Industrial processes have varied impacts on the environment. Depending on the intensity of these environmental impacts, these processes can be streamlined to ensure sustainability of resources within the industrial set up. (Ayres & Ayres, 2002)
Industrial ecology is an environmental agenda where industrial systems are modified to enhance sustainability of resources and limiting environmental degradation. (Young & Murray, 2005) It involves identifying energy flow and resources with a view to transforming the system from one with an open linear flow to one with a closed loop thus reducing wastes produced.
Contact process
In highlighting industrial ecology, this work focuses on the industrial manufacture of Sulphuric acid. It explores the material flows of the system and highlights the system design employed to ensure an effective industrial environment. Contact process is an industrial procedure in the manufacture of Sulphuric acid. The stages involved are:
Combustion of Sulphur: this involves the combination of Sulphur with Oxygen to release Sulphur dioxide. This gas is then purified in the purification chamber to eliminate dust and other particles.
Re-oxidation of Sulphur Dioxide: the pure Sulphur dioxide obtained from the oxidation of Sulphur is further oxidised to produce Sulphur trioxide. The Sulphur trioxide is an acidic gas responsible for “acid rain.” To prevent this phenomenon, the industrial ecologists have deduced a framework based on several engineering principles.
Formation of oleum: the Sulphur trioxide obtained is further purified and mixed into a chamber containing concentrated Sulphuric acid. The compound formed, oleum, is then dissolved in water to form Sulphuric acid.
Industrial ecology principles in the contact process
The contact process poses immense challenges that have to be corrected.
Energy flows
Energy conservation and preservation is an aspect of environment the globe is currently grappling with. The contact process, in the interest of conserving energy, recycles heat energy obtained from the catalytic chamber. The heat is reused in the combustion of Sulphur. This essentially means that no heat energy is lost. It is thus important to design the system in such a way that the hot catalytic fumes are conducted back to the oxidation chamber for reuse.
Basing facts on the principle of Le Chatelier, the system has been designed in such a manner that the hot fumes obtained are also reused to support the whole system which requires humongous heat energy to yield high volumes of the acid – the process is endothermic. (Salzano, 2003)
Emissions gases
The process emits SO2 and SO3 which are considered acidic gases. Industrial ecology principles dictates the elimination of these stack gases forthwith, this is done through “scrubbing of the gases” hence reducing their effects on the environment. They are run through a stream of water dissolving them thus preventing their escape into the environment. The gases can also be neutralized with lime slurries before emission into the atmosphere. Nevertheless, the gases are treated with concentrated saline solutions -Ammonium Sulphate ,thus forming less toxic compounds.
SO2 is recycled into the oxidation chamber where it is further reacted with Oxygen to release SO3 which is dissolved forming oleum. The system thus reveals the recycling of the two gases.
Conclusion
Through industrial ecology, wastes in the process have been effectively reused reducing production cost. In addition, toxic products are recycled into the system making the process efficient (Kolstad, 2007)
References
Ayres, R. U. & Ayres, L. (2002). A handbook of industrial ecology. Cheltenham, U.K.: Edward Elgar Publishers.
Kolstad, C. D. (2000). Environmental economics. New York: Oxford University Press.
Salzano, M. (2003). The contact process on graphs. Rio de Janeiro: IMPA Publishers.
Young, D. & Murray, S. (2005). Industrial engineering. Chicago: Kaplan AEC Education publishers.
International trade has enabled nations to get raw materials and finished goods from other countries. Economic, political, and social activities have been enhanced through trade relations among countries (Sourdin 2012). America trades with almost all countries in the world in terms of importing or exporting goods or services. The America Defense Force import shoes from Asia, and this has led to debates that would lead to the improvement of local industries to ensure these products are sourced from American companies. This essay presents an analysis of an article about the military shoes and local manufacturers and the economic effects of promoting local shoe manufacturing industries to supply the products.
Article Analysis
James R. Hagerty and Ben Kesling argue that America has the potential of manufacturing missiles, nuclear submarines, and fighter jets, but it surprises most critics that the military that uses this equipment but find it difficult to trust local companies to supply safe sneakers. However, the Department of Defense has come to the rescue of local industries and agreed to consider their bid to supply these shoes (Hagerty and Kesling 2014).
The local manufacturers did not have the capacity to produce some shoes; therefore, there was an amendment in 1941 (the Berry Amendment of 1941) that allowed the Defense Department to buy items that were not manufactured by American companies. The comfort and safety of soldiers’ feet were the most important aspects that were given attention when selecting the quality of shoes for the military. These authors argue that lawmakers from Massachusetts, Michigan, and Maine and the domestic shoe industry are piling pressure on the military to stop exempting U. S. -made sneakers (Hagerty and Kesling 2014).
Shoe makers like New Balance Athletic Shoe Inc. and Wolverine Worldwide Inc. expressed their abilities to produce quality shoes and argued that this would promote the economy and create jobs for about 200 people. Legislators like Mike Michaud, Michaud Said, and Susan Collins have expressed their interest in compelling President Obama and Defense Secretary Chuck Hagel to understand that local industries are ready and able to deliver the expected quality of shoes. These authors argue that Asia exports more than 99% of the military’s footwear (Hagerty and Kesling 2014).
New Balance Company is among those prepared to benefit if the government decides to stop importing shoes from Asia. Its spokesperson argues that military recruits will save a lot of money by purchasing locally manufactured shoes. This company wants the military to buy 100% U. S. -made sneakers even though it currently provides part of its supplies like T-shirts, underwear, and socks (Hagerty and Kesling 2014).
It is evident that most recruits do not bother the quality or origin of their sneakers, but pay attention to how they fit them. Tom Capps (president and majority owner of Capps Shoe) argues that there are fears that Asia might not be available to supply the American military with what it requires and thus there is the need for the U.S. to start thinking of relying on local industries (Hagerty and Kesling 2014). There were claims that the state should waive the cost of acquiring and manufacturing shoes that could not be produced in America for soldiers that had unique needs.
Economic impacts of having all American shoes being produced in America
The military will get cheap shoes because the cost of producing them in local industries will be less than that of importing them from Asia. Also, there will be no transportation costs or other expenses incurred in shipping shoes from their manufacturers in other countries to America. Therefore, the soldiers will afford to buy cheap and quality shoes and at the same time, save, money for other uses.
