Appliance Manufacturing in a Foreign Country
The problem situation involves a proposal to conduct manufacturing operations for washing machine household appliances in a foreign country. The products produced by the foreign manufacturing facility will be marketed in the United States and in countries surrounding the country hosting the manufacturing facility. The specific issues addressed in this white paper are (a) host country selection, (b) host country risk assessment, (c) financing the foreign manufacturing facility, (d) current financial risk reduction, and (e) future financial risk reduction.
The principal reason for selecting a manufacturing site for washing machine production that is located outside of the United States is to take advantage of lower costs for direct labor. Simultaneously, however, direct labor savings must be sufficient to more than offset transportation costs associated with importing the finished goods to the United States. An additional profit source applicable to the production of washing machines in a foreign country is the marketing of the products in countries surrounding the foreign country that hosts the manufacturing facility (Bonaglia & Goldstein, 2007).
The recommendation for the host country for the facility to manufacture washing machines is Hungary. Hungary is a developing economy. Hungary has an educated and trained work force that can support household appliance manufacturing (DataMonitor Europe, 2008b). Direct labor costs are significantly lower than are those in the United States (DataMonitor, USA, 2008). Because Hungary is a member of the European Union, the washing machines manufactured in Hungary can be marketed across the 27-member states of the European Union in a tariff-free trade zone. Additionally, importing the washing machines into the United States from a member state of the European Union will be a painless process.