Assignment
In August 2003 Dyson announced that it was moving production of its washing machines from the UK to Malaysia, which followed its earlier decision in 2002 to shift production of its revolutionary dual cyclone bagless vacuum cleaner to Malaysia with the loss of over 800 jobs at the Dyson factory in Malmesbury, Wiltshire, which had produced some 8,000 vacuum cleaners per day. Dyson is keen to point out that since the day the first Dyson dual cyclone vacuum cleaner went on sale in 1993, the company has been operating in a price-cutting market in which its competitors have been able to pass on to their customers the lower costs from manufacturing outside the UK. In contrast, Dyson has faced the further problems of rises in UK labour costs, land prices, taxation and other overhead costs whilst still trying to substantially increase its investment in new technology. For example, direct labour costs in Britain had doubled over the past ten years, partly because of the need to pay high wages in an area around Swindon with almost zero unemployment. Dyson claims that the sums no longer add up and it faces going out of business if it continues manufacturing its products in the UK. As of September 2002 all vacuum cleaner production was shifted to Malaysia. The company argues that its production costs will benefit from the much lower wages in Malaysia, equivalent to £1.50 per hour as compared to the minimum wage in 2003 of £4.50 per hour in the UK. Indeed the company estimates that lower wages will reduce its unit production costs by around 30%. Further cost savings will also come from now having most of its component suppliers nearby (South East Asian component suppliers having progressively replaced those from the UK) and from now being much closer to emerging new markets in Japan, Australia and the Far East.
In addition, the Malaysian government has offered various ‘subsidies' in the form of grants for setting up the Dyson factories there, lower taxes and other benefits. Whilst lamenting the loss of UK jobs, the consolation to Dyson in moving his vacuum cleaner manufacturing to Malaysia is that it will now generate enough cash to maintain the company's commitment to reinvesting up to 20% of turnover in research and development (R&D). Dyson believes that it is the technological advantages secured by R&D that will keep the company alive and ensure that 1,150 other jobs in Malmesbury are safe, more than 300 of which involve engineers, scientists, designers and testers - the brains that ensure Dyson products remain a step ahead of the rest. Dyson claims to have exported the brawn, keeping the higher-level value-added parts at home, since Dyson's comparative advantage lies in researching and designing new products to ensure the company stays two steps ahead of its rivals, most of whom manufacture in the Far East. Indeed he claims that to have followed the rest of British industry, which invests an average of only 2% of turnover, would have been to neglect Dyson's engineering and technological heritage and to follow in the footsteps of Britain's car, television and other domestic appliances. Early indications of the profitability to Dyson of switching its vacuum cleaner manufacturing to Malaysia have been encouraging. It has reported profits for 2003 of £40m on vacuum cleaners, compared to £18m in 2002, with sales revenue of £275m in 2003 compared to £235m in 2002. Overseas sales had grown dramatically to 40% of turnover, with Dyson now selling to the US direct from Malaysia. R&D spending in 2003 was £18m, an increase of 50% on 2002.
Questions
1 In the market for vacuum cleaners, how will moving to Malaysia help to shift Dyson's supply curve to the right (increase)?
2 If Dyson had not moved to Malaysia, why does it believe that staying in the UK would have meant that its supply curve would have shifted to the left (decrease)?
3 What is the basis for Dyson's argument that shifting production to Malaysia is in the best interests of British workers?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.