Secondly, there will be employment opportunities in local industries. It is necessary to explain that the demand for local shoes will increase when the military decides to buy 100% U. S. -made shoes. Unemployment is a serious problem facing America, and if it decides to support local industries th,e impacts of this challenge will be reduced (Sourdin 2012). One company can employ more than 200 people, and this means that there will be employment opportunities for more than 1000 unemployed Americans. Also, suppliers and marketers will also create job opportunities, and this will boost the gross domestic product of America.
Thirdly, local industries ensure money is circulated in a country (Sourdin 2012). This eliminates trade deficits caused by the limited supply of money in circulation. The military should consider buying shoes that are 100% U. S. -made to ensure money is not used to buy goods in other countries. This will strengthen the American dollar and make it attractive in the international market. The recycling of a large share of their revenue will ensure money is circulated within the American territory.
Also, there will be an improvement in the local infrastructure because these companies will require passable roads and efficient communication systems (Sourdin 2012). This means that the local communities will benefit from improved service delivery and issues like insecurity, poor roads, and unreliable communication networks will be eliminated. Therefore, it is necessary for this country to consider buying military shoes from local industries.
Lastly, local shoe manufacturing industries will stimulate economic growth by attracting investors in other industries. There will be fast-food restaurants, entertainment joints, public transport, and other services offered near these industries. This means that the establishment of auxiliary industries will benefit the American economy, and this shows the benefits of buying locally manufactured products.
Conclusion
However, it will not be wise to rely on local industries to supply shoes for the military because of unpredictable circumstances that may affect the operations of suppliers. Calamities like fire outbreaks, floods, tornadoes, and others may affect the activities of shoe manufacturing companies and expose the military to inadequate supply of equipment. Therefore, it is necessary for America to consider importing these shoes rather than getting them from local industries.
References
Hagerty, J. R. and Kesling, B. (2014). America’s Strategic Shoe Reserve Military Explores Requirement that Sneakers Be U. S. -Made; New Balance of Power. New York: Dow Jones and Company. Web.
Sourdin, P. (2012). Trade Facilitation: Defining, Measuring, Explaining and Reducing the Cost of International Trade. Massachusetts: Edward Elgar. Web.
Clear Hear Manufacturing seems to be a company that has been in the business of manufacturing for few years given that it is still yet to obtain a stable market share of it clients. This is evidence from the fact that the company has an excess of 70,000 cell phones that are yet to be sold.
It also appears to be a relatively small company given that the only employee that we encounter in the case scenario is Lisa Norman who is the production manager; in fact this major decision of approving the ideal production level for the company is delegated to her while it is normally taken up by more senior executives in large companies.
Finally the company appears to be guided by best business practices that are well captured and outlined in its three mission statement, which we find Lisa Norman contemplating in this case scenario.
Fixed and Variable Cost
In principal fixed cost are expenses that are not influenced or affected by the scale of services or goods that a company undertakes such as rent, utilities and employee salaries (Gelles and Douglas, 1996). Variable costs on the other hand are company expenses that vary with change in scale of company operations such as overtime employee allowances and transport costs among others (Gelles and Douglas, 1996).
Variable costs are therefore considered to be expenses that are incurred during product manufacturing or during sales of services or goods; in this case it will be the costs that are associated with the increased production level of the Alpha model phones that Lisa is considering to produce.
However for simplicity purposes variable costs are taken to be all types of expenses that tend to fluctuate with levels of business operations, this way it is much easier to separate fixed cost from variable costs.
According to financial principles, what is needed to be done to lower the cost of production in this case is to significantly reduce the variable cost while effectively utilizing the fixed cost that the company must meet. This concept is well captured by the Minimum Efficient Scale (MES) which is most suitable for determining the ideal production level of a company at which production is most cost efficient.
Minimum Efficient Scale
Minimum Efficient Scale (MES) is a concept primarily used in industrial organization to describe a point in production whereby a manufacturing plant produces the least amount of units that are able to minimize the Long Run Average Costs (LRAC) of the plant (MacAuliffe, 2004).
It is the point where minimum efficient scale of a plant is attained since the least production of units at the lowest opportunity cost is attained, below this point a plant is not able to produce goods and meet the long run average costs of the plant. It is usually indicated as the first point of the LRAC curve when the variables of production and costs are graphically represented.
The minimum efficient scale concept is also used to determine the point at which the maximum effectiveness of the plant is attained (McConnell, Brue and Flynn, 2009). Ideally since the minimum efficient scale is a specific point in the production curve its value is often expressed quantitatively as an exact figure; nevertheless it can take various ranges as well as values (Frisch, 1980).
This is because the long run average cost (LRAC) curve is basically influenced by two major variables: economies of scale and diseconomies of scale (Frisch, 1980).
Hence minimum efficient scale is not necessarily a single value of quantity but may also include range of values for which the point of minimum efficient scale can be said to occur.
Economies and Diseconomies of Scale
Normally in estimation of MES the long run average cost curve is usually L-shaped since manufacturing industries has substantial low-end economies of scale that eventually get exhausted rapidly (Ferguson, 1990). The result is that average costs for production remain constant for all firms in the industry. Hence the L-curve design of long run average cost implies that MES is a concept that mainly defines the lower end limits of plant size as well as the high bound limits.
Fig 1: Long-run Average total cost curve
As indicated in the curve above the cost of production for a firm reduces with increasing output of the plant up to a certain level, thereafter further increase of output leads to increased cost in production since it is at this point that diseconomies of scale sets in (AmosWeb.com, 2009).
Prior to that, the firm is efficient because of various returns on scale such as managerial economies, technical economies, marketing economies and purchasing economies (McConnell et al, 2009). Ultimately the various factors that determine production cost for firms tend to vary in the long run since plants must determine the choice of approach that they must opt to attain the optimum production level.
MES point for Clear Hear manufacturing company
The concept of MES that we have discussed will now enable us determine the point at which maximum production levels should be capped at for Clear Hear Company, which is the maximum efficient scale.
To determine this let us now look at the current units of production and their prices. Under the present circumstances Lisa Norman cannot afford to do business with Big Box given the maximum price that they are willing to pay is $15, while the cost of production for Alpha model is $18.
This means there are two options for Lisa, to significantly reduce the total cost incurred in production of the Alpha model below the $15 mark in order to make profits, or consider the OEM offer that would enable her produce the Alpha prototype at $14 thereby enabling her to make a $1 profit.
