Economics in outsourcing companies

The following are the basic concepts applicable for Outsourcing companies

1)    Mobility of Inputs: Since most of outsourcing companies perform the operations either based on the data provided or the type of product (in case of manufacture), the mobility of inputs is possible.

2)    Producer Surplus: Difference between the price the service provider (outsourcing company) is willing to provide the service & the price for which it is actually provided is known as producer’s surplus.

3)    Perfect Competition: As many firms are in this sector, providing homogeneous (i.e., indifferent) services & freedom of entry is unrestricted the market in which these outsourcing companies are operating can be classified under perfect competition.

4)    Internal Economies of scale: By locating their companies in a certain location, they share the customers, manpower, Innovations, Information, etc., for example in the area where companies are hugely located & are looking forward to save their time and resources.

5)    Trade-offs: Due to limited resources of the companies, sometimes they face situations where they get multiple contracts for the same period & they can’t perform the task for both the customers. Hence in such situations the outsourcing company has to do trade-off between the two or more offers available to them.