiles which on a higher probability are often of a lower quality. This competition would be favorable in a case where the local manufacturers were the sole providers of the product. To be competitive the local manufacturers would be forced to improve on their quality and pricing. Fig 1: The graph above shows the local manufacturers improving on their products quality to match that of outsourced thus increased demand on both of the manufacturers’ products. Courtesy of Valuestream Effects on the Local People People are able to access variety of automobile products which might be of high quality than the locally produced automobiles. In case, people will favor imports more and the local producers will be forced to improve their quality in order to meet people’s preferences hence bringing the products closer to the consumers. Importing of automobiles leads to lack of employment. This is because when the country emphasizes more on imports, there is the possibility of local companies to close their companies due to unfavorable competition. Similarly importing of automobile products means that the local producers are forced to operate as small companies thus minimizing the number of employees. Fig 2: Rate of employment against number of years since importation began Courtesy of CBS News In a situation where the products are imported, the locals would be deprived the chance to have the technological know how when it comes to making automobiles according Czinkota and Ronkainen (1995). In many instances they would only be allowed to assemble the already made parts, a process that does not require much knowledge and expertise than making the automobile from scratch. Conclusively, outsourcing of a product is a much preferred means of trade for any country due to the fact that it creates a good rapport among the trading countries. It also helps in disposing off of in excess materials by the country that is acting as the second fiddle in the production process. The realization of the existence of a better option by the local consumers makes local manufacturers produce goods that near the quality of those outsourced. References Boone, L. & Kurtz, D. (1992). Contemporary Marketing. New York: Dryden Press. Brue, S. & McConnell, C. (1993). Economics. New York: McGraw-Hill. Churchill, G. & Peter, P. (1995). Marketing: Creating Value for Customers. Austen Press. Czinkota, M. & Ronkainen, I. (1995). International Marketing. New York: Dryden Press. Farese, L., Kimbrell, G. & Woloszyk, C. (1991). Marketing Essentials. Mission Hills, CA: Glencoe/McGraw-Hill. Read More