At the current production level of 70,000 units it is unlikely that increased plant output at 100,000 would be large enough to significantly reduce the total costs up to a point that would increase the profit margin beyond the present $1. This is because increasing production levels in a company is essentially expensive in the short term, even though it has the advantages of economies of scale in the long term.
Unfortunately there is no enough data in this case scenario that would enable calculation of change in total cost as production levels of Alpha model cell phones are increased to 100,000 units. Option two would be most favorable since it will increase the cost output of the Clear Hear Company to a level that would enable it maximize on the economies of scale.
With the $14 price tag that is being offered by the OEM, Lisa Norman can further increase the profit margin by lowering the variable cost incurred in the production of the Alpha model prototype and thereby increase the profit margin beyond the projected $1. It would also enable maximum utilization of the plant thereby enabling Lisa Norman to qualify for bonuses from both ends; high sales volume and optimal plant utilization.
Table 1
Unit Profitability Report
Alpha Model
Alpha Model
Beta Model
Price per Unit
20
30
Variable cost per unit
8
12
Fixed overhead
9
10
Profits
3
8
Conclusion
In conclusion Lisa Norman should opt to choose the OEM offer which will enable her produce the required units of Alpha model prototype since it provides higher return levels. This is because average cost per unit is calculated by dividing the total cost (fixed + variable) by the number of products produced; to reduce the total costs there are two options that are open for Lisa regarding this approach.
To reduce the variable cost, since fixed costs cannot be reduced, or to increase production of Alpha model cell phones to a level that would lower the overall total cost; she should choose to do both. However, all other factors being constant foregoing the production of 30, 000 Beta model and producing the 100,000 Alpha model prototype will be a cost effective alternative. This is especially the case since the cost of production that is associated with manufacture of the Beta model is significantly higher than production of Alpha model.
What do you understand by the term “a highly competitive industry”? Explain what is meant by diminishing returns. From these costs, curves explain when diminishing returns set in? Why?
“A highly competitive industry” is an industry in which there exist numerous numbers of companies in an industry that has extremely low entry barriers (Economics.csusb.edu, 2010).
Low entry barriers imply that each time competition decreases, a number of companies by a huge proportion also reduce while profits increases; meanwhile new companies try to penetrate the industry in order to take advantage of the increasing profits (Economics.csusb.edu, 2010).
Diminishing returns are a reduction in the per-unit quantity of the process of production as the output of an individual production factor is raised, whilst the output of every other production factor remains constant (Discusseconomic.com, 2011). Diminishing returns take root beyond Q=6 when the MC curve begins to increase; ATC continues to drop until Q=8 when the increase in AVC corresponds with a drop in AFC. Quantity Q=8 is the ATC lowest point for the company in the short-run and this is because it is the quantity of productive efficiency.
Explain and illustrate the relationship between ATC, AVC, and AFC.
MC intercepts the ATC and AVC curves at their least points as shown by the graph above; thus, when MC is under ATC, ATC is decreasing, and when MC is over ATC, ATC is increasing. MC increases with the output and MC crosses both AVC and ATC curves from underneath at their least points and proceeds higher. The AVC and ATC curves contract together as quantity rises since the only variation in AVC and ATC are AFC. Because AFC decrease as quantity is extended and the variation between ATC and AVC diminishes, the FCs are allocated to the rising output level (Tutor2u.net, 2011).
Using the firm’s profit maximization graph, explain whether the company will continue to operate in the short and long run at the market price of $ 24.
The firm will continue to operate at the market price of $24 in the short run because it is operating in a competitive environment and a firm’s decision does not impact the price set by the market no matter what quantity the firm produces. But in the long run, the price will be below $24 due to an increase or change in the production factors like improvement in technology which increases supply in the industry and reduces the price at a point where MR=MC (Enterprisestrategygroup.com, 2010).
If this firm is typical of firms in the industry what will be the industry’s long-run price and the firm’s long-run profit position? Explain the process by which the industry and the firm adjust to this long-run position. Will the industry experience an increase or decrease in the number of firms in the long run? Why?
The long-run price will be equal to the MR this is because firms in perfect competition take the price (P=$24) and the firms receive average revenue (AR) in return, which is equal to P. Therefore, AR=P which is stable, and MR for additional units sold which to equate to P, which is similar to AR. As a result, the firm’s long run profit will be equal to zero (Economicshelp.org, 2010).
In the short-run the market price at equilibrium is established by market forces of supply and demand; in this case, the market-clearing price is $24 that is applied by every company in the industry.
Since the price of the market is stable for every unit sold, the AR curve turns out to be the MR; now, a company will only maximize profit when MR=MC. Thus, the firm will sell Q units at $24 and make an economic profit in the short-run since the price of $24 will be higher than ATC. In the long-run, however, the production factor such as technology or labor may change implying the supply curve may shift to a higher level establishing a new equilibrium point that is below the price= of $24. Despite this the MR must equate to MC, meaning that the price has reduced due to increased supply. A price of less than $24 reduces revenue and consequently profit, and a long-run position is established (Economicshelp.org, 2010).
The industry will experience a decrease in the number of companies in the long run as the firms exit the industry as a result of the high cost of production and lack of supernormal profits which attracted them to the industry in the first place (Economicshelp.org, 2010).
A university researcher develops a technological break-through that lowers costs. If fixed costs decrease to $20, determine what happens to the efficient scale? What happens to ABC Company’s profit in the short and long-run? What will be the long-run equilibrium price? Will there be entry or exit of firms in the long run?
In the long run, the price will reduce, therefore an improvement in technology will increase supply in the industry forcing prices to rise. Therefore the efficient scale in the industry will increase since the fixed cost has reduced meaning the firm will produce more at the least point on ATC (Demonstrations.wolfram.com, 2011). In the short run, ABC profit will be supernormal because of the low cost of production and a high price per unit sold, while in the long run, the firm will make normal profit or losses due to an increase in variable cost as the firm produces more and new entrants come into the industry.
The long-run equilibrium price will be below the market price established in part 6 above but at a point where MR=MC. In the long-run firms making economic losses will exit the industry and there will be no entry as costs of doing business will be high (Economicshelp.org, 2010).
