The Outsourcing of Production Factories to Locations Overseas From Companies GMAT Reading Comprehension

Reading Passage Question

The outsourcing of production factories to locations overseas from companies' home countries has been a hallmark practice of multinational brands since the 1990s and is lauded by some economists as advancing the well-being of people in both the home country and the production country. However, not all of the benefits attributed to this globalization practice necessarily accrue, and there are concerns about outsourcing that are not readily addressed within the formulations of economic theory. First, a home company that separates its brand and its product as completely as possible and places the brand as paramount hardly sends a message that product quality is central to its operations; more likely, all of its innovation attempts will focus on branding, and such a company will settle with a product that is merely (and maybe barely) good enough. Dismissing this point, economists may cite the law of comparative advantage: outsourcing allows both companies involved to pursue greater profit and well-being according to their capabilities. Specifically, workers in the companies of manufacture should be paid more than they would be paid otherwise, even if they are paid less than factory workers in the original country; meanwhile, workers in the home country should be pushed to increase their skills and education and move to higher-skill jobs that are less available in the country of manufacture. Whether displaced workers in the home country acquire skills and make this shift in any reasonable timeframe is hardly demonstrated, however, and while outsourcing may create value by lowering costs, it has been asserted that workers in the countries of production are making no more after outsourcing than previously and hence in effect are enjoying none of the new profit. The CEO of one outsourcing company, when pressed on this point by a reporter, explained that, as the employees of those factories were not employees of his company, he could not be responsible for them. He asked the reporter whether journalists should be expected to know, and be responsible for, the manufacturing conditions of the paper on which their articles are printed. This comment, as much as it defends corporations, highlights the broadest form of worry about outsourcing: in global supply chains with increasingly distant and opaque connections, responsibility is too easy to shirk and maybe even impossible to determine.

‘The outsourcing of production factories to locations overseas from companies’ is a GMAT reading comprehension passage with answers. Candidates need a strong knowledge of English GMAT reading comprehension.

This GMAT Reading Comprehension consists of 7 comprehension questions.

The GMAT Reading Comprehension questions are designed for the purpose of testing candidates’ abilities in understanding, analyzing, and applying information or concepts. Candidates can actively prepare with the help of GMAT Reading Comprehension Practice Questions.

Questions and Solutions

1. The primary purpose of the passage is to

1. explain why a particular business strategy has been less successful than was once anticipated
2. propose an alternative to a particular business strategy that has inadvertently caused damage
3. present a concern about the possible consequences of pursuing a particular business strategy
4. make a case for applying a particular business strategy on a larger scale than is currently practiced
5. suggest several possible outcomes of companies' failure to understand the economic impact of a particular business strategy

2. The passage mentions which of the following as a possible consequence of companies' outsourcing production factories?

1. The companies may be able to produce a greater number of products by lowering prices.
2. The companies may advance the well-being of people in both the home country and the production country.
3. The companies may send a message that product quality is central to their operations.
4. The companies may benefit from lower costs while workers in the country of production fail to benefit.
5. The companies may exploit workers who have little legal recourse or opportunity to bargain collectively.

3. According to the passage, which of the following is most likely motivation of a company that outsources its production factories?

1. It is motivated to shirk responsibilities that are clearly it's own.
2. It is motivated to focus on marketing its brand and somewhat ignores the quality of its product.
3. It is motivated to sell its existing product lines at lower prices.
4. It is motivated to capture all of the economic benefits that accrues from switching to outsourcing, leaving none for the workers involved in the country of production.
5. It is motivated to ensure that certain workers move to higher-skill jobs in a reasonable time frame.

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