Harley Davidson: Economic Analysis of Offshoring and Production Costs

This report examines the economic implications of Harley Davidson's decision to offshore its manufacturing operations from the United States to Thailand. The analysis focuses on how this strategic move impacts production costs, supply, and market prices. The report uses economic principles to explain the shift in the supply curve due to lower production costs, primarily driven by cheaper labor and tax benefits. The analysis demonstrates how offshoring leads to an increase in the quantity of motorcycles sold while simultaneously causing a decrease in price. The report references relevant economic literature to support its claims and provide a comprehensive understanding of the economic effects of offshoring on the company's production and market dynamics.

MACROECONOMICS
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MACROECONOMICS
Based on the information provided, Harley Davidson has closed the manufacturing plant in
Kansas City (USA) and instead opened a new manufacturing plant in Thailand. The key
objective of offshoring the manufacturing to Thailand was to cut down on the costs involved in
the production. Also, on account of the new tax laws introduced in the US, the tax rate applicable
on the foreign income would be significantly lower than the domestic income (AFTF, 2018). The
net impact of these would be lower production costs for the company. Owing to the lower
production costs, the company would be able to increase the supply of motorcycles. The impact
of this is highlighted in the diagram shown below.
Based on the above graph, it is apparent that there is a rightward shift in the supply curve from S
to S1 which highlights the increased supply on account of low production costs. The demand for
Harley Davidson bikes in the short term would not be impacted and hence the demand curve
remains the same. The shift in the supply curve has led to shift in the equilibrium point
(Nicholson & Snyder, 2015). The new equilibrium points towards a lower price (P1 to P2)
coupled with an increase in quantity (Q1 to Q2). Hence, it is evident from the above graph that
current shifting of manufacturing plant outside of US would result in increased quantity sold and
a decrease in the price on account of cost savings primarily due to cheaper labor (Mankiw,
Mankiw & Taylor, 2016).

MACROECONOMICS
References
AFTF (2018) HARLEY-DAVIDSON IS A CASE STUDY IN HOW THE TRUMP-GOP TAX LAW
IS FAILING AMERICAN WORKERS — BUT IT’S NOT ALONE, Retrieved from
https://americansfortaxfairness.org/harley-failing-american-workers/
Mankiw, G.N., Mankiw, G.N. & Taylor, P. (2016).Microeconomics (5thed.). Sydney: Cengage
Learning.
Nicholson, W. & Snyder, C. (2015).Fundamentals of Microeconomics (11thed.). New York:
Cengage Learning.