Week 5

Respond

Many companies rely on outsourcing, which involves contracting an external party to provide a good or service, rather than performing the work internally. Cost structure refers to the fixed costs versus variable costs. It has a significant effect on profitability.

Nike, is known by their shoes, but it has also branched out into the sports and clothing industries.

Nike, by outsourcing their production have reduced their fixed costs and increased their variable costs. Decreasing costs by employing workers at a reduced rate or paying less for plant operation allows Nike to invest the additional profits in to other areas of the business such as advertising, which, increasing the potential for company growth. Investors like to decrease operational costs and increase business profitability. By cutting the costs due to outsourcing, Nike is able to produce its product efficiently. This enables Nike to price its brand at a competitive rate with other companies that sell a similar product. Outsourcing allows Nike to skirt some of the financial duty that might face with the limit of tax laws in the United States. Overall, cutting costs in a company results more profit for investors and valuable price rate make a company more competitive.