AutoEdge is an American automotive supply company that produces engines and transmission parts. Our products are known for quality and dependability which are the features that have secured AutoEdge as a trusted supplier to the major automobile manufacturers in the US. In 2005, we decided to close manufacturing operations in the US and begin outsourcing to South Korea. This decision was driven primarily by competition. Our rationale was rooted on the premise that outsourcing to a reputable South Korean manufacturer would enable the company to retain profits and still maintain the delivery of high quality products. The strategy worked for about five years but by 2010, AutoEdge faced product quality problems. The components it supplied led to millions of automobiles being recalled that in turn, negatively affected the reputation of the company, as evidenced by a plummet of the company’s stock price.
The objective of this report is to aid decision makers on the various external factors that would have a large impact on the company’s decision of continuing to outsource from South Korea or to transition manufacturing operations back to the US. The recognition of critical external factors high light the importance of the dynamism of the business environment. AutoEdge’s business does not exist in a vacuum and the decision of staying in South Korea or going back to the US will have profound effects on the internal functions of the company as well.
The most critical consideration is the Economic implications of the decision. The US is still in the process of economic recovery while the South Korea’s economy continues to be strong . The macroeconomic factors that affect the economy of both countries such as any changes in taxation, interest rates, foreign exchange rates and government spending is important to consider prior to making a decision.
Another important factor is the social dimension of the decision. AutoEdge had a reputation built on quality but this reputation was severely damaged as a result of the company being unable to manage its quality standards. The move towards transitioning back to the US may have a social impact that could influence the level of success the company may receive if it makes that decision. Similarly, a decision to stay in South Korea will again have a profound social impact on the company.
The rapidly changing political landscape in the US may also be an important consideration that would affect the viability of moving back to the US or staying put in South Korea. The political factor affects how business is conducted in a particular country. Political changes often drive economic factors therefore a keen understanding of the political situation is essential to success.
Technical factors must also be considered. Production processes and product innovations change rapidly . Staying put in a highly innovative manufacturing environment such as South Korea may result to more efficient and therefore more competitive production processes that may help protect the profit margins of AutoEdge.
Lastly, the cultural differences between the business environments affect the way business is conducted. Fortunately, both countries rank highly in the Global Competitiveness Report because of the highly workable business environments that are driven by the natural industrious cultures of both countries.
Riley, Jim. External Business Factors. 23 September 2012. http://www.tutor2u.net/business/gcse/external_environment_introduction.htm. 22 February 2014.
World Economic Forum. Global Competitiveness Report. 2013. http://www.weforum.org/issues/global-competitiveness. 22 February 2014.
WorldBusinessCulture. Doing Business in South Korea. 2014. http://www.worldbusinessculture.com/Business-in-South-Korea.html. 22 February 2014.