...NAFTA saves the automotive industry immense amounts of money. The North America Free Trade Agreement is a trilateral agreement that encourages free trade between Mexico, Canada, and United States. The NAFTA agreement has affected the automotive industry by increasing the amount of U.S. automotive imports. It has also increased the amount of U.S. automotive exports to NAFTA partners and it has caused outsourcing in the automotive industry. The North American Free Trade Agreement came into effect on January 1, 1994. The president of Mexico, Carlos Salinas de Gortari, the prime minister of Canada, Brian Mulroney, and the president of the U.S., George H. W. Bush, signed NAFTA in 1992, which then required the legislatures of the three countries to approve it before it went into effect. After the legislatures passed the NAFTA agreement, it became in effect on January 1, 1994. Under NAFTA, the partnering countries agreed to eliminate and reduce most barriers to trade freely between the countries. Most of the United States automotive trade is done with Mexico. This is because the United States and Canada were already highly integrated following the U.S.-Canada Free Trade Agreement and a U.S.-Canada Auto Pact in 1965. Before the NAFTA agreement, Mexico had strict automotive decrees on foreign automotive production in Mexico. After NAFTA was signed, those strict rules went away. Mexican tariffs on all types of motor vehicles and parts, were as high as 20% for some goods at the beginning...
Words: 1283 - Pages: 6
...2003 Country Analysis: Mexico The Mexican Information Technology (IT) outsource software services sector is a USD $30 million1 industry. Although the industry is quite small compared to behemoths such as India and Russia, Mexico has unique advantages which it can exploit to vault it into serious consideration for offshore software outsourcing. The chief among them is the proximity to the US market, the North American Free Trade Act (NAFTA), low-cost qualified personnel, and access to the Latin American market. The advantages of Mexico's proximity to the US is that not only is it easy to access Mexico from almost anywhere in the continental US, but many Mexican and American firms already have extensive experience working together. This familiarity breeds similar business cultures and allows for US firms to be comfortable in outsourcing key software processes to Mexican firms. Another big advantage for Mexico is NAFTA. NAFTA allows the free flow of goods and services between Mexico, Canada and the US. NAFTA also protects intellectual property rights in all three nations. This legal framework gives some assurance to US firms that the software developed by Mexican firms will not be misappropriated for other uses. A final advantage is that Mexico is an ideal point for accessing the vast Latin American market due to similar language, culture and knowledge of that market by Mexican firms. Even with all these advantages, there are reasons why Mexico only exports approximately...
Words: 964 - Pages: 4
...The Impact Of Outsourcing On General Electric Commerce Essay The report aims to highlight the impact outsourcing has had on General Electric Company. This paper analyzed GE’s decision to have multiple outsourcing partnerships. The paper also discusses the impact that outsourcing will have on US economy in general. The first part of the paper reveals how outsourcing has led GE to be a cost efficient, productive and profitable company. The findings outlined factors such as the success of GE Real Estate in Mexico. It also outlined GE’s successful steps in India in order to source products, services, and intellectual talent from India for its global businesses. The next section of the paper discusses GE’s decision to have multiple outsourcing partnerships. It discusses the strategies of successful multiple outsourcing and consolidated it with GE’s steps of outsourcing its businesses in different countries. In the last section the report elaborates different impact will outsourcing have on US economy. It contrasted the brighter side of outsourcing such as $100 worth of work sent abroad by U.S. companies; $130 to $145 will be reinvested in the U.S. economy. It also reveals the downside as it discusses how sending jobs abroad can affect American job market. 1.0 Introduction 1.1 Background General Electric is a diversified technology, media and financial services company focused on solving some of the world's toughest problems. With products and services ranging from aircraft engines...
Words: 5814 - Pages: 24
...coffee and vegetables directly from other countries and outsourcing process to other countries. Although it is possible for one country to produce all goods efficiently, it will be more productive for this country to trade with other country. Both countries can benefit from trade because each country specializes in what they have a comparative advantage. Free trade offers more advantages to each country since there are no trade barriers between countries. Nowadays, with the trends of globalization, free trade is becoming more and more commonplace. Some people argue that free trade creates job opportunities while increasing the growth of economy. Riley (2012) states that total U.S. employment significantly increased after the U.S. signed the North American Free Trade Agreement (NAFTA) and joined the World Trade Organization (WTO). However, opponents focus on the negative impact which is job losses inside the country. Column (2011) points out that it cost 2.8 million jobs for trade between the U.S. and China. Trade deficit between countries and outsourcing during free trade lead to job losses eventually. Therefore, with the integration of global economy, the impact of free trade on job opportunities has become increasingly severe for countries to consider. Signing free trade agreements between the United States and other countries have cost considerable U.S. job opportunities. The loss is mainly due to outsourcing. Outsourcing means that more and more companies prefer distribute...
