EECS 1520 Lecture 22: EECS 1520 Lecture 22 Notes
21 Jun 2018
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EECS 1520 Lecture 22 Notes
Introduction
Managerial Decisions about Outsourcing
Rick recognizes that outsourcing may replace jobs in the United States, but he does not
realize that importing materials or operating a factory in Mexico may also replace U.S.
jobs.
When questioned about his use of foreign labor markets for materials and production,
he explains that the high manufacturing wages in the United States force him to rely on
lower-cost labor in foreign countries.
However, the same argument could be used by other U.S. firms that outsource services.
Rick owns a Toyota, a Nokia cell phone, a Toshiba computer, and Adidas clothing.
He argues that these non-U.S. products are a better value for the money than their U.S.
counterparts.
His friend Nicole suggests that Rick’s consumption choices are inconsistent with his
create U.S. jobs philosophy.
She explains that she only purchases U.S. products.
She owns a Ford automobile (produced in Mexico), an Apple iPod and iPhone (produced
in China), a Compaq computer (produced in China), and Nike clothing (produced in
Indonesia).
Managers of a U.S.-based MNC may argue that they produce their products in the
United States to create jobs for U.S. workers.
However, when the same products can be easily duplicated in foreign markets for one-
fifth of the cost, shareholders may pressure the managers to establish a foreign
subsidiary or to engage in outsourcing.
Shareholders could argue that the managers are failing to maximize the MNC’s value as
a result of their commitment to creating U.S. jobs.
The MNC’s board of directors, which governs all major managerial decisions, could
pressure the managers to move some of the production outside the United States.
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