1.- If a company is considering switching production to a country where wage costs are lower, to what other factors will it need to take into account before doing so?Research has shown that the overall number one reason and motive for switching production to other countries is to reduce costs. In markets with limits in product differentiation price competition is more important, as well as being able to offer almost identical products at lower price. This has typically been the case with consumer products. A number of studies have also identified quality and availability as critical aspects (Cho & Kang, 2000)Switching production to a lower wage country appears to be a good strategy for firms seeking to control its costs. An organisation would need to compare the labour cost per unit produced compared to the existing location, also it is important to see if the workers are productive at the new location.
Firms would face problems such as training costs, distribution costs and even more taxes.
There are both positive and negative aspects included in Global sourcing. It can lead to improved competitive advantage through lower costs and better geographical availability. The risks comprise that firms could get into problems with transportations, technology, confidential information leaking out, and that the cost reductions may not be as great as expected (Worthington and Britton, 2006). Further, firms may meet problems as transportation problems, technological and capacity weaknesses in production, and lack of management systems. Additionally, features such as languages barriers, customs and trade regulations are some of the factors that a firm would need to consider before moving its production to another country. The transportation and logistics networks are perhaps not as reliable as in the home country, which may cause unexpected delays (Cho & Kang, 2000; Smith, 1999).
For firms moving their production to another country, it is important to be aware of how their business relationships and networks could be affected too. There might be ethical problems, such as the way the workers are treated, in some countries workers are exploited and not paid well.
2. - Will increased environmental standards imposed by government on businesses inevitably result in higher business costs?For some businesses, increased environmental standards seem to be an opportunity instead of a threat, as Porter argues that the government creates barriers, because it restricts competition through the granting of monopolies and regulations. Industries such as utilities are considered natural monopolies because it has been more efficient to have one electric company provide power to a locality than to permit many electronic companies to compete in a local market. Additionally, firms that face high environmental compliance costs may lose market share to those located in less regulated jurisdictions.
New opportunities arise for firms to externalize their pollution by using less-regulated suppliers (Barton et al. 2007). In other words, those parts of the commodity chain that generate most pollution can be located in developing countries where environmental regulation is less stringent. All the hypotheses referred to so far are essentially pessimistic in that they assume that there is a conflict between stricter environmental regulation and competitiveness. The Porter hypothesis claims that, on the contrary, environmental regulation can, and often does, lead to economic benefits and hence to increased competitiveness. If that were generally the case, then the concerns raised above would be quite unfounded (Barton et al. 2007).
References:Cho, J. & Kang, J. (2000). Benefits and challenges of Global sourcing: perceptions of U.Sapparel retail firms. International Marketing Review, Vol. 18, No. 5, pp.
Smith, J. M. (1999). Item selection for global purchasing. European Journal of Purchasing& Supply Management, 5. pp. 117-127Worthington, I and Britton, C (2006), The Business Environment fifth edition PearsonEducation Limited, Essex.
Porter, Michael E. Competitive Strategy: Techniques for analysing industries and competitorsJonathan Barton, Rhys Jenkins, Anthony Bartzokas, Jan Hesselberg, and Hege Knutsen(2007) "Environmental Regulation and Industrial Competitiveness in Pollution-intensive Industries" in Industrial Innovation and Environmental Regulation Edited by Saeed Parto and Brent Herbert-Copley