Chapter 4: Case Synopsis: Chinese Companies Expand to U.S. Soil and Markets
1. What kinds of advantages can Chinese companies obtain if they move production into the United States?
"The Chinese labor-cost component of an entry-level iPad retailing for $500 is estimated at $10, or 2% of revenue, while the profit margin is estimated at $150, or 30% of revenue. If Apple were to move production to the USA, and if one assumes that assembly costs would triple (to $30), it is conceivable that Apple could convince customers to pay for a large portion of the price increase based on the appeal of a “made in the USA” product. ... Furthermore, ... such a move could substantially boost Apple’s corporate image. However, the U.S. lacks the sheer labor capacity that would be required in order to ramp up production of iPads at the speed needed to maintain the company’s edge in the hyper-competitive tablet and mobile device market. ... Thus one may assume that Apple’s manufacturing sourcing strategy is primarily motivated by scalability and supply chain risk, and only secondarily by total landed cost." http://economistsview.typepad.com/economistsview/china/
2. What are some possible disadvantages and threats of moving production to the United States?
Advantages of Globalization:
← Resources of different countries are used for producing goods and services they are able to do most efficiently. ← Consumers to get much wider variety of products to choose from. ← Consumers get the product they want at more competitive prices. ← Companies are able to procure input goods and services required at most competitive prices. ← Companies get get access to much wider markets
← It promotes understanding and goodwill among different countries. ← Businesses and investors get much wider opportunities for investment. ← Adverse impact of fluctuations in agricultural productions in one area can be reduced by pooling of production of different areas. Disadvantages of Globalization:
← Developed countries can stifle development of undeveloped and under-developed countries. ← Economic depression in one country can trigger adverse reaction across the globe. ← It can increase spread of communicable diseases.
Companies face much greater competition. This can put smaller companies, at a disadvantage as they do not have resources to compete at global scale.
3. Will more Chinese companies make investments in the United States as opposed to China in the future?
1. What kinds of advantages can Chinese companies obtain if they move production into the United States? There are several advantages Chinese companies obtain by moving their production to the United States. For starters, they would be able to sell to companies that only purchase American made products. Also, the money earn from the U.S. base production generates profit for China; which allows the companies to help its country economy by expanding its business in both countries and providing jobs for the unemployed. Lastly, the companies would receive a huge tax-credit and save significantly on shipping.
2. What are some possible disadvantages and threats of moving production to the United States? Some American is not open to the fact that international companies are moving their production on United States’ soil. In fact, U.S. citizens are willing to boycott and financially hurt the companies if such a move was to happen; especially in an economy where American own businesses are failing.
3. Will more Chinese companies make investments in the United States as opposed to China and the future? Fully explain and justify your choice. I believe that there will be an increase in Chinese companies making investments in the United States. For starters, it will help the companies’ international business relationship. To add, there are several stimulus packages the companies would qualify for (such as the economic tax credit) by doing business in America. Also, their profit would increase. The U.S. dollar is more than Yens. So, they would be making twice as much money in the U.S. on the same product sold in China at a cheaper rate. And, the cost to ship would decrease, because the companies would not have to pay duties on products being shipped within the United States. Therefore, it is beneficial for Chinese companies’ to invest in the U.S.