Words: 1136 - Pages: 5
...Low labour, production, and energy costs in countries such as China, Japan, India, and Mexico is causing companies to shut their factories within the United States and open new factories in those foreign countries. This leads to the loss of jobs within the United States, a lower standard of quality, and resentment by those who are living within the United seeing more and more of their jobs going overseas. In 1994, NAFTA (North American Free Trade Agreement) was passed by then President Bill Clinton. His goal was to open the trade routes to all countries. Unfortunately, it led to many plants moving across the borders to Canada and Mexico. While outsourcing had begun in the 1980s, it grew by leaps and bounds in the latter part of the 1990s. Jobs went overseas to China, Japan, and India and the economy began to falter as American's lost their jobs and suddenly faced living on minimum wage as higher paying jobs went to these other countries. By looking at the average annual salaries in these other countries, it is easy to understand why companies find it appealing to outsource their business. Especially in China where the average yearly salary is significantly lower than their American and European counterparts. • China - $1,290 • India - $14,500 • Japan - $17,000 to $50,000 (this depends on the region) • Mexico - $9,000 to $16,000 (this depends on the region) Outsourcing U.S. jobs to these areas are allowing many formerly poor areas to increase their standard...
Words: 1099 - Pages: 5
...Chapter 3 Homework (type your answer below each question; keep your responses concise) 1. Why is outsourcing such an attractive way for firms to tap into foreign markets? What are the risks of foreign outsourcing? 2. What are the key elements of sociocultural barriers to trade? How can companies overcome these barriers? 3. How has NAFTA impacted the U.S.? Overall, do you believe that it was a positive move for the U.S.? Why or why not? 4. Take a look at Fortune magazine’s most recent list of the 500 largest global companies ( HYPERLINK "http://fortune.com/global500/" http://fortune.com/global500/). (If this link doesn’t work, just copy and paste the URL in your browser.) What are the top 10 companies on the list? What industry, if any, dominates this Top 10 list? What country, if any, dominates this Top 10 list? What country dominates the overall Global 500 list? 5. From golden arches to blockbuster movies, American business has clearly influenced cultures around the world. But foreign industries and companies have also shaped American culture. Brainstorm a list of 5 foreign goods or services that have influenced American culture; include the specific good or service as well as its country of origin. Get creative! Chapter 3 Q1.Why is outsourcing such an attractive way for firms to tap into foreign markets? What are the risks of foreign outsourcing? Foreign outsourcing means contracting with foreign suppliers to produce products, usually at a fraction of the cost...
Words: 1161 - Pages: 5
...Rigo Flores Tafoya Martin BA 353 2pm Job offshoring Throughout the last decade, there has been a rapid increase of jobs being sent overseas to countries like China and India due to the lower costs of production. In the beginning only jobs related to manufacturing and production of goods were outsourced, today any job that does not require a physical presence could be potentially sent overseas and done for a much cheaper cost than if it were maintained in the United States. There are individuals who believe that the offshoring is negatively affecting the U.S by reducing the amount of jobs available for workers or those in search of jobs. It is true that by offshoring, companies eventually must lay off workers associated with careers in the affected department of the company, but it could eventually lead to the development of new jobs. When a company sends jobs overseas, it gives a company the opportunity to focus on certain tasks that would have not been possible due to higher costs or other constrained resources. For example, a company may take up a new project, open up a new office, or focus on a new market segment. All of these would require the hiring of new employees, thus creating jobs and filling come of the void created when jobs were sent overseas. There are individuals who believe that U.S companies should keep jobs within the country and would impose stiff penalties on companies who would choose to violate certain proposed laws. Companies choosing to...
