Anthony, who owns a broom and mop factory in New Mexico, has decided to use global outsourcing, and he is considering utilizing maquiladoras. Describe global outsourcing and maquiladoras, as well as their benefits and drawbacks for Anthony's company.

Question

What will be an ideal response?

Answer 1

Global outsourcing or offshoring is using suppliers outside the United States to provide labor, goods, or services. The reason may be that the foreign supplier has resources not available in the United States, such as Italian marble. Or the supplier may have special expertise, as do Pakistani weavers. Or—more likely these days—the supplier's labor is cheaper than American labor. Because brooms and mops are not expensive products, Anthony's profit margins are likely to be very thin, which means that Anthony's company can probably increase its profits greatly by offshoring many of its tasks, such as labor for assembling the brooms and mops. The drawback, of course, is that Anthony will lay off many of the workers in his U.S. plant, who will find themselves without jobs. And it is unlikely that the jobs that Anthony has outsourced will ever come back to America because Anthony is not in the business of selling high-end or high-touch products or services.

Maquiladoras are manufacturing plants in Mexico that offer special privileges to companies in return for employing Mexican citizens. Maquiladoras provide less expensive labor for assembling everything from appliances to cars. By outsourcing his manufacturing to Mexico, Anthony will save on labor costs but eliminate American jobs. If we are looking at the situation from an international perspective, in this case the United States' loss is Mexico's gain. Fewer Americans will be employed, but more Mexicans will be employed—which means that more Mexicans will have an income with which to purchase brooms and mops (as well as other products), which could further increase Anthony's profits.