Final answer:
The business strategy of producing goods in a foreign country and importing them to compete with lower-priced products is known as outsourcing. This cost-saving measure, often facilitated by globalization and trade agreements, can allow businesses to remain competitive without sacrificing profitability. However, it raises concerns regarding dumping and predatory pricing practices.
Step-by-step explanation:
When a competitor introduces a lower-priced product, a firm may choose to produce a more cost-effective product abroad and import it to remain competitive. This strategy is known as outsourcing, where production processes or services are delegated to an external company, potentially in a country with lower labor costs. The objective of outsourcing is to reduce expenses, allowing companies to offer products at a competitive price without sacrificing profitability.
Outsourcing is often conflated with offshoring, yet they are distinct concepts. Offshoring refers to relocating a business process or department of a company to another country to capitalize on lower costs, but the business keeps control of the operations. The globalization of markets, advancement in technology, and trade agreements such as NAFTA have facilitated both outsourcing and offshoring as cost-saving measures for large firms.
Dumping is a related concern where foreign firms sell goods at prices below the cost of production to gain market share and potentially drive domestic competition out of the market. This can lead to a scenario of predatory pricing, which may result in a temporary monopoly and the ability to raise prices once competition has been eliminated.
The practice of outsourcing allows even small economies to harness the benefits of economies of scale made possible through international trade, while also maintaining the variety and competition inherent in a globalized marketplace.