A change in government labor policy lowers the wages of workers that ABC Company and similar firms employ. At each output, variable costs decline by $4 while the fixed cost remains at its original level of $ 46. What happens to ABC’s profit in the short run and long run? What happens to the long-run equilibrium price?
The lowering of labor costs will reduce the total costs and variable costs of manufacturing by $4, but fixed costs will not change. In the short run, the firm will make a supernormal profit since the price of each unit will increase and the cost of production will have reduced, while in the long run, the firms will make normal profit or losses due to the decreasing price of the product forcing firms to leave the industry. ABC’s long-run equilibrium price will be below the one established in part 6 (but MR must equate to MC) above due to increased supply in the industry and this will remain constant (Economicshelp.org, 2010).
A government scientist develops a technical breakthrough that lowers costs. If Fixed Costs decrease to $ 26 and the fall in wages causes the variable costs to decline by $ 4 as in Question8, determine what happens to the efficient scale? What happens to ABC’s profit in the short run? In the long run? What happens to the long-run equilibrium price?
In this case, then the efficient scale of the firm will improve as it will be able to produce more at lower costs; this will then increase the market supply. In the short run, ABC profit will be supernormal because of the reduced cost of production as well as an increase in the efficient scale, but this will change in the long run because the price of the unit sold decreases because more firms are attracted to the industry increasing the supply and forcing prices down; this eventually leads to normal profit at the point where MR=MC. In the long-run equilibrium price will be below the one established in part 8 above, this is because of the increased supply plus the new entrants in the industry-leading to a drop in the unit price of products sold (Demonstrations.wolfram.com, 2011).
The trade performance of Malaysia’s manufacturing good can be determined by its comparative advantage. Comparative advantage measures the cost of producing a particular product in country X against the similar product in country Y. Economists analyze the ratio of two trading countries as an indicator of its trade performance (Bowen & Pelzman 2008). Hence, Malaysia can have a comparative advantage when it produces fewer goods.
According to trade analysts, comparative advantage measures a country living standard and revenue (Gangnes 2010). The factors that influence the comparative advantage of Malaysia’s manufacturing goods includes abundant resources, efficient communication, technology, low-cost of manufacturing goods and the pattern of demand (Bowen & Pelzman 2008). The presence of raw materials such as timber influences the production of cheap furniture for export.
Communication is an important factor of production. Malaysia’s cheap labour influences the cost of production. Thus, the comparative advantage of a country can be affected by the factors mentioned above. Malaysia has abundant timber; hence the cost of producing wood products is low compared to China and Japan. Malaysia’s industrial policies remain open while maintaining the 21st position on the world export table (Wen 2005).
The growth of its manufacturing goods remains steady because of its abundant resources and low-cost production. The revealed comparative advantage of Malaysia’s manufacturing goods exceeds Singapore, Thailand, Indonesia and the Philippines (Viilman 2009). The increase in the production of E&E accounts for the increase in the economy. The steady growth of Malaysia’s Exports is influenced by its international presences and trade performance. Malaysia export performance of E&E products increased by 104%. Malaysia’s export value grew by 37.5%. The result indicates Malaysia’s trade performance against the US, China and Singapore. Malaysia’s E&E trade performance surpassed Thailand, Singapore and the US (Shapira 2011).
References
Bowen, H & Pelzman, J 2008, US export competitiveness, McMillian Press, New York.
Gangnes, B 2010, Global production networks in electronics ad intra- Asian trade, Hawaii, Manoa, Economic Review, China.
Shapira, P 2011, Knowledge economy measurement: methods and insights from the Malaysian knowledge content study, Asia Fellows Program 2010-2011, China.
Viilman, N 2009, Market share analysis of Malaysian exports: implication on its competitiveness, Review of Economics and Statistics, China.
Wen, C 2005, Export competition between Thailand/Malaysia and China in the US market: survey on electrical and electronic product. Asia Fellows Program 2000-2001, China.
Off shoring as a method of conducting business involves transporting business operations such as manufacturing and service activities to emergent nations like China, India, Malaysia, Russia, and other countries. Some of the nations known for exporting their business ventures include the US and other European countries.
The manufacturing activities include designing of complex computer chips, toys, electronics and other electrical appliances especially in China (Gregorio, Musteen, & Thomas, 2009). On the other hand, India is an off shoring spot for call centers, IT services and password resetting services.
In this essay, we are going to discuss the pros and cons of off shoring for companies. For instance, firms decide to off shore due to reduced labor costs backed with workers with exceptional capabilities. In addition, there is improved efficiency for companies that have gone off shore and a wider market base resulting to increased customers.
On the other hand, the cons of off shoring include dangers of communication with the off shore country especially due to cultural gaps. There is also rebellion of workers and the public who may not embrace such a move due to hazards of losing their jobs.
In this 21st century, global competition is rapidly increasing in developing countries that are seeking services from other progressive nations that can provide such. This has led to exportation of numerous jobs in foreign countries in order to meet these needs. This is what is called off shoring in business language.
Advanced countries like the US transport their businesses that include services, manufacturing and other numerous operations to China, India and Russia. For instance, India is a known off shoring point for services in Information Technology and Call Centers jobs whereas China and Russia deals in manufacturing that involves electronics, complex computer chips and toys (Lewin & Peeters, 2006).
Companies renowned for moving their business operations include IT firms, for instance, IBM, Intel, Microsoft, and Oracle among others that have taken advantage of cheap labor and efficiency among workers of India. Other firms exporting their manufacturing services include Citibank, EMC, and Ernst and Young because of swift development of these markets and reduced cost of doing business.
However, for any off shoring venture to prosper, companies put to consideration the efficiency of operations and position of the market (Mushore, 2006). For efficient operations, firms involve off shoring to boost labor production while market position increases the number of clients.
Activities being off shored to China, India, Malaysia and Czech Republic include IT services, business processes and call centers. For instance, off shored IT services have resulted to robust ICT markets of both China and India. China was ahead of US in terms of production and exportation of ICT products whereas India tops the chain of the leading ICT and other ICT supported services in the world (Carmel & Tjia, 2005).
This has resulted to the creation of more jobs especially in electrical and electronics sector. There are also manufacturing activities that include making of electronics like television sets, radios, computers, microwaves and others especially in China where they use cheap imported equipments.
