General Education Development (GED) Practice Exam

The biggest factor that leads American companies to manufacture their products overseas in developing countries like China and India is?

1. Higher quality of craftsmanship

2. Lower labor costs

3. Decreased transportation costs

4. Effective legal systems

The correct answer is: Lower labor costs

The decision for American companies to manufacture products overseas, particularly in developing countries like China and India, is primarily driven by lower labor costs. Manufacturing in these regions often allows companies to access a workforce that is significantly less expensive compared to labor rates in the United States. This reduction in labor expenses can lead to substantial savings on production costs, making it financially appealing for companies to relocate their manufacturing operations. Lower labor costs also contribute to another aspect: it enables companies to increase their profit margins or invest those savings into other areas of the business, such as research and development or marketing. This economic incentive is particularly critical for industries that rely heavily on manual labor or those with high-volume production needs where labor expenses represent a significant portion of overall costs. The other factors, while they may play a role in a company's decision-making process, are generally not as significant as labor costs. Higher quality of craftsmanship might be found in certain markets, but it does not outweigh the cost advantage. Decreased transportation costs can be a factor, but they are not necessarily significant enough to influence the decision to manufacture overseas. Effective legal systems can provide a stable business environment, but they are usually not the foremost consideration when it comes to cost-cutting strategies. Thus, the allure of lower labor