Topic 9: The Myth of Outsourcing's Effect

• Globalization is the process of interaction between people of different places. The comparative advantage is the advantage of making a product comparing to the other company. Outsourcing is moving out the company into a place that has a comparative advantage over the current one. Globalization and concept of comparative advantage are related to the practice of outsourcing. Because other countries has a comparative advantage on human capital, a country will outsource their factory to other country. The characteristics of an open economy are the money spent don't have to equal to its output and one can loan money from another. The production costs will be expansive without the implementation of outsourcing. The production costs will be cheaper with the implementation of outsourcing, because the other countries have the comparative advantage of doing it. Although outsourcing can increase production and efficiency, but sometime it can't when the labor is not skilled enough, like making airplane. The opportunity cost got lower when factory got outsourced. Because other countries can make the same thing with a lower price.