In our first assignment we described the creation of the new company “Remote Control Unlimited.” Remote Control Unlimited builds navigation systems for drone and regular airplanes, for the government, public and private enterprises. VectorCal is our major competitor, but as a research and development company as well as aerodynamics defense contractor we are far ahead of VectorCal. One of those reasons is our contracts manager utilizes the Buy American Act, and knows how to use the Buy American Requirements to our advantage, and in doing so putting American people to work, using American products to build our navigation systems, and supplying the defense department with a superior product in the end.
While the Buy American Act and Requirements are not easy to put into use to begin with if used correctly they can catapult a company into the limelight to the people of America as well as the government. The Requirements are located on “Code of Federal Regulation” (2002).
Part 661. The Buy American requirement is a regulation of the Federal Government with relation to contracts which are funded by the federal government, the regulations apply to construction, maintenance, repair of public buildings, and products bought by the government.
All products should be 100% manufactured in the United States, mainly steel and iron used for such projects. As a leader in the navigation and aerodynamics research and development for the Defense Department Remote Control Unlimited uses this Act in products made or in production to honor our company, country and the families that work for us.
Buy American Requirements
The Buy American Act was passed in the year 1933 and it is applicable to all the United States Federal Government Agencies purchasing goods valued more than the threshold of micro purchase. According to this act all the goods used for public purpose should be produced in US and the product should be manufactured only in US. They prefer only the domestic product to be the end product. The main purpose of this Act is to increase the sales of American manufactured products, protecting the jobs in America, protecting American investment and finally to protect the manufacturing industry of U.S. According to the US federal government and the Buy American Act will contract only: The un-manufactured products that are mined or being produced in US. Manufactured product should meet the following condition:
More than 50% of the component cost should originate in the U.S. End Products should be manufactured in the U.S. There are some exceptions and waivers being provided by federal departments or an agency which depends upon the product, technology, issue, requirements and the review process of another product. This act does not provide for any restriction to foreign purchases completely.
The Buy American Act gives more incentive to build and buy from American manufacturers. This actually eliminates competition from the international market, and provides more opportunity to domestic manufacturers. The fact that all the required materials cannot be manufactured in the same country is due to various factors. Some technologies are patented with other country’s manufacturers. In this case, one cannot use the same technology which is essential for manufacturing the product in other country. This results in the import of the required materials like engines, technology, and any other patented parts. In this case the U.S. government would not have enforced the Buy American Act, those countries have the advantage in bringing in parts that would have an established market in U.S, and the domestic manufacturer would not get an opportunity to grow and develop. This paved a new way for American companies to develop, learn and invent new technology which will make the country a world leader. This Act does not completely deprive the US manufacturers from using the best technology or materials from other countries.
As discussed earlier, the manufacturer can use the materials from other countries which have a unique, advanced mechanism that will enable the US manufacturers to manufacture the higher quality products. This motivates the American manufacturers to upgrade their products in order to implement the foreign technology, and to use the best materials, and parts in their produced products. This has a two way benefits; the American company will be aware of the best part or technology available and this will make them equipped in using the products in a more advantageous manner. This helps in making U.S. manufacturers more innovative. As more than 50% of the costs of manufacturing their product would be contributed by an American company, and they get an opportunity to upgrade themselves to provide the best products. This enables the manufacturers to be more competitive as the best quality products are imported and the best technology of our own country is being added together in order to get the best end product.
This gives fair opportunity to all the domestic players. This Act enables the domestic players to use the country’s own resources to the best end result. This act has made the U.S. defense department stronger and also enables us to possess equipment with the most advanced technology in the world. This has paved the way for the Remote Control Unlimited to be in worlds top ranking builders of the drone navigation systems. Buy American Requirements are contradictory to a capitalistic ethos From the above discussion it is clear that the main motive for the Buy American Requirement is to develop products in our own country and the public should be benefiting only from the domestic products. The capitalistic ethos does not have any underlying base value except for creating money and will do anything for creating more money. This can be clearly understood with an example. For instance, if the US federal government did not pass the Buy American Act and encourage capitalism, then more international players would have established businesses in U.S. They would have played a significant role in the production of navigation systems sold in this country, and enabling them to earn more profit.
In this case, there would have been more chances for the government to buy better quality products at a lower price, which would have then reduced the amount of the budget available to U.S businesses. Otherwise, the majority of the product would be imported which is more cost effective than manufacturing them, and would have set up the manufacturing units in those countries where the cost of labor would be less. This would have resulted in more privatization with higher revenue generating opportunity for the company and cost saving to the government. But this is not followed by the government. According Buy American requirements, the American company should play a significant role in manufacturing. Government is ready and willing to spend more by implementing these values, they are not concerned only about cost saving. This act has this fundamental value which is not present in the capitalism ethos. Similarly, this Act encouraged more domestic players to upgrade and provide more employment opportunities. The next important difference is that, this act encourages importing, but does not encourage being dependent entirely on the foreign products, even though they are cheaper.
Similarly, irrespective of the cheap labor available across the globe, this Act wanted only the local Americans to work in the manufacturing plants that are located only in America for their dealings, which is totally against the capitalist ethos. The main fundamental difference is the underlying value which formed the basis of this act and which is absent in the capitalism ethos. Mere greedy about creating money is not the fundamental value of this act. This act was created to provide more benefits to the country, and add more economic strength and potential to the country’s manufacturing sector. Because the capitalistic system was not allowed to crop up, currently the U.S. has one of the finest defense systems in world, we are strong enough in our position to extend support to other countries and able to protect us all in a safer manner.
