Outsourcing Economics

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2. Moral Crusades in an Age of Mistrust: The Jimmy Savile Scandal (Palgrave Pivot).
3. The Economics of Outsourcing | Mises Institute.
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5. Outsourcing | economics | www.newyorkethnicfood.com.
6. A Christmas House.
7. The Worlds Money (RLE: Banking & Finance) (Routledge Library Editions: Banking & Finance).

The Classical School , beginning with Adam Smith, said the valuation of goods runs upward, beginning with the raw factors of land and labor, and continuing to the manufacturing of the final product that is sold to consumers. From this point of view, the notion of "value added" at each stage of production becomes vital in describing how the final product receives its value. In this way of thinking, value is "added" whenever the factors undergo change.

For example, when crude oil comes from the ground, it is in an unusable form until it goes through a refinery, where the petroleum is "cracked" and made into a number of products, from fuel oil to gasoline to an intermediate good used in the making of synthetic threads like nylon and polyester that are intermediate products for goods as diverse as artificial turf to ready-to-wear clothing.

Thus, the value of the final good, in this way of thinking, simply is the sum of the various valuations that are made at each production stage. Prices of goods are derived from that summation of previous prices of production. Thus, we hear advocates of government medicine claim that marketing done by private medical firms simply "drives up" the cost of medicine.

Eliminating private medicine, they argue, would lower final costs because government health care providers would not need to engage in marketing.

Benefits of Outsourcing

The quality of care, they claim, ultimately would improve. If that description of economic processes were true, then the outsourcing critics would be correct, since they argue that whatever savings consumers might gain from cheaper products imported from "cheaper labor" countries overseas are more than offset by the losses incurred by the disappearance of the various stages of "value added. It was Smith who noted that the purpose of production is consumption. To put it another way, the only way the anti-outsourcing advocates could be correct would be if production were an activity carried on for its own sake.

One of the many fallacies of the communist paradigm was that the centerpiece of economic society was the "worker. Therefore, factories were seen as the logical center for political organizing and activity; what actually was made and how it was made and the quality of the final product took second stage actually being completely off stage to the issue of employment — any employment.

Apologists for communism in the western nations praised the fact that everyone in communist countries was assigned a job, thus eliminating dread unemployment, which leftists claim is the Achilles Heel of the capitalist system. Menger's contribution in this particular arena of economic analysis is vital to understanding why the anti-outsourcing crowd is just plain wrong. The value of a final product did not arise from the series of "added value" that occurred at the different stages of production.

Outsourcing

Instead, the valuation of the factors of production ultimately came from the value that consumers placed upon the final product itself. To put it another way, the imputation of value did not run upward first from the factors and ultimately to the final product; instead it occurred the other way around.

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Consumers, through their valuation of a good, indirectly determined the value of each factor of production and each intermediate stage of manufacturing. This insight is the antidote against the claim that "outsourcing" harms the U. As I said in an earlier article on this subject, the anti-outsourcing advocates make the claim that the ultimate source of wealth in an economy comes from costs of production.

Benefits of Outsourcing | Economics Help

The higher the costs, the wealthier a society becomes. Manufacturing we discussed earlier. For the company to hire a new line of engineers and equip them it would spend considerable resources planning the venture. Companies would have to address those questions before hiring, training, housing and equipping the engineers. And once hired, the engineers must be paid.

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Benefits like medical insurance and retirement contributions typically cost another 30 percent to 40 percent of an individual's salary. If the venture collapses under its own weight, the company's unemployment insurance also will take a hit.

Putting all this together takes time, and time, as the old saying goes, is money. In many cases, companies would rather be less adventurous with their capital. The new product can launch faster and cheaper, meaning more profits for the company and its shareholders. Thus, jobs elsewhere will be created. Also, Indian workers will benefit from increased wages, this may enable Indians to buy more imports from countries such as the UK.

So we may lose jobs in call centres, but, there are also opportunities to gain jobs in sectors of the economy where the UK has greater comparative advantage. The law of comparative advantage states that net economic welfare can be increased if countries specialise in the areas where they have a lower opportunity cost. Thus, there is a net gain by outsourcing certain sections of the economy to other countries — if they have a comparative advantage in this area.

The problem is that the job losses are very visible and the benefits very hard to see because they are spread thinly. Whearas the job losses are very concentrated. Outsourcing is not a completely new phenomenon. When we made cotton shirts at the start of the industrial revolution, we outsourced the growing of cotton to overseas companies who could obviously grow cotton much more efficiently than in the UK.

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For example, customers may be not happy if there is lower quality service from an outsourced company. But, in principle outsourcing can work. There are hundreds of Call Centres in India, and there are thousands of executives working in each of them.

You will be surprised to know that most of us used to get appreciated by customers, daily. They used to really like our services. And many a times people talk about the communication of call centre executives; we have been making sales on a daily basis, achieving all our targets, which surely requires real good talking skills. I will also admit that the people in your country are just great nice, humble, sensible, lovely human beings, etc.