1. OUTSOURCING TO CHINA
GROUP MEMBERS
DHRUV PATEL
PRIYANKA GUJRAL
SUKHJINDER PUREWAL
MANPREET KAUR
RAMRAJ
AMRIK SINGH

3. USA
World’s largest single
national economy
- Mixed Economy
- GDP $16.63 trillion
- Major Trading partners:
Canada, China, Mexico,
Japan & Germany

4. CHINA
World’s Second largest economy
- GDP $8.23 trillion
- Economy Growth - Low cost
labor.
- At the verge of major
demographic shift
- Tremendous growth in the
manufacturing sector after
entering
WTO in 2001.

5. KEY FACTS AND ISSUES
• Outsourcing
• “Bangalored”
• Low cost labor
• Job loss in U.S
• Competition on “Quality”
• Combination of highly-skilled management
• Production efficiency

6. OTHER IMPORTANT FACTORS
• Difficulty for “National Presto – U.S. Firm”.
• Overseas relocation.
• 2.5% job losses in U.S in 2004.
Reason for job losses Losses % of Total
Overseas relocation 4,633 2.5
Domestic relocation 9,985 9.5
Other 167,838 92.0
Total , private
non-farm sector
182,456 100.0

7. OTHER CRUCIAL FACTS
• China - the world’s fourth largest manufacturer.
• China outpaced Japan.
• In 2003 trade deficit estimated was $124 billion.
• Import barriers
• Unclear legal provisions
• Foreign Direct Investment

8. COMPARISON OF EXPORTS AND IMPORTS

9. DOLLAR VS.YUAN
• Undervalued “YUAN”
• Since 2004, Chinese “YUAN” has fixed to 8.28 to the dollar
• Fear from sharp deterioration to China as well as its trading
partners.

10. INTERNATIONAL TRADE
Exchange of
goods and
services with
other
countries

11. ABSOLUTE ADVANTAGE

12. CLOTH GRAIN
NORTH 10 20
SOUTH 20 10
EXAMPLE
Labor hours of production
for one unit

13. COMPARATIVE ADVANTAGE
nations should
produce those
goods for which
they have the
greatest
relative
advantage

14. CLOTH GRAIN
NORTH 50 100
SOUTH 200 200
EXAMPLE

15. DIFFERENCE BETWEEN ABSOLUTE
AND COMPARATIVE ADVANTAGE
ABSOLUTE
ADVANTAGE
COMPARATIVE
ADVANTAGE
• Not
Mutually
Beneficial
• Cost
• Mutually
Beneficial
• Opportunity
Cost

16. Factor endowment theory
PRODUCE &
EXPORT MORE
OF THE
PROUCTS WHICH
USE RESOURCES
YOU HAVE IN
ABUNDANCE
import
products
requiring a
large amount
of production
factors that
YOU lack

17. INTERNATIONAL PRODUCT LIFE
CYCLE
A theory of the stages of
production of a product with
new “know-how”; it is first
produced by the parent firm,
then by its foreign
subsidiaries, and finally any-
where in the world where
costs are the lowest; it helps
explain why a product that
begins as a nation’s export
often ends up as an import

19. QUESTIONS
???

20. Does the theory of comparative advantage
apply to China’s trade with industrialized
countries? How?
Ability of a party to produce a particular good or service at a
lower marginal and opportunity cost.
• High labour intensity
•
• High skilled management
• Low skilled labour

21. From :
• Toys
• Footwear
• Clothing to household
• Consumer appliances
• The IT manufacturing sector.
Example: National Presto Firm

22. How does the factor endowment theory apply to China’s
trade with industrialized countries?
Factor-endowment theory, U.S.-China trade-
United States
Relatively abundant:
• Human capital (skills)
• Scientific talent
• Engineering talent.
Relatively scarce:
• Unskilled labor
China
Relatively rich:
• Unskilled labor
Relatively scarce:
• Scientific and Engineering talent

23. TABLE 3.1 Producing aircraft and textiles: factor
endowments in the United States and China

24. Are any of the countries mentioned
operating in autarky?
• No most of the developed and the developing
nations don’t follow autarky.
• Quality of being self sufficient
• Example: North Korea

25. How can distribution of gains from free trade cause
much of the political debate regarding trade with
China?
China the 4th largest manufacturer.
Political debate says
The growing trade deficit in 2003 is $124 billion.
The key barriers include:
• Import barriers
• Unclear legal provisions applied
in a discriminate manner against US imports,
• Limitations on foreign direct investment,
• and an undervalued Yuan.

26. RECOMMENDATIONS

27. MANUFACTURING
• USA is ranked first in manufacturing and productivity.
• But in the near future China will replace USA and USA will
stand second.
• Even the western European countries are dependent on
China.
• The cost manufacturing in china is high and is going to
increase in a few decades as compared to the USA.

28. WAGE
• The wage rate is high in china as compared to
the USA.
• Low wage rate is going to continue in the
USA and will grow in China.

29. RELATIONS
• China is building good relations globally as
a result of which many MNCs are relying on
China to outsource.
• Over a long period China has proved its
capacity of production and its efficiency in
providing technical solutions in
manufacturing for an organization.

30. OPTIMIZATION
• China can optimize business breaking through the
traditional boundaries.
• China is improvising in all its manufacturing
function and is highly utilizing its human
resources.
• Large number of people are getting attracted to get
involved in manufacturing because of the
increasing wage rate

31. QUESTIONS FROM US
1. Would it be a boon or bane if China takes effort to
make their economy more market-oriented, including
scaling back the power of state-owned companies and
altering the way the government allocates resources?
2. Wages in China are rising fast – will that help raise
the share of consumption in GDP?
3. What policies should China adopt if it wants to get
growth onto a sustainable path?