Select your language

Suggested languages for you:
Log In Start studying!
Answers without the blur. Just sign up for free and you're in → Illustration

Q4DQ

Expert-verified
Operations And Supply Chain Management
Found in: Page 417
Operations And Supply Chain Management

Operations And Supply Chain Management

Book edition 14th
Author(s) F. Robert Jacobs
Pages 800 pages
ISBN 9780078024023

Short Answer

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.

See the step by step solution

Step by Step Solution

Reason behind the United States Company purchasing from a foreign firm

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.

Pros and cons of purchasing items from a foreign firm

Pros

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.

Cons

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.

Recommended explanations on Business-studies Textbooks

94% of StudySmarter users get better grades.

Sign up for free
94% of StudySmarter users get better grades.