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

2. USA Worlds largest single national economy - Mixed Economy - GDP $16.63 trillion - Major Trading partners: Canada, China, Mexico, Japan & Germany 3. CHINA Worlds 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. 4. KEY FACTS AND ISSUES Outsourcing Bangalored Low cost labor Job loss in U.S Competition on Quality Combination of highly-skilled management Production efficiency 5. 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 6. OTHER CRUCIAL FACTS China - the worlds fourth largest manufacturer. China outpaced Japan. In 2003 trade deficit estimated was $124 billion. Import barriers Unclear legal provisions Foreign Direct Investment 7. COMPARISON OF EXPORTS AND IMPORTS 8. 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. 9. INTERNATIONAL TRADE Exchange of goods and services with other countries 10. ABSOLUTE ADVANTAGE 11. CLOTH GRAIN NORTH 10 20 SOUTH 20 10 EXAMPLE Labor hours of production for one unit 12. COMPARATIVE ADVANTAGE nations should produce those goods for which they have the greatest relative advantage 13. CLOTH GRAIN NORTH 50 100 SOUTH 200 200 EXAMPLE 14. DIFFERENCE BETWEEN ABSOLUTE AND COMPARATIVE ADVANTAGE ABSOLUTE ADVANTAGE COMPARATIVE ADVANTAGE Not Mutually Beneficial Cost Mutually Beneficial Opportunity Cost 15. 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 16. 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 nations export often ends up as an import 17. QUESTIONS ??? 18. Does the theory of comparative advantage apply to Chinas 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 19. From : Toys Footwear Clothing to household Consumer appliances The IT manufacturing sector. Example: National Presto Firm 20. How does the factor endowment theory apply to Chinas 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 21. TABLE 3.1 Producing aircraft and textiles: factor endowments in the United States and China 22. Are any of the countries mentioned operating in autarky? No most of the developed and the developing nations dont follow autarky. Quality of being self sufficient Example: North Korea 23. 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. 24. RECOMMENDATIONS 25. 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. 26. 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. 27. 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. 28. 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 29. 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?