There is also manufacturing of complex computer chips off shored to India and China by IT companies like IBM and Oracle. In addition, the production of toys and robots has been off shored to China and India due to their fair costs and flourishing ready markets for such products.
Furthermore, programming activities are off shored to developing countries like China and Malaysia due to high skills and speed of their workforce in meeting a company’s target. Other firms like Hewlett-Packard (HP) have exported their digital networks to South Korea due to their highly efficient telecommunication industry (Kedia & Mukherjee, 2009).
There are several reasons why many organizations off shore their services in developing countries like China, India, and Czech Republic. For instance, there is reduced cost of labor in these countries when compared to the host country.
However, when compared with outsourcing which involve contracting an outside business company to provide services for your firm, the cost of labor is always high especially when done domestically (Gregorio, Musteen, & Thomas, 2009).
Whereas in off shoring there is increased flexibility in conducting business especially in distribution of resources, in outsourcing it is the opposite. In outsourcing, client managers can lose flexibility in the business operations and production of the organization.
Otherwise, there are also several disadvantages of off shoring as compared to the advantages of outsourcing. For instance, there are communication problems when dealing with customers in far way lands, for example, US and China. In off shoring, communication is always done through email and telephones which lose the human touch.
However, in domestic outsourcing, the business partner is within making efficient correspondence. Furthermore, there is the challenge of culture differences when a firm is off shoring with another company (Kedia & Mukherjee, 2009).
This has been known to cause poor communication between business partners. On the hand, home outsourcing involves dealing with people of one’s culture making interaction easier than off shoring.
The organization off shoring can profit in a number of ways, therefore, enhancing its competitiveness in a cutthroat global market. For instance, there is cheap cost of labor when dealing with countries like China or India. Therefore, when the cost of labor has been reduced, a company has a chance to spread its networks to other markets leading to increased revenue thus elevating it above other competing firms.
In addition, a company utilizes a work force of high skills and talents leading to increased innovations in the organization. With increased innovations and creativity, quality goods would be produced by the company and at a speedy rate due to their skills boosting global sales (Ellram, Tate & Billington, 2008).
The other merit is increased number of clients whereby when a firm is exporting its manufacturing and services activities to developing nations like Malaysia and China, the number of buyers of such products also increases (Lussier, 2008).
For example, ICT companies such as IBM and Microsoft have opened offices in India, China and other economically stable Asia nations to reach a wider base of customers. There is also Hewlett-Packard and Intel who have established service companies in Korea to capture the mass market and take advantage of the fast growing economies.
The explanations behind transporting services and other business operations by progressive nations like US and England to developing countries like China and India are many. They include reduced cost as most developing nations provide low cost laborers. There is also the utilization of outside assets to sustain the goals of the off shoring company so that the set targets of the organization can be met.
For instance, this been witnessed with Intel which established a relationship with IT institutions especially in Russia by providing donations to produce the best technical talent. The other reason for off shoring is to spread its market in the global economy and reach several clients so that revenues are increased (Doh, 2005).
Organizations also export manufacturing activities to increase the worth of their products. This is always intended for the international market to increase competiveness and, therefore, increase profits. In addition, firms offshore in order to access a skilled labor that can perform effectively and at a reduced cost as earlier mentioned.
Manufacturing firms are known to go off shore so that they can improve their flexibility and evade tariffs. Furthermore, service industries like IBM, NOKIA and Microsoft embrace off shoring because of reduced risks due to minimal investment (Jones, 2009).
The dangers that come with exporting business activities to other countries are many. For instance, a company involved in business with a country with unlike laws and traditions from that of the progressive country. This is what results to culture gap between the two companies (Doh, 2005).
Another danger is the off shore company, for example, in India, can decide to give a contract it has been granted to another third company without knowledge of its client. This is where the hidden costs arise as numerous losses are incurred due to shoddy work. In the end, customers shift to other companies in search of quality products.
Another hazard with off shoring is rebellion from workers and the public who may not like the decision. This can affect the objectives of the organization especially when they are beginning. This is worse when workers’ unions are involved which can lead to strikes and go slows resulting to loss of control of the business.
Apart from rebellion of the employees, the public can also marshal a political rebellion that can destabilize the plans of the company before it starts shoring. Lastly, the profits realized due to off shoring can be affected by high costs of migration (Ellram, Tate & Billington, 2008).
In off shoring, there are implications for international managers that have an effect on the organization, for instance, on the aspect of the customer, a good rapport with suppliers has the gains of acquiring excellent goods. Alternatively, on the suppliers’ aspect, they realize that by conducting global business with their clients, they increase their connections leading to the wider business contacts.
Another implication is a strategic location where managers must realize that a convenient location is ideal for business as this attracts customers and generates profits. It is what we called earlier as market positioning (Doh, 2005).
In addition, managers should always be alert for the markets they have selected to profit from the location as they hunt for other suitable sites. Furthermore, global managers who want to excel in off shoring must appreciate political connections and protection especially during hard economic periods.
Governments tend to put in place stringent policies during these hard periods and are upon politically linked managers to gain from such situations. Furthermore, organization from distant miles in off shoring business requires managers who are much in control so that meaningful results can be realized in the organization.
In other words, there is an urgent need for proper coordinated management and effective evaluation of performance (Lewin & Peeters, 2006).
In summary, we can say off shoring, as a business move should be encouraged to enhance a global competition and tap on the skilled labor at a reduced cost (Mushore, 2006). Off Shoring should also be embraced to take advantage of the flourishing international markets to boost customer base and, therefore, increase on revenue. This is only possible if the companies choose a suitable site for conducting the enterprise.
In addition, instead of outsourcing domestically, which we said earlier as contacting a business partner within your country to provide your firm with certain services; off shoring results to global sales as compared to outsourcing that is only local.
However, off shoring should be embraced, although with careful consideration of the welfare of employees in the organization. This is because services such as call centers and ICT services are now being exported to countries like China and India. This is due to their fast moving markets, which renders the off shore work force jobless.
This results to unrests and other uncertainties that unless clearly investigated and resolved, will lead to other negative effects on the global trade. In addition, managers will have to consider the hazards of venturing into off shoring activities due to problems of their businesses being handed to third parties, poor market sites and lack of political connections (Jones, 2009).
References
Berry, J. (2006). Off shoring opportunities: strategies and tactics for global competitiveness. New Jersey, NJ: John Wiley & Sons.