Analyzing the expectation of the Buy American Requirements:
The main waiver that is obtained by the manufacturing company is that this provision exempts the manufacturer to import certain goods/products which are being manufactured by a foreign country without any consideration about the sources of funds, the product’s nature and the entity procuring these products. This waiver can be obtained only if the domestic product is not consistent with public interest, due to lack of the domestic products availability, or poor quality of the domestic country’s product, and in the case of the domestic product increasing the cost of the project about 25%. This can be viewed as an advantage from one aspect because; this provision will enable the manufacturer to use the best quality product, and will be in the position to keep a check on the cost of the products, which will reduce the budget burden of the government. This will enable the country to use the best products that will satisfy the requirements.
But the negative side of this exception is that, this waiver can be misused for the personal profits of the company. If in case, all the companies who are manufacturing the navigation systems have decided to decrease their costs and to increase their profit by making a proposal for import of materials from a foreign country, then it will totally eradicate the main purpose of the Buy American requirement. There are more gaps which companies can use to make unreal proposals to earn more profits. Thus, it cannot be totally concluded to be good or bad, as it depends upon the company using the waiver and the purpose of using such waivers.
Advantage and disadvantage
The main advantage of this act is that it enables America to maintain its industrial base in the navigation industry. In Remote Control Unlimited navigation systems which are being used for the defense industry and considered to be the best in the world, the government is investing much in this research and development segment which makes this business stronger and more competitive. The U.S. can never forget about the terror attacks which it faced in the past, trusting our domestic companies for this security is more reliable when compared to trusting a foreign country, where all the information related to the technology, navigation systems, and the security systems used by U.S. will be familiar to others. This will add more importance to the domestic companies and to the security of the country. This provides a great opportunity to the domestic players to enhance their quality, and be upgraded to the newest available technology. The investment made by the government and the problems faced by the country have made the domestic manufacturers able to feel the real problems, their impact and what the solution to resolve these problems should be. This provides for a better solution and enhances the public security it motivates new players to participate in the race with innovative ideas like Remote Control Unlimited newest navigation systems for the newest drone planes.
The major disadvantage of this Act is the increased costs. Irrespective of the other factors, this act was very strict about its principles which increased the costs both to the company and the government. As more restrictions were present, the companies had more limitations with regard to the imports, and were forced to manufacture the products which resulted in higher costs to the company when compared to importing the same product. There are cases were the prices of some parts increased by about 40%. This increased the cost and budget for the government, which creates more issues. This deficit will affect future projects and contracts of the company, and will force the company to quote more reasonable prices in order to win the contracts which adds more of a burden on the company’s bottom line. Innovation is essential but is not possible without appropriate research and development. All research and development cannot be performed in the U.S., we require different places and alliances with other countries depending upon their suitability. This regulation brings a great challenge in accomplishing appropriate research and development required for newer better products.
The next important challenge is that 50% of the manufacturing costs should be from an American company, there are some cases where depending upon foreign resources is very high due to various factors which again requires an exception and approval. These rules actually will have impact on the current trading relationship of the company. There are cases were a company is engaged in commercial business apart from government business, for which they may require more foreign trades, the decision taken by the management for satisfying the Buy American Act will have great impact on the existing relations of the company and the government. Another problem with this Act is that it affects the lead time which increases the cost of manufacturing, and it affects the revenue stream of the company. Especially in aerospace manufacturing where it requires longer lead times for manufacturing one unit, when the approvals and other processes are consuming more time; it will then affect the entire profitability of the company.
Meeting the quality needed in some case is difficult especially in the case of an unmanned system where more technology and research is required. An alliance with more experienced foreign manufacturers will assist in improving the quality which is again a great challenge. Thus, there is always an advantage and disadvantage with regard to the Buy American Act especially in the navigation industry and aerospace industries where it requires more innovation, technology, up gradation, research and development along with more time for developing a good quality product. There are hurdles in all stages which have to be managed in a proactive manner to reduce the impact.
As we have seen throughout this essay it follows that the main objective for the Buy American Requirement is to develop domestic products in this country, and only domestic products should be offered to the recipients of public services. The purpose of capitalism is to make money, on the other hand we believe that the free market has not failed, it is not morally bad, and in fact serves deep human values. In this paper we are discussing the implementation of the Buy American Act and its consequences. This Act may seem contradictory to a free market system, where there is free competition of suppliers and buyers, but in the end, this Act would protect domestic products and build manufacturing stronger in the U.S, and of course create more jobs for the economy to thrive. The Buy American Act wants Americans working in the manufacturing plants, and to have those plants located in the United States, which is totally against the capitalistic ethic, but I believe is all American.
This Act also provides more benefits to the country besides the economic benefits, but builds more independence and solidarity of our global economy and economic dominance all over the world. In fact financially the U.S. would be the one to provide services to other countries, creating revenue for our country instead of another. The main purpose is to be a stronger and more globally competitive player in the world market. This law would protect our production systems, since there is no foreign participation in the production processes. In turn Remote Control Unlimited and VectorCal would be ensured participation in these contracts, and this would provide competition and creation of more jobs, adding more weight to our domestic firms and to national security.
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