Question

Suppose a firm is considering locating a manufacturing facility in a poorer country where wage rates are much lower than in the United States. Why would social/structural capital be an important factor in their decision to relocate? Would this impact the firm's marginal revenue product of capital (MRPk) = (ROI for next $ invested)? Explain.

Answer 1

Structural capital is a special and critical element of intangible capital. It can be both an asset and a liability; it all depends on how stakeholders view the performance of your structural capital.Structural capital is the supportive infrastructure that enables the rest of an organization to function in a repeatable, scalable way. It is owned by an organization and remains with an organization even when people leave. Structural capital includes processes, data, systems, designs, and knowledge.

Most structural capital can be used and re-used without diminishing its value. In fact, most structural capital improves with re-use. Think about a database or a process or a design. Each of these can be improved over time and the more users, the more the potential for improvement. There may be a cost for improvements but the marginal cost of re-use is essentially zero. This is why structural capital deserves a lot of attention.

Now if a firm shifts there manufacturing facility in a poorer country where wage rates are much lower than in the united states then the firm could save a lot of cost of production... As the labors are cheap..they will get to make everything in minimal amount..but the fact is that while relocating the structural capital that they already have invested in US has to be for gone if that cost is less than operating in the poorer country..

The extra revenue earned by the firm i.e marginal revenue would be impacted such that the per unit cost would be reduced therefore,revenue from every extra unit sold would raise the revenue much more..economies of scale would operate.hence,US would calculate all its social cost and then would take a decision to relocate