Comparative Advantage and Outsourcing

ComparativeAdvantage and Outsourcing


Comparativeadvantage and outsourcing

Question 1

The clip shows aformer employee of FedEx who delivers a parcel after being stuck forfour years in an abandoned island. As he gives the parcel to thewoman, he reminisces on the hard life in the island i.e. thedifficulty in starting a fire with no help or a best solution toundertake his tasks. As such, he lives a difficulty existence withoutspecialization, which demonstrates the effectiveness of comparativeadvantage in making life easier. In fact, the clip demonstrates howstriving life would be if people were to do everything for themselvesas well as acts a reminder that contemporary economies depend oncomparative advantage to generate economic growth and development.

Question 2

The UnitedStates is one of the largest exporters worldwide despite a relativelyclosed economy due to technological advancement and innovation, whichhas allowed the country to integrate herself in the world economy.Innovation and technological advancement have given America an edgein world exports as manufacturing and agricultural goods make a majorcomponent of her exports. In fact, more than 15% employees in themanufacturing sector and 45% of America cropland are involved in theproduction for exports, which make America one of the largestexporter. In addition, America has one of the largest FDI abroad aswell makes one-third of her loans to overseas borrowers.

Question 3

Transportationcosts act as the main reason why bordering countries incline to tradeexpansively with each other in terms of both time and money. Giventhe same quality of product, a company will buy materials from thecloser supplier as transportation will be less expensive and faster.For instance, US automobile firms trade more with Canadian supplierthan German suppliers do. In addition, individuals in adjacentcountries are more conversant with each other’s commercial andcultural practices, which results to lower transaction costs.

Question 4

John Stosselmaintains that despite the rising criticism on outsourcing, it helpscreate more jobs for Americans. In fact, Stossel (n.d) asserts thataccording to the Bureau of Labor, America has created 19 million jobsdespite increased outsourcing and recession. In addition, Stosselsays that outsourcing has helped the middle class by reducing theprice index of some goods such as clothing thereby, giving themiddle class more choice for less money. In this regards, outsourcinghas saved the middle class money, which they use to createopportunities. On the other hand, companies that outsource createmore opportunities thus, creates more jobs for Americans, as theymanage to save more money to expand. In fact, Stossel contends thatbig companies such as IBM and Chase outsource work in areas withcheap labor, which saves them money to expand thus, creating morejobs for Americans. As such, Stossel shows that most of the Americanswho have lost jobs due to outsourcing have ultimately managed to findbetter jobs.

Question 5a

Carey (2015)says that United Airline wishes to outsource the said jobs to lowercosts. In this regards, the company would make its costs competitivethus, reduced costs of services to consumers and reduced operatingcosts. Outsourcing the jobs means that United Airline will reduce thewages of the 2,000 jobs, which means reduced operating costs as wellas reduced charges to consumers. In addition, the company wants tobridge the gap between benefits and pay, ultimately reducing costs.

Question 5b

Outsourcing the2,000 jobs will help the company lower overhead costs that usuallycome with managing back-end operations as well as help the companystreamline its cash flows. In fact, the company maintains that thereason behind outsourcing is to lower costs especially in customerservice and baggage handling. In addition, outsourcing the jobs willhelp the company increase efficiency and productivity as it will freethe company from investments in technology, human resource,infrastructure, and commitment. The company plans to give acontractor the outsourced 2,000 jobs, which will help manage manpowereffectively and gives the company capacity to develop new skills andcompetencies as well as help the company to focus more on its corecompetencies i.e. service provision and marketing.

However,outsourcing the jobs will lead to loss of confidentiality andsensitive data if the company fails to put checks in places as thebulk of the outsourcing will involve customer service. In addition,the company will lose control of the outsourced jobs to thecontractor, which means that it will no longer manage to controldeliverables of activities and operations of the outsourced jobs. Thecompany will depend on the contractor to handle customer services andbaggage, which may affect the quality of service as the company willnot have a single point of control.

Question 6a

Reshoring refersto the process of bringing back outsourced or offshored services andemployees to the locality from which they were initially offshored.In this regards, reshoring denotes the process of rightsourcingefforts in order to increase productivity and quality.

Question 6b

Zarroli (2014)asserts that lower energy costs and closing salary gap in countriessuch as China have acted as the main reason behind reshoring. Mostcompanies outsource jobs to cut on costs thus, they usuallyoutsource to countries with lower labor costs such as China, but inthe recent past, the companies have been faced with increased demandfor wage increases. In addition, reduced costs of production incountries like America have forced the companies to reconsideroutsourcing. In fact, most companies that have outsourced haveexperienced increased labor costs, logistics complexities, and poorquality.

Question 6c

Zarroli (2014)asserts that increased manufacturing activities in Asia and lack ofenough skilled labor in America compared to countries in Asia explainthe little impact of reshoring on the American economy. Despitereshoring efforts, companies in Asia or companies with roots in Asiasuch as Samsung, Hyundai, Toyota, and Lenovo continues to enjoyincreased manufacturing activities compared to countries in America.In addition, countries in Asia especially China have enough skilledlabor to promote manufacturing activities than America does.


Carey, S. (2015). United Studies Outsourcing up to 2,000 AirportJobs: Carrier’s jobs at 28 U.S. Airports Potentially Affected. WallStreet Journal.

Stossel, J. (n.d). Topic 1 – Globalization. Retrieved January 20,2015, from

Zarroli, J. (16 December 2014) Reshoring` Trend Has Little Impact onU.S. Economy, Study Finds. National Public Radio.