Is Offshore Outsourcing Good For America?
In this essay I will analyze offshore outsourcing[1] and its effects. Offshore outsourcing will reduce prices and it will shift resources to more efficient industries. On the basis of my forthcoming analysis, offshore outsourcing is good for America.
Under offshore outsourcing, a firm in the U.S. (or any other country for that matter) contracts with a firm in another country to perform some service or a firm will have factories in another country to produce something such as parts for a product. An example of the former are the call centers located in India. An example of the latter is an automobile manufacturer having automobile parts produced in another country. The purpose of this is that it reduces costs for a particular firm, since it is obviously cheaper to produce these outsourced services in another country. The result of this is that it keeps prices low, which consequently benefits the consumer. This allows consumers to move to a higher indifference curve, which improves consumers’ utilities.
Offshore outsourcing has another benefit. It frees up resources in this country to be used for other things. Why is this so? The reason is offshore outsourcing is the result of cheaper costs of producing certain services and goods in foreign countries. The result is that the U.S. has additional resources in the amount totaling the difference between the cost of producing a good or service in a foreign country. These leftover resources can then be used to establish new industries or can be used to support industries that are more efficient than those being outsourced to foreign countries. The result of this will be the development of new jobs to replace those jobs outsourced.
Lastly, it seems outsourcing is due to comparative advantage. Comparative advantage is based on relative costs. According to the comparative advantage theory, a country should produce the good that is relatively cheaper. To illustrate, two countries, A and B, can make two goods, X and Y. Country B can produce X and Y cheaper than what can Country A produce X and Y. At the same time, Country A can produce X cheaper than Y and Country B can produce Y cheaper than X. According to comparative advantage, Country A should produce X and Country B should produce Y. The result is Country A will have a surplus of X and will be able to export that surplus to Country B for Y. Conversely, Country B will have a surplus of Y and will be able to export that surplus to Country A for X. The result of this is that both countries are producing the good in which they have a comparative advantage. Furthermore, they are producing the good that they can produce in the most efficient manner. Because efficiency leads to an improvement in productivity, and improved productivity leads to an increase in wealth. This ultimately improves the wealth of both countries.
We see the comparative advantage at work when firms outsource jobs to foreign countries. This is because it appears that it is relatively cheaper to produce certain goods and services in foreign countries such as India. The result is, I repeat, American firms not outsourcing are the most efficient in the country. Consequently, this efficiency leads to an improvement in productivity, which leads to an increase in wealth in the U.S. Also, resources can be diverted from the industries being outsourced to newer industries in which the U.S. commands a comparative advantage. This serves to further improve wealth by expanding efficiency and productivity.
Outsourcing positively affects the American economy. It will reduce prices, which allows consumers to expand their consumption and thus increases their utility. It also allows society to shift resources to more efficient industries, which results in an increase in wealth for society. One last point, any policy designed to hinder outsourcing is a policy based and marketed on ignorance and is a policy that does nothing but hurt the American economy.
[1] Outsourcing is where a company contracts out to another company to perform some action it once performed.
Under offshore outsourcing, a firm in the U.S. (or any other country for that matter) contracts with a firm in another country to perform some service or a firm will have factories in another country to produce something such as parts for a product. An example of the former are the call centers located in India. An example of the latter is an automobile manufacturer having automobile parts produced in another country. The purpose of this is that it reduces costs for a particular firm, since it is obviously cheaper to produce these outsourced services in another country. The result of this is that it keeps prices low, which consequently benefits the consumer. This allows consumers to move to a higher indifference curve, which improves consumers’ utilities.
Offshore outsourcing has another benefit. It frees up resources in this country to be used for other things. Why is this so? The reason is offshore outsourcing is the result of cheaper costs of producing certain services and goods in foreign countries. The result is that the U.S. has additional resources in the amount totaling the difference between the cost of producing a good or service in a foreign country. These leftover resources can then be used to establish new industries or can be used to support industries that are more efficient than those being outsourced to foreign countries. The result of this will be the development of new jobs to replace those jobs outsourced.
Lastly, it seems outsourcing is due to comparative advantage. Comparative advantage is based on relative costs. According to the comparative advantage theory, a country should produce the good that is relatively cheaper. To illustrate, two countries, A and B, can make two goods, X and Y. Country B can produce X and Y cheaper than what can Country A produce X and Y. At the same time, Country A can produce X cheaper than Y and Country B can produce Y cheaper than X. According to comparative advantage, Country A should produce X and Country B should produce Y. The result is Country A will have a surplus of X and will be able to export that surplus to Country B for Y. Conversely, Country B will have a surplus of Y and will be able to export that surplus to Country A for X. The result of this is that both countries are producing the good in which they have a comparative advantage. Furthermore, they are producing the good that they can produce in the most efficient manner. Because efficiency leads to an improvement in productivity, and improved productivity leads to an increase in wealth. This ultimately improves the wealth of both countries.
We see the comparative advantage at work when firms outsource jobs to foreign countries. This is because it appears that it is relatively cheaper to produce certain goods and services in foreign countries such as India. The result is, I repeat, American firms not outsourcing are the most efficient in the country. Consequently, this efficiency leads to an improvement in productivity, which leads to an increase in wealth in the U.S. Also, resources can be diverted from the industries being outsourced to newer industries in which the U.S. commands a comparative advantage. This serves to further improve wealth by expanding efficiency and productivity.
Outsourcing positively affects the American economy. It will reduce prices, which allows consumers to expand their consumption and thus increases their utility. It also allows society to shift resources to more efficient industries, which results in an increase in wealth for society. One last point, any policy designed to hinder outsourcing is a policy based and marketed on ignorance and is a policy that does nothing but hurt the American economy.
[1] Outsourcing is where a company contracts out to another company to perform some action it once performed.
posted by Rich at 1:11 AM
4 Comments:
Good dispatch and this enter helped me alot in my college assignement. Thanks you seeking your information.
I think offshore outsourcing is good for America. Offshore outsourcing have many benefits and advantages. Thanks for sharing this blog.
I think it depends on the situation. The business industry around the world, especially in the America, is hugely affected by the global financial crisis.
Why not? An Offshore Business Process Outsourcing - Call Center Philippines will take you forward.
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