Carmel, E. & Tjia, P. (2005). Off shoring information technology: sourcing and outsourcing to a global workforce. New York, NY: Cambridge University Press.
Doh, J. (2005). Offshore outsourcing: Implications for international business and strategic management theory and practice. Journal of Management Studies, 42(3), 695–740.
Ellram, M., Tate, L., & Billington, C. (2008). offshore outsourcing of professional services: A transaction cost economics perspective. Journal of Operations Management, 26(2), 148–163.
Gregorio, D., Musteen, M., & Thomas, E. (2009). Offshore outsourcing as a source of international competitiveness for SMEs. Journal of International Business Studies, 40(6), 969–988.
Jones, W. (2009). Outsourcing in China: Opportunities, challenges and lessons learned. Strategic Outsourcing: An International Journal, 2(2), 187-203.
Kedia, B., & Mukherjee, D. (2009). Understanding off shoring: A framework based on disintegration, location, and externalization advantages. Journal of World Business, 44(3), 250-261.
Lewin, A., & Peeters, C. (2006). The top-line allure of off shoring. Harvard Business Review, 84(3), 22-24.
The type of government in Kenya is almost similar to other governments around the world. People’s representatives are elected through democratically held elections with governments and various bodies around the world sending observers to ensure transparency. However, citizens are not allowed to vote on issues that relate to policy formulation and changes in law unless in special circumstances like constitutional referendum.
The president acts both as the head of state and head of government and is elected through popular vote. He is also a member of parliament. The president chooses members of the cabinet from the elected members of the legislative assembly. The country’s laws are made by legislature in the national assembly. The numbers of legislatures, known as members of parliament (MPs), currently stands at 210.
A small number of MPs are also nominated by their respective parties. Apart from the central government, there are smaller administrative units known as districts which are further divided into divisions. The government further comprises of the judiciary led by the chief justice.
The judicial service commission, just like the parliamentary service commission, looks into issues of remuneration of judicial officers and their welfare.
One issues that seems to bedevil Kenya is the high rate of corruption in the country, particularly in public offices. Besides, business people opting for short cuts in attaining business permits and other licenses have to bribe the authorities so that the process is hastened (Nawaz, 6).
Banking sector in Kenya
Kenya boasts of 43 commercial banks and one mortgage finance company. Among these banking institutions, 30 are locally owned where as 13 are owned by foreign based institutions. The government has significant shareholding in three local based banks. Asset wise, Kenya Commercial Bank (KCB) is the biggest bank with over 2.78 million dollars in assets spread across the country and its neighbors.
Local banks, such as Equity Bank, have also opened branches in neighboring countries such as Uganda, Rwanda, and Southern Sudan, thereby increasing their asset value. At the end of 2010, there were 12.8 million bank accounts serving the country’s population of roughly 40 million people.
This was an increase from the 4.7 million figure that was recorded in 2007. At the end of 2010, there were 1063 bank branches compared to 740 in 2007. Automatic teller machines stood at 1940 currently compared to 1012 in 2007. Agent banking has also been introduced to serve areas that lack bank structures.
Fraud remains a major challenge to the banking sector with 102 fraud related cases being reported annually, resulting into the loss of 390 million shillings. 90 banks have been listed at the country’s stock exchange market (NSE) with combined market value of over 470 billion shillings in a week. There are two Islamic banking institutions- The Gulf African Bank and First Community Bank (Reuters, 2).
Kenya’s financial market
The Capital Markets Authority (CMA) is the institution charged with regulating the Kenya’s financial market (Capital Markets Authority, 1). It promotes market confidence, protects investors from financial losses, and controls the Kenyan capital market.
Kenya’s medical fraternity
The ministry of medical services and ministry of public health are solely in charge of health related issues. The Medical and Dentists’ Board is in charge of disciplinary issues in the health sector while the Kenya Medical Supplies Board ensures that drugs are distributed to hospitals.
Kenya Media
There are both state owned broadcasting houses like the KBC and the private media houses (Media Council, 5). Currently, there are 90 FM stations and 14 television stations. There are a number of print newspapers and magazines too. The Media Council of Kenya and the Communication Commission of Kenya are the regulatory authorities of all media in Kenya (Media Council, 3).
Sales
Any business that operates in Kenya has to be registered by relevant authorities. Any goods or products they undertake to sell have to be approved by the Kenya Bureau of Statistics.
Manufacturing industry in Kenya
This industry serves both the local and export market and is enhanced by favorable tax reforms and incentives, robust agricultural sector, liberal trade incentives, and expanded market outlets (Price Waterhouse Coopers, 1).
Kenya’s corruption score index
Kenya was ranked number 154 with a score of 2.1 because there is no proper legislation to help fight corruption. The anticorruption watchdog, KACC, does not have prosecutorial powers and has to rely on director of public prosecution who may not be willing to prosecute perpetrators of corrupt practices (KACC, 1, Kenya Advisor, 2).
A culture has also been developed that is not value based that only fuel corrupt practice (Transparency International, 1). Institutions like the police, the judiciary, and immigration are all corruption hot spots (Transparency International, 2, Mwachiro, 4).
Works Cited
Capital Markets Authority. History. 2011. Web.
KACC. Statement by Kenya Anticorruption Advisory Board. KACC. 2011. Web.
Manufacturing was outsourced to a Mexican company.
Manufacturing in Mexico is cheaper than in Canada. This is especially due to the low labor cost in Mexico. This move has helped to reduce Bravado’s cost of goods sold therefore expanding their gross profit margin.
Payment for materials was made six months before delivery.
Bravado negotiated 30-day contracts with the Mexican companies. Payment is now done after the work is complete.
Prepayments usually hold up a lot of working capital. Negotiating the 30-day contracts frees up 5 months’ worth of working capital. This can be reinvested in short-term projects to earn Bravado a profit.
Bravado purchased raw materials in advance and stored them in their offices until the demand for them arose.
Bravado does not purchase any raw materials. The Mexican companies handle that part of the supply chain. However, Bravado now purchases the finished garments at $6 each from the Mexican companies.
Inventory is costly to maintain. Eliminating the storage of materials reduces the risk of obsolescence, theft, and pilferage and insurance payments on the materials. The space set aside for materials storage can be put into a different use.
Bravado staff checked raw materials for quality before receiving them to the store. They also checked the finished garments from the factories.
