Long-Run Vs. Short-Run: Labor In Action

Long-Run Vs. Short-Run: Labor In Action

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The whole concept of moving to a company to a neighboring country is very common. The concept of importation and exportation came with the increasing development of colonization. Importation is defined as, "To buy or bring in products from another country." The definition of Exportation is as follows, "To send goods to another country to sell (The American Heritage Dictionary)."The automotive market today follows a similar trend today. It has been noted that many countries are using, buying and importing foreign cars for many reasons, but many do not understand that these cars are built and directly sold in their country. The only difference that is seen here is that there are two different types of firms. There is a short-run and a long-run. A short-run company has a specific period of time where the product of at least one input is fixed and the rest of the factors can be varied (The American Heritage Dictionary). The long-run company is where all the quantities of all the factors of production used in the production process can be changed (The American Heritage Dictionary). In a case given by Professor Michael Porter of Harvard University, the Japanese company that decides to move into foreign land under the act of eliminating man power and replacing it with machine- like labor can be considered a long-run firm. The opposing company is the American automotive company model that decides to move into a foreign market and use the cheap labor to make their product, can be considered a short-run. When taking a company, either short- run or long- run, one must consider that certain attributes are accountable for the company's effect on the economy such as the motivation of the firm or outsourcing.
Professor Porter reports, "Faced with high labor costs American consumer electronics firms moved to locate labor-intensive activities in Asian countries, leaving the product and production processes essentially the same." This meaning that the certain American companies that decided to move into foreign markets were mainly motivated out of cheap labor costs. To a certain extent the statement is viable, the idea that ones product will be cheaper to sell in other parts of the world is a beneficial attribute. Implicating that one company can move more of their products at a low cost and thus more profit earned. In the United States the federal minimum wage is set at $5.15, and each state follows its own legislation to raise it and never to go below it.

