Problem: Substantial differences in (average) labor costs, foreign exchange rate etc. do exist globally and companies sometimes find it necessary to outsource production in order to capitalize on these differences.

Now assume that you have been hired to help determine 'best' location for a manufacturing company - US, China or Mexico. Assume further that hourly wages for Mexican manufacturing work ($2.92) are about 12 percent of those paid in the United States ($24.59) and China's estimated $0.81 per hour is about 3 percent of the US rate. Also assume that labor Productivity in China is about 6 percent of that of US workers, while Mexican worker productivity is 22 percent of the US level.

Based on these numbers and assuming that product quality is same, what is the best location for producing the product? What other factors might be critical to this analysis? Think in terms of comparative and absolute advantages etc. Describe your answer and give examples.