Essay about Global Economics

2926 Words Jun 2nd, 2012 12 Pages
1. Most companies in the clothing and shoe industries favor outsourcing production to countries where labor is abundant, particularly to Southeast Asia and the Indian subcontinent, but those firms do not integrate with their suppliers there. Technology and capital intensive firms, on the other hand, tend to integrate with their suppliers. How can this be explained?
Answer :
At the beginning of the 90s, the two most fundamental determinants of competitiveness in footwear production were considered to be, production costs and the differential impact of trade barriers. At that time other, less quantifiable factors that influence competitiveness were considered to be the following: technological developments; proximity to major markets and
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Labor costs continue to be a dominant factor of competitiveness. The slow technical development in footwear operations, particularly in the production of uppers makes footwear manufacturing such a labor intensive operation that entrepreneurs are induced to search for countries and regions with lower wages. More efficient use of labor is required even in regions/countries usually considered sources of unlimited cheap wages, as is the case of Southern China.

Manufacturers from the United States and other developed countries began to outsource production from independently owned factories in the 80s, when international financing was made available to develop factory facilities in developing countries.

There are many advantages in outsourcing for already established manufacturing enterprises managing export markets: increasing capacity and flexibility without investing, specialization, reduced production costs, reduced delivery times and provision of opportunities to experiment with new production lines and suppliers without having to take financial risks. Generally, costs involved in the production of new samples are absorbed by

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