Final answer:
The sourcing decision regarding the location of functions in a global context is influenced by cost-saving strategies such as outsourcing and offshoring, driven by factors like labor costs, infrastructure quality, and government competency.
Step-by-step explanation:
The Sourcing Decision: Exploring Globalization and Location of Functions
As globalization accelerated during the 1990s, outsourcing and offshoring became strategic components for companies seeking cost savings. Outsourcing is when a company contracts an outside firm to perform tasks previously done internally, such as accounting or customer service. Offshoring, on the other hand, involves relocating operations to other countries to capitalize on more affordable labor markets. This shift not only applies to manufacturing but also extends to technically skilled jobs such as programming and customer support services.
Factors influencing the location of functions go beyond simple cost-cutting measures such as environmental regulation costs, which typically account for only 1-2% of a large industrial plant's expenditure. The decision process includes evaluating labor and financial capital costs, proximity to reliable suppliers and customers, the quality of local infrastructure, tax levels, and the local government's integrity. These comprehensive considerations have led to many high-wage jobs moving overseas, affecting both blue-collar and white-collar sectors.
Trade agreements like NAFTA have facilitated these movements, allowing the benefits of globalization to be leveraged by multinational corporations. While there are fears of a race to the bottom scenario, where firms extensively offshore to exploit weaker environmental regulations, the reality is shaped by a multitude of strategic business factors.