Supplying Product to Foreign Buyers: The Decision to Produce Domestically or Abroad and its Economic Effects
Today, companies face the unique challenge of operating in a globalized economy. Globalization and trade liberalization have created an ultra-competitive marketplace, unlike anything experienced in generations passed. This fierce competition between global competitors makes relevant the topic of the effects companies have on the local economy when deciding whether to produce a product to be sold abroad, either locally or abroad. This issue has been the topic of many heated debates as many Americans often see outsourcing any component of production as simply a method for stripping jobs and income from American families, while companies argue that it is the only way they can remain competitive.
This paper will investigate what factors lie behind making this decision to either produce a component in-house or outsource it utilizing Transaction Cost Theory. And, Richard Kahn’s Multiplier Effect will be used to explain some of the effects that occur to the economy because of this decision. In the end, it will be shown that the decision to produce a foreign product abroad may actually be in the best interest of the American economy in the long run.