Words: 2108 - Pages: 9
...We should to first know outsourcing Definition: The practice of having certain job functions done outside a company instead of having an in-house department or employee handle them; functions can be outsourced to either a company or an individual (encyclopedia, 2012) in business. Outsourcing is a practice which involves transferring parts of a company’s business processes to outside suppliers rather than completing it internally (Investopedia, 2013). It is the process of subcontracting a process, such as product design or manufacturing to a third party company (Venture Outsourcing, 2013). Outsourcing could be sub-divided into two which is off-shoring and home-shoring (home sourcing). Off shoring is moving business processes overseas in order to leverage opportunities such as cheap labour expenses, entrance into new markets, skilled labour and availability of resources (Sourcing Mag, 2003). Home shoring (home sourcing) on the other hand, is “the transfer of business processes to companies within the same country” (Brunelli, 2013). The form of outsourcing to be analysed in this report is off shoring because it is one of the effects of Globalization. Outsourcing became popular in the United states as at 1980s when critics began to raise eyebrows about it as they felt multi-national corporations (MNCs) where exporting a large portion of American jobs to other countries (handfield, 2006). Some MNCs that were popularly known and criticized for outsourcing were Boeing, AT&T, Coca-Cola...
Words: 2687 - Pages: 11
...Some of these rules and regulations include taxes, non-tariff barriers, quotas, legislation, and other regulations. These regulations are there to keep domestic industries from being taken over from foreign competition. Some people think that free trade is a good thing because when we get products from other countries, the consumers can actually afford them. If we had to make cell phones, computer, sneakers, and items like that here, no one could afford those things. On the other hand, because we are shipping so many jobs overseas, many people in the U.S. are losing their jobs. If we keep the jobs here, no one could afford things like a cell phone, and if we use free trade to get products from overseas, we lose jobs. This is called outsourcing. Free trade is an issue that affects many people, in both positive and negative ways. Free trade is one of the reasons people in the United States are able to have such nice things. People take everyday things for granted, such as cell phones, lab tops, cars, and much more. If all of these products were made in the United States, most people would not be able to afford them. By the United States being able to get goods from other countries, prices of those things are drastically different. As stated by Joseph Stiglitz in Making Globalization Work, “free trade agreements are flooding into Asia to places like China and India” (10). People in a country like China, which has over a billion people, need a lot of jobs. They can make...
Words: 1712 - Pages: 7
...Demographic Complementarities and Outsourcing: Implications for India By: Mukul G. Asher Professor, LKY School of Public Policy National University of Singapore e-mail: sppasher@nus.edu.sg and Research Scholar Department of Economics National University of Singapore e-mail: amarendu@nus.edu.sg Amarendu Nandy May 2006 Draft – Not to be cited without permission The authors would like to thank anonymous referees, Sanjeev Sanyal, Amlan Roy, Anantha Nageswaran and R. Swaminathan for their useful comments. The usual caveat applies. _______________ This is a longer version of the paper prepared for IMRC 2006 conference on Global Competitiveness through Outsourcing: Implications for Services & Manufacturing, Indian Institute of Management (IIM), Bangalore, July 13-15, 2006. Abstract This paper analyses the implications of differing global demographic trends for India’s competitiveness in outsourcing and offshoring. It also briefly notes the implications of differing demographic trends among the Indian states. The paper argues that demographic complementarities with high-income countries provide India with one-time opportunity to sustain its growth rate and occupy all segments of global outsourcing and offshoring activities. India has used the labor cost advantage to gain reasonable market share in these activities. It however faces serious internal and external challenges in sustaining its international competitiveness, particularly with respect to labor cost....
Words: 9196 - Pages: 37
...Economics 560 Case Study 2 Shifting Gears: Ford Motor Company in Mexico Suggested Answers 1. Consider the Mexican government’s Auto Decrees between 1962 and 1982. Does the government appear to be motivated by (a) the theory that factor mobility replaces trade or (b) the theory that factor mobility augments trade (or (c) both)? Explain, using evidence from the case. In a Heckscher-Ohlin model the ability of factors to cross national borders in response to factorprice differentials leads to the replacement of trade in goods and the attainment of the same welfare gains as with free trade. When the production process can be divided into parts, foreign investment can lead to increased welfare and augmented trade. The 1962 Auto Decree eliminated imports of cars. This seems to rely upon trade replacement: capital investment in Mexico will yield the same gains as would be available through trade. The 1972 and 1977 Auto Decrees limited imports of car parts by requiring that any import be offset by an export of the same value. This also reflects a belief that limiting imports will encourage foreign investment (and domestic investment) to produce the car parts locally. (So also did the domestic content requirement in the 1983 Auto Decree.) There is also evidence of the trade-augmenting role of foreign investment. The 1977 Auto Decree allows firms to meet their export requirements through the activities of maquiladoras they own: these rely upon dividing the production process into parts...
