EECS 1520 Lecture 21: EECS 1520 Lecture 21 Notes
21 Jun 2018
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EECS 1520 Lecture 21 Notes
Introduction
Multinational cost
In the context of multinational financial management, outsourcing consists of
subcontracting to a third party in another country to provide supplies or services that
were previously produced internally.
Under this definition, outsourcing increases international trade activity because it
means that MNCs now purchase products or services from another country.
For example, technical support for computer systems used in the United States is
commonly outsourced to India or other countries.
Outsourcing allows MNCs to conduct operations at a lower cost.
The reason is that the expenses incurred from paying a third party are less than those
incurred if the MNC itself produces the product or service.
Many MNCs argue that they cannot compete globally without outsourcing some of their
production or services.
Outsourcing by MNCs has created many jobs in countries where wages are low.
However, outsourcing by U.S.-based MNCs is sometimes criticized because it may
reduce jobs in the United States.
These MNCs might counter that, if they had not outsourced, they would have shut down
some labor-intensive operations because labor expenses are too high in the United
States to compete on a global basis.
There are many opinions about outsourcing but no simple solutions.
Often people have opinions about outsourcing that are inconsistent with their own
behavior.
EXAMPLE
As a U.S. citizen, Rick says he is embarrassed by U.S. firms that outsource their labor
services to other countries as a means of increasing their value because this practice
eliminates jobs in the United States.
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Document Summary
In the context of multinational financial management, outsourcing consists of subcontracting to a third party in another country to provide supplies or services that were previously produced internally. Under this definition, outsourcing increases international trade activity because it means that mncs now purchase products or services from another country. Often people have opinions about outsourcing that are inconsistent with their own behavior. As a u. s. citizen, rick says he is embarrassed by u. s. firms that outsource their labor services to other countries as a means of increasing their value because this practice eliminates jobs in the united states. Rick is president of atlantic co. and says the company will never outsource its services. Atlantic co. imports most of its materials from a foreign company. It also owns a factory in mexico, and the materials produced there are exported to the. Outsourcing increases international trade activity because it means that mncs now purchase products or services from another country.
