Where Should We Go? Compensation practices in the United States differ in many w

Question

Where Should We Go?

Compensation practices in the United States differ in many ways from those of other countries. In fact, it is common knowledge that labor costs in the United States are high as compared to other nations.

In this exercise, please read the mini-case and answer the questions that follow.

Greg Neckar has recently left his industrial design job with a California manufacturing company to start Discover Gatco. The new enterprise will manufacture and market a case for mobile phones that he recently designed. As the case is a substantial upgrade over current market offerings, he hopes that it will catch on with retailers and the public. He faces a decision about where to locate his manufacturing facility; he has contacts in Northern California that could make the parts, but the cost is substantially higher than the quote he received from brokers who can facilitate manufacture in China. In addition, he has some contacts in Germany who could help him get started there, but the costs for production were significantly higher. While his product is not high-tech, quality is important and tolerances are relatively small (the cases have to fit the mobile phones tightly or they will not protect them). In addition, he will need some engineering support to ensure that his case meets the standards of the consumer. He estimates that about half of the cost of the product is direct labor if he manufactures in the United States.

1.

value:
2.00 points

What difference might exchange rates make to Greg's decision?

If the value of the currency he is paying his workers in increases, they will demand more money

They will not affect his decision

If he is paying labor costs in a different currency, fluctuations in the exchange rates could affect his expenses

2.

value:
2.00 points

In which of the following places would Greg most likely face the highest labor costs?

Germany

China

Taiwan

Mexico

3.

value:
2.00 points

One economy-wide measure of per-worker productivity Greg might consider when locating his operations is the

Gross domestic product (GDP) per worker

Transparency International Index (TII)

Wage cost per hour

Per-worker production function

4.

value:
2.00 points

If average hourly labor cost in China is $2, and average hourly labor cost in California is $16 for Greg's product, what is the approximate difference in total operating costs between the two locations assuming that nonlabor operating costs are roughly the same? (Hint: Remember that labor is about half the cost of the product in the United States)

178 percent

800 percent

300 percent

236 percent

5.

value:
2.00 points

Because quality and understanding the trends of retailers and the public is important to Greg, which would be the best move for him to make to ensure success in these areas?

Locate his production in China and make periodic visits to oversee quality

Locate his production in Germany, and increase the cost of his product to cover the higher production expenses

Set up production in Northern California where he could directly monitor quality, trends, and competitors' costs

Explanation / Answer

Where Should We Go?

Compensation practices in the United States differ in many ways from those of other countries. In fact, it is common knowledge that labor costs in the United States are high as compared to other nations.

In this exercise, please read the mini-case and answer the questions that follow.

Greg Neckar has recently left his industrial design job with a California manufacturing company to start Discover Gatco. The new enterprise will manufacture and market a case for mobile phones that he recently designed. As the case is a substantial upgrade over current market offerings, he hopes that it will catch on with retailers and the public. He faces a decision about where to locate his manufacturing facility; he has contacts in Northern California that could make the parts, but the cost is substantially higher than the quote he received from brokers who can facilitate manufacture in China. In addition, he has some contacts in Germany who could help him get started there, but the costs for production were significantly higher. While his product is not high-tech, quality is important and tolerances are relatively small (the cases have to fit the mobile phones tightly or they will not protect them). In addition, he will need some engineering support to ensure that his case meets the standards of the consumer. He estimates that about half of the cost of the product is direct labor if he manufactures in the United States.

1.

value:
2.00 points

What difference might exchange rates make to Greg's decision?

If the value of the currency he is paying his workers in increases, they will demand more money

They will not affect his decision

If he is paying labor costs in a different currency, fluctuations in the exchange rates could affect his expenses

2.

value:
2.00 points

In which of the following places would Greg most likely face the highest labor costs?

Germany

China

Taiwan

Mexico

3.

value:
2.00 points

One economy-wide measure of per-worker productivity Greg might consider when locating his operations is the

Gross domestic product (GDP) per worker

Transparency International Index (TII)

Wage cost per hour

Per-worker production function

4.

value:
2.00 points

If average hourly labor cost in China is $2, and average hourly labor cost in California is $16 for Greg's product, what is the approximate difference in total operating costs between the two locations assuming that nonlabor operating costs are roughly the same? (Hint: Remember that labor is about half the cost of the product in the United States)

178 percent

800 percent

300 percent

236 percent

5.

value:
2.00 points

Because quality and understanding the trends of retailers and the public is important to Greg, which would be the best move for him to make to ensure success in these areas?

Locate his production in China and make periodic visits to oversee quality

Locate his production in Germany, and increase the cost of his product to cover the higher production expenses

Set up production in Northern California where he could directly monitor quality, trends, and competitors' costs

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