There is only one quality checkpoint after the garments leave the factory.
This change has reduced the amount of time spent on quality control.
Financial relations
A financial relationship is still necessary at Bravado. This is because banks can be a good source of short term financial assistance. Bravado might need to call upon their help at some point. Thus, it is necessary to maintain good credit ratings. However, for their long term investments, equity finance is the best option for Bravado (Scarborough, Wilson, & Zimmerer, 2009). This is because no regular interest payments are required by equity holders. Debt finance has to be paid back at regular intervals and with an interest. These conditions may prove difficult to meet for a firm that has barely started breaking even. Bravado can also regulate how much equity finance they would like to raise as opposed to debt finance which is at the discretion of the owner who decides how much to grant.
Industrial impact
Manufacturing clout means influencing the manufacturer. This comes with the size of purchases made by these manufacturers. Bravado uses the same manufacturer with well-known brands such as Victoria Secrets and La Perla. The two major brands have more negotiating power with the manufacturer than Bravado. This is the reason why Bravado says they have not much manufacturing clout. Economies of scale are the benefits attained by operating on a large scale. In Bravado’s case, it would refer to benefits attained from large scale manufacturing in Mexico. These benefits would include lower costs of production and high quality of goods due to efficiency in manufacturing. These are the benefits that From is out to exploit.
Inventory
Nordstrom says that the inventory is centralized (Scarborough, Wilson, & Zimmerer, 2009). This means that the entire inventory is found at one location. This is in the case of online stores where virtual stores have unlimited space in which to display their inventory. They can place pictures of all kinds of lingerie on their websites for customers to see. This is unlike normal stores where display space is limited. This can be an advantage to Bravado since customers can easily view their products if they search the website. However, competition with other brands displayed in the same online store is quite high.
Impact of exchange rate fluctuations
The impact of fluctuating currency exchange rates on Bravado is not surprising. Foreign exchange risk is one of the major risks facing businesses in today’s globalized world. Bravado cannot eliminate this risk as they are an export company. However, there are a few ways to minimize their exposure. The best way would be to invoice their foreign customers in home currency. Customers would be persuaded to pay in Canadian dollars. This transfers the foreign currency risk to the customers completely. Any change in exchange rates would have no impact on Bravado (Scarborough, Wilson, & Zimmerer, 2009). The second option is to negotiate currency forwards and futures with their bank. This way, Bravado can hedge against the risk of foreign currency risk and minimize the risk of loss. Finally, Bravado can purchase currency options that allow them to buy or sell foreign currency at a pre-determined amount in the future.
Office building rental
Kathyrn can convert the former materials store to an office block and let it out. This would be a good source of extra finance. She can also consider setting up a factory in the US where most of her sales are made. This expansion into a foreign market would require a huge initial capital outlay. Kathyrn could consider making franchising deals. This way, she would be assured of regular income from the franchisees. She could also make licensing deals. These are the easiest ways for her to enter the American market using minimum capital outlay.
Reference
Scarborough, Wilson, & Zimmerer. (2009). Effective Small Business Management: An Entrepreneurial Approach. Chicago: Pearson Prentice Hall.
This paper broadly discussed the sustainability of the natural resources in the Gulf states. The paper has presented the numerous challenges in the Gulf in relation to the diversification of economic activities. The Arabic nations mainly depend on oil as the principal source of wealth. Nonetheless, this paper presents a rationale that nothing can last forever. Anticipating future depletion of the oil reserves, the paper argues that it is in the best interest of the Gulf States to explore alternative economic activities. There is a risk of solely depending on one economic resource in an entire region. In case of a decline in the demand for the product, the entire region will be at risk. The Gulf States depend solely on oil and the development of sources of energy that are friendly to the environment may threaten its demand.
Introduction
While the Gulf Cooperation Council petrochemical industry is proving a world-leading economic pillar, there is a looming challenge of managing the environmental implications. It is projected that as the industry is set to influence exiting opportunities, there is a downside where some challenges will arise. A number of gulf petrochemical manufactures are more concerned with trading their products hence overlooking the issue of sustainability. It is evident that 5% of the amounts of greenhouse gas emissions are emitted by the chemical manufacturing industry [1]. This is even made worse by the fact that some of these resources are actually non-renewable. Sustainability in the petrochemical industry is a detrimental challenge that is making the industry rate very low in labor attractiveness. Employees are not willing to work in an industry that does not show the capabilities to sustain its employees long enough. Employees seek to secure jobs that can sustain them for a period and offer them a sense of security. These economic times require secure and certain economic plans which can only be provided by employers who have a future and sustainable infrastructure.
The petrochemical industry as of now seems to have hit rock bottom in its pursuit of solutions to the global problems caused by their activities. The global warming that has drastically changed the weather patterns of the entire globe is a major challenge. Far from the environmental challenges, the resources found in the UAE have turned to be tragic inventories. Some people refer to these resources as a curse. The rationale is based on the circumstances that these resources are being exploited. The Middle East is a region known for its reputation in war and conflicts over natural resources. This has led to the rise of incapacitated governments and countries hence paralyzing normalcy in the region. The reason why this is the case is because of the oil deposits found in this region. Sometimes the oil deposits in the region are considered a curse rather than a blessing due to the conflicts that have arisen from the fight to control the oil reserves. Battles ensue within the region due to competition for supremacy and oil control.
The Gulf States are greatly dependent on remittances from their oil reserves and foreign investments. The oil refineries are the main economic activities in the Arab countries although some of the states within the gulf have greatly diversified their economy into the manufacture of other products. Bahrain for instance set up an aluminum smelting plant to mitigate the looming fluctuation in the prices and demand for oil. Dubai on the other hand diversified in the hotel and tourism industry as well as export and sea transport. The creation of the ports in Dubai increased the number of tourists flowing into the country as well as boosted trade in the country. Such developments in the economic ventures give the Gulf States a level of sustainable business outlook that is disrupted by the changes and fluctuations in the oil prices. As the prices keep on escalating and changing, the economy remains stable due to the diversified investment in other economic factors that hold the country in times of crisis. This is the reason why Dubai has turned to be the world’s most popular business hub due to diversification into other industries.
