Question

The Peterson Group, headquartered in Los Angeles, specializes in the design, production, and distribution of apparel for men, women, and children. The company has a well-established international presence, operating 92 stores across 8 countries. The company is considering moving its production operations to New Zealand, with a long-term goal of eventually entering foreign markets. Some company executives favor the idea of contract manufacturing using local players, whereas others feel a direct investment would be better. Which of the following, if true, would most strengthen the argument for contract manufacturing?

a) New Zealand offers tax incentives for foreign direct investment.
b) The cost of labor in New Zealand is higher than in the current production location.
c) The infrastructure in New Zealand for apparel production is underdeveloped.
d) New Zealand has stringent import/export regulations.

Answer 1

The argument for contract manufacturing by The Peterson Group would be most strengthened if the infrastructure in New Zealand for apparel production is underdeveloped, as it would mean lower initial investment and greater flexibility.

Step-by-step explanation:

The Peterson Group is evaluating whether to move its production operations to New Zealand and considering either contract manufacturing using local players or direct investment. The argument for contract manufacturing would be most strengthened if the infrastructure in New Zealand for apparel production is underdeveloped. This suggests that establishing the company's own production would involve considerable investment in building up the necessary infrastructure, making contract manufacturing a more cost-effective and agile approach. Factors such as the cost and efficiency of labor, the quality of supply chains, and the proximity to markets are crucial in making such decisions. Moreover, contract manufacturing can offer flexibility and lower risk compared to foreign direct investment, which requires more extensive managerial responsibility and has a longer-term focus.