With so much productive capacity and room for expansion in the United States, why would a company based in the United States choose to purchase items from a foreign firm? Discuss the pros and cons.
The main reason behind the United States Company purchasing from a foreign firm is lower manufacturing costs in the foreign market compared to them.
Due to high manufacturing costs in the United States and high labour costs, most companies from the United States of America choose to go to foreign countries to get their products manufactured there, as their manufacturing cost is proportionately lower as compared to theirs. This results in maintaining the lower manufacturing cost for the product which ultimately results in more profit on their balance sheet.
Lower production cost is the major factor that motivates U.S. companies to purchase from a foreign firm. They can achieve a higher output in lesser time from purchases from foreign countries. Purchasing from foreign countries provides market expansion opportunities to them.
Finding the right factory to purchase the same quality products as per needs is quite challenging. Language is also another barrier to purchasing from foreign countries. Shipping is also a very big challenge as shipping costs increase the price of that product.
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