General economic outlook
The UAE’s GDP, which relies on oil prices, has followed a roller coaster model, towering throughout the 1970s and deteriorating steeply all the way through the 1980s. These swings in revenue have caused the system to give the impression of being for traditions to expand the financial system, predominantly in Dubai, where oil production is dwindling. The exploration for diversification has been barely to some extent victorious. Oil revenues linger to be the machine that drives the economy. Oil revenues present 80 percent of financial proceeds and about 60 percent of sell overseas retribution in the period 1990-1994 [1].
The UAE is in an enhanced monetary situation than its instantaneous neighbors. The administration is not hindering spending to service providers or borrowing from foreign commercial banks to reimburse its amount outstanding. It is, nevertheless, drawing leading from its own overseas assets and has loaned from domestic commercial banks in which it has a right in shares. This reduces to greatly extends the public debt and enhances the government’s autonomy in financial matters. Government borrowing can destroy or impede the growth of an economy. Therefore, by establishing an independent financial system, the government increases its chances of making progress in sustainable economic diversification.
The majority of the workers are working for the government [2]. The administration provides several financial support services, which also are comprehensive to foreigners who make up to 80 percent of the entire population [2]. In 1994, the government embarked on a mission to decrease this financial backing by escalating charges to foreigners for various services, like health, water and electricity [3]. The insurance does not completely cover up expenses, and citizens still access a lot of services at cheap or free of charge. In an attempt to restrain the predicament of unlawful laborers, the administration approved a law banishing all foreign laborers in infringement of their visas [3]. The law, which affects practically 10 percent of the UAE’s inhabitants, is in no doubt going to have pessimistic consequences. By now, some food distributors and vendors have accounted for a 30 to 35 percent plummet in trade [3]. In addition, the building segment, which is an inducement for the overseas workforce, anticipates spiky diminutions. Supporters of the law maintain that the removal will relieve joblessness nuisance, lessen misdemeanor and condense government spending.
All the six associates of GCC presently have a privatization policy of some shape as a way to trim down government spending and to rotate unbeneficial nationalized businesses [4]. The UAE particularly has been testing strategies for privatization on diminutive farming endeavors and now hopes to unbolt calculated sectors of its financial systems, such as the petrochemical industries, private investors [4]. In the Gulf States, the major economic asset is the oil reserves which are estimated at 100 billion brains of verified oil reserves. This amounts to almost 10 percent of the entire world’s oil reserves representing an enormous resource in oil deposits. Nonetheless, in order to maintain sustainable economic relevance, there is a need for the Gulf States to diversify their economies. Depending on a single resource as the main economic wealth producer leaves the economy in a volatile situation especially with the global fluctuations of demand and prices. Diversification helps an economy to maintain financial stability in the event of an economic crisis.
Recommendations
Like the UAE has done, the Gulf States must come up with diversification policies to enable their economies to withstand the pressure of economic instability in the global market. All of the greatest economies in the world today have been elevated to their current economic status by the introduction and setting up of manufacturing sectors in their economies. Taking into account countries like Japan, China, South Korea, the United States of America among others, manufacturing industries have been the main economic driving force in these economies. The Gulf States in a bid to diversify their economies should consider setting up manufacturing sectors. Investing in alternative economic factors is a good way for an economy to prevent and protect itself from the looming economic inconsistencies in terms of financial stability. World trade keeps on changing and demand and preferences can not last long hence the need for a diversified economy to take advantage of the changing economic tides.
The Gulf States need diversified economic activities since recent developments in the energy sector may render their main source of wealth useless. The recent developments in solar and wind energy are threatening the demand for petroleum products. Still, the main concern about the use of petroleum products is the environmental effects of greenhouse gas emissions. With the increasing campaigns to avert the greenhouse effects of carbon emissions, the oil market has a challenge. Other environmentally friendly sources of energy are coming up and their presence might affect the viability of the oil products. In the event there is a discovery of an environmentally friendly source of energy that is dependable then the Gulf States will have to deal with a major drop in petroleum demand.
What is the relationship between services and manufacturing?
The nature of relations between service and manufacturing has always been an ongoing issue. Trying to create the most efficient economic model, people wanted to determine the character of relations between these issues and which should be given more attention. However, at the moment, it is possible to say that they both are equally important as neither services nor manufacturing alone could guarantee the economic rise of a region. Modern Africa could be considered a good example of this statement. At the moment, they develop many services; however, manufacturing remains at the same low level as the industry does not evolve. For this reason, millions of young people are not able to find jobs, pay taxes, and promote the rise of the region as well as other services. In this regard, we could state that services and manufacturing are interdependent, and one element precondition the rise of another one. In case some regions are characterized by the powerful industrial sector, people living there will benefit from increased incomes and will have needs for diverse services. The given circle could be considered the integral element of modern society as it preconditions the rise or collapse of different communities, states, and regions.
What policies can governments adopt to promote the growth of manufacturing?
Besides, the growth of manufacturing is one of the main factors needed for the empowerment of a certain region and its becoming prosperous. In this regard, the government should introduce a set of regulations to promote the evolution of this sector. First of all, the policy aimed at the decrease of the unemployment rate should be created. In case a person is not able to find a job, he/she should be suggested a job opening in the sphere of manufacturing. The given policy will help to solve several problems at the same time. First of all, people who have no money to support their families will obtain an opportunity to earn them. It will also help to reduce poverty. Moreover, the influx of manpower to the manufacturing sector will stimulate its more efficient functioning and growth. The high demand results in the appearance of supply, which means that new facilities will be created to satisfy existing needs. The funds needed for the creation of new units will come from the manufacturing sector stimulated by the increased number of workers. Finally, it is also crucial to introduce a limit for state-financed openings in different educational establishments for people to be able to obtain occupation and work in the manufacturing sector contributing to the rise of the region.
What evidence exists to support the argument that manufacturing promotes economic growth?
There are several obvious facts that could be suggested to prove the idea that manufacturing promotes economic growth. First of all, it will reduce the unemployment rate, which is crucial for a state. People who have a job are able to pay taxes which are the main source of income for the budget. The increased budget means that the government is able to spend more money on social initiatives aimed at the gradual improvement of peoples quality of lives and well-being. Moreover, the government will also be able to create new plants and factories where new workers will find jobs. If to consider the fact that manufacturing and services are interconnected, the rise of the first one will also result in the evolution of this important sector and the country as a whole. For this reason, manufacturing promotes economic growth and should be cultivated.
