Discussion

Questions

Q1. Some MNCs establish a manufacturing facility where there is a relatively low cost of labor. Yet, they sometimes close the facility later because the cost advantage dissipates. Why do you think the relative cost advantage of these countries is reduced over time? (Ignore possible exchange rate effects)

Q2. Offer your opinion on why economies of some less developed countries with strict restrictions on international trade and DFI are somewhat independent from economies of other countries. Why would MNCs desire to enter such countries? If these countries relaxed their restrictions, would their economies continue to be independent of other economies? Explain.

Student Response 

Eduardo Romero

Manage Discussion Entry

Some MNCs establish a manufacturing facility where there is a relatively low cost of labor. Yet, they sometimes close the facility later because the cost advantage dissipates. Why do you think the relative cost advantage of these countries is reduced over time? (Ignore possible exchange rate effects)

A lot of companies and organizations outsource or having their facilities overseas as it is cheaper than to have them in the US with lower employee costs, lower salaries, etc.There are literally thousands of companies that opt to outsource part or all of their manufacturing to overseas companies, with China being the primary source of overseas manufacturing. Even so, there are some companies that engage in this practice more than others.(ITI, Manufacturing. 2023). But one of the problems companies will face in the long run is the treatment of employee in countries like China. Companies will have to spend money to make sure employees are treated fairly and there is no abuse of their rights. It is clear that manufacturing in China keeps costs low for companies, enabling them to earn higher profits and sell goods at a cheaper price than would have otherwise been possible(ITI, Manufacturing. 2023). Even if companies abroad have lower costs and wage rates they may have to spend money on the treatment of employees offsetting those advantage costs.