Final answer:
When a company moves production offshore, it may experience decreased production costs, increased supply chain complexity, access to new markets, and increased product delivery times. Economies of scale, competitive markets, and adjustments in production technologies in response to changing input costs are also factors that companies consider when going international. Outsourcing can lead to job losses in developed countries while altering market dynamics and supply curves.
Step-by-step explanation:
If a company shifts from domestic to offshore production, several outcomes are likely:
- Cost of production may decrease due to lower labor costs, more flexible regulation, or other locational advantages in the host country.
- Supply chain complexity may increase because of the additional logistical considerations, such as transportation, customs, and handling of international supply chains.
- There may be access to new markets, as local presence can facilitate entry into markets that might otherwise have been difficult to penetrate from a domestic base.
- Increased lead times for product delivery might occur due to longer transportation times and the potential for customs delays.
International trade allows even small economies to take advantage of economies of scale and a more competitive and diverse market, which arises from having multiple producers. Regarding production technology, firms are likely to seek alternatives or adjust processes when an input becomes more expensive to maintain profitability. Multinational corporations often move factories to other countries to reduce costs (outsourcing), which can lead to job losses in developed countries.
Technological improvements and shifts in input costs can lead to changes in market supply curves. A reduction in production costs due to technological advancements usually increases supply, while higher wages can lead to an increased cost of production, decreasing supply and potentially causing firms to shut down. Government intervention in the form of price controls, tariffs, or quotas can also impact the true cost of production and the market dynamics significantly.