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For example, Nike Inc. had they stayed within the United States and produced their product at these wages, it would have been too expensive for the buyer to purchase Nike products. Generally, in China the average person earns by the new wage laws $67.33 dollars in a month (Minimum Wage System Set Up), as opposed to an American worker who earns the federal wage standard of $5.15 per hour; they earn approximately $906.04 in a month (www.dol.gov/esa/).
As stated by Professor Porter, the American model company feels it unnecessary to change production procedures by adequate use of modern innovations because cheap human labor is available in foreign countries. Therefore, no such changes are applicable when it is much simpler and cheaper to hire more unskilled laborers. Thus, the American model presents itself as a short- run company. When referring back the definition of short-run it states: one input is to be fixed and the rest can be varied. In turn, this means that the human laborer is fixed, and that all other necessities of the company's development can be changed as progressively; example given, adding new benefits, establishing unions, and improving machinery.
Professor Porter further states that, "Japanese rivals set out instead to eliminate labor through automation. Doing so involved reducing the number of components, which further lowered cost and improvement quantity." The main feature of the Japanese company model that Professor Porter stresses is that they are moving away from human labor to machine labor. The greater movement towards machine labor has allowed for the Japanese company to ultimately be more successful. Also the Japanese companies are very well known for being strong as a collective team that always wins together or else, as one author has written that:
"Japan is like an oyster. An oyster dislikes foreign objects: When even the smallest grain of sand or broken shell finds its way inside the oyster shell, the oyster finds the invasion intolerable, so it secrets layer after layer of nacre upon the surface of the offending particle, eventually creating a beautiful pearl (Strach et al).
Progression can only occur when something new comes into the spectrum of the sphere, meaning that if human labor is becoming too expensive and too hard to maintain, because of unions and employee demands, a company likely will look for alternatives. In this case the owners of the car companies were looking on how to improve their technology. This meaning that once the company improves in the field of technology they will at the same time invest in it, and then liquidate some portion of the workers that are no longer needed, only leaving skilled labor with the capability to operate new machinery in order to improve on the rapidity of production. Thus, the Japanese model is considered a long- run company. Redefining the term long-run, all contributing factors can be changed in process of a firm's evolution.
Outsourcing is another common occurrence. As defined by The American Heritage Dictionary outsourcing is, "The procuring of services or products, such as the parts used in manufacturing a motor vehicle, from an outside supplier or manufacturer in order to cut costs (The American Heritage Dictionary)". In the example of the American company, they as the citizens have the right to create happiness for themselves through prosperity and expansion. Meaning that if they see fit that they move to a country where it is cheaper to produce a product than they have the economic right to do so, and in the long run the product that will be made in a foreign country will be cheaper to sell in America. Another related author has asserted:
"The moral justification for outsourcing is individual right. It is the right, and indeed the moral obligation, of an American businessman to run his company in the most profitable way possible. If that includes outsourcing, so be it. Outsourcing violates no one's rights, and there is no such thing - - in a free, private property country - - as a social ‘duty' to keep jobs in America. In this country, which recognizes the rights to life, liberty and property, it should be unnecessary to point out that such alleged social ‘duties' originated with fascist states (Ghate)"
As Professor Porter finishes by stating, "Japanese firms were soon building assembly plants in the USA, the place American firms had sought to avoid." This clearly states that the Japanese companies were doing something that the American companies overlooked and did not accomplish until much later. What this is clearly expressing is simply two different economic situations. During the eighties in America when all the Japanese companies were moving onto American soil it was a risk that they were taking, because of all the different cultural settings and economic motives. The American, being the majority of the time on the short-run spectrum and the Japanese being on the long-run side it was just a well known fact that Americans were looking for a quick profit. Subsequently going to a third world country and using their cheap resources to produce a high paying product was the logical answer. Because the American industries dominated the foreign markets, the native companies had to do something. In the case with the Japanese they went to the land which was left by the Americans and set up new firms there, but with a new angle. They were companies with new modern machinery, and because of the new changes they had to be there for the long-run. The firm's angle was to instead of using as much of human labor; they would focus on new technology that would replace people. Principally stated, outsourcing creates progression and development in developing countries and in result benefits both parties.
Conclusively, both of the models of the companies were a representation of progression and development. Either be it in the field of automotive or textile, the same principles and outline occur in their process of growth. Long-run and short-run firms have the same motive and that is to maximize their profits in the most cheaply efficient way possible. In the case of the Japanese firm the company looked for an area that would accept their new technologically advanced machinery and would consider working with them. In the case of the American firm, which was in the short-run, they were looking to get new cheap labor. The Americans went and sought out the cheap labor in a third world country, where the minimum wage system did not actually exist; and the company could dictate on what was the satisfactory rate for these people to work at. Also the notion of outsourcing is the prime example of these two markets outcome, and as Lauren Bielski stresses that, "It is a way to make fixed costs be variable and transparent, for the reason outsourcing will always be favored by some (Bielski)." Meaning there will always be the collective group that disallows this notion of outsourcing but as we all know, each has the right to maximize their profits in any way possible. Overall, the quote by Professor Porter is a very efficient quote in itself it exemplified the conditions of the two markets and displayed the examples of the two systems in a very clear and understandable manner.

Work cited
Bielski, Lauren. "The Case for Business Process Outsourcing: Yes, You Can
Renovate Process and Cut Costs. But Make No Assumptions and Get Specific." ABA Banking Journal 96 (2004). 25 Apr 2005 .

Ghate, Onkar. "Outsouring: In Defense of Free Trade." Opinionated
Articles 08 March 2004. 25 Apr 2005 http://www.aynrand.org/site/News2?JServSessionIdr001=9pwkmga2d3.app5a&page=NewsArticle&id=9637&news_iv_ctrl=1251

Strach, Pavel , and Andre Everett. "Is There Anything Left to Learn from Japanese
Copanies?." SAm Advanced Managgement Journal 2004. 25 Apr 2005 .

The American Heritage Dictionary of the English Language. 4 ed. Ney York:
Houghton Mifflin Company, 2000.

"Minimum Wage System Set Up." Xinhua News Agency 26 July 2004. 25 Apr 2005

"www.dol.gov/esa/." Emplyement Standards Administration Wage and Hour
Division. 01 January 2005. U.S. Department of Labor. 25 Apr. 2005 .
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