Words: 669 - Pages: 3
...and changes in the political and regulatory environment present challenges and opportunities to firm finance and accounting functions to improve their value-add contributions to the business. One such opportunity is the offshore outsourcing of finance and accounting services. The business process outsourcing (BPO) market has grown substantially over the last decade and is expected to continue to increase rapidly. Offshore financial institutions can also be used for illicit purposes such as money laundering and tax evasion. Many countries, territories and jurisdictions have offshore financial centers (OFCs). These include well-known centers like Switzerland, Bermuda and the Cayman Islands, and less-well-known centers like Mauritius, Dublin and Belize. The level of regulatory standards and transparency differs widely among OFCs. Supporters of OFCs argue that they improve the flow of capital and facilitate international business transactions. ‘Outsourcing’ is the management and / or daily execution of a business function by a third-party service provider. Firms have been encouraged to outsource non-critical areas of business in order to focus on core competences (Quinn et al, 1990). There are many different outsourcing models, including the outsourcing of activities to firms in foreign ‘host country’ locations, which is called ‘offshoring’, and is the focus of this report. Offshoring means located or based outside of one's national boundaries. The term offshore is used to describe...
Words: 2684 - Pages: 11
...(and increased demand) to grow their economies, to increase education, to manufacture more goods, provide more services, use up more of the world’s resources, etc. These are all challenges that other countries face with India and China. India’s service sector has grown tremendously and many people have begun outsourcing service jobs such as information technology and computer jobs to India as well as other service jobs such as call-center customer service jobs. Outsourcing reduces the price of these services and allows businesses to increase profits by having lower costs. This poses as a challenge to the economies that are outsourcing jobs to lower fare countries because it reduces the number of jobs in its own country and leaves more of its own people unemployed or having to look for other type of work. China has emerged as an export platform and a high volume manufacturer of consumer goods. China has very low wages and its manufacturing wages are estimated to be about one-fourth of the amount paid in Brazil and Mexico. But apart from low wages, China has several other sources of comparative advantage which poses a challenge to emerging markets such as Mexico, Brazil and Thailand who can no longer depend on low wages as the key source of their comparative advantage. Not only does China have a huge domestic market, low skilled labor and a growing middle class that increases demand, but also its coastal areas have an advantage over many other countries due to the potentially...
Words: 386 - Pages: 2
...Flextronics, a large Singaporean manufacturing service provider, but after three years, LEGO had to end this cooperation. Therefore, we are going to do a deeper analysis of this case and have a better understanding of outsourcing. LEGO had two main expectations from the collaboration with Flextronics. The first one was that LEGO intended to run a cost-saving business model by licensing out 80 percent of production to Flextronics. Before outsourcing to Flextronics, LEGO conducted its production mainly in Denmark, the United States, Switzerland and so forth, which are high-cost countries. In order to reduce production cost efficiently and response the global trend that nearly 95 percent toy production went to Asian countries quickly, LEGO chose Flextronics as its partner to accomplish the goal. From 2004 to 2006, some of production capacity in Denmark and Switzerland were moved to Flextronics’ plants in Hungary, LEGO handed over the operational control authority of Kladno site in the Czech Republic to Flextronics, and Flextronics opened a new plant in Mexico; instead, LEGO shut down the factory in the United States. Another expectation that LEGO wanted from the relationship of Flextronics was that the LEGO group would like to simplify its production process. Before outsourcing to Flextronics, the LEGO group had a few plants located in different countries such as Denmark and Switzerland as mentioned, and its product diversity was huge, which means that LEGO had six different kinds of...
Words: 1331 - Pages: 6
...environmental standards of the United Sates. * The president of Teamsters, James Hoffa, says that Mexican trucks are older, dirtier, and more dangerous than American trucks. American trucks drivers are taken off the road if they commit a serious traffic violation in their personal vehicle. That’s not so in Mexico. Limits on the hours a driver can spend behind the wheel are ignored in Mexico. * The Congress initially align itself with the Teamsters during the Bush administration which approved a measure setting 22 new safety standards that Mexican trucks would have meet before entering the United States. 3. Did it make economic sense for the United States to bear the costs of punitive tariffs as allowed for under NAFTA, as opposed to letting Mexican trucks enter the United States? * No, it does not make economic sense to the United States because the United States have to bear the tariffs which may affecting their economy. * According to the passage, Under the terms of the NAFTA agreement, Mexico immediately placed tariffs on some $2,4 billion of goods shipped from the United States to Mexico. California, an important exporter of the agricultural products to Mexico,...
Words: 1152 - Pages: 5
