One of the critical components that was left out of the discussion on Frontline was the pressure to produce results for stockholders. In the case study we looked at Shovel Inc. was caught in a tight squeeze. They simply couldn't have made the shovels as cheap as Home Depot wanted. But let's say that it was only costing them $10.00 per and they were able to sell them to Home Depot for $13.00, what other factor might push them to move their facilities to China? The obvious pressure would come from stockholders and upper management who would reap the rewards of greater profits. By moving their operations to China and reducing their labor costs by 98% they could potentially build the shovels for say $6.00 per including shipping to the United States. That's a 133% increase in profit from $3.00 per shovel to $7.00 per shovel.
The question I would ask is how much of what is driving these companies to move jobs out of the United States is by the big box retailers and how much of it is the desire of the stock holders and upper management to increase their wallets. In essence how much of it is just the market system at work. Anyone that takes a basic economics course learns that controlling the cost of manufacturing is the key to making bigger profits. If you can move your manufacturing facilities to somewhere outside the United States and import them in at no cost other than shipping why not do it. The labor costs are so much less it pays to make the move.
By moving these jobs to countries like China it also helps to get around their tight importing restrictions and helps these companies to market better to the Chinese. They are able to still sell and make profits in the United States and now also sell and make profits in China.
This has lead us to the final installment, is the Wal-Mart model good for the United States and if not what can be done to change the effects it is having on our economy.
