Georgia Assessments for the Certification of Educators GACE Practice Test

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

1. Decreased transportation costs

2. Effective legal systems

3. Higher quality of craftsmanship

4. Lower labor costs

The correct answer is: Lower labor costs

The choice of lower labor costs as the main factor driving American companies to manufacture products overseas is well-founded. Companies often seek to minimize their production expenses to increase profit margins, and one significant area of cost reduction is labor. In developing countries, labor costs can be substantially lower than in the United States, allowing companies to save money on wages, benefits, and other employment-related expenses. This economic advantage motivates businesses to relocate their manufacturing operations to these regions. While decreased transportation costs might benefit logistics, effective legal systems might support business stability, and higher quality of craftsmanship could enhance product standards, these factors do not have the same direct and substantial financial impact on the overall cost structure of manufacturing as lower labor costs do. Thus, the primary incentive remains the significant savings realized through accessing a more affordable labor market.