School of finance & Financial Management | Business University of Costa Rica
Email: email@example.com | ID: UNEM-OAA/DR/19MAR19
The Make or Buy decision forms the cornerstone of managerial economics wherein the decision to outsource key processes compared to doing them in-house is taken based on the relative benefits and downsides of such decisions. For instance, let us take the example of the current trend among the Western companies to outsource their manufacturing to China and services to India. Behind this decision is a calculated attempt at evaluating whether it is cheaper to get the work done offshore or do it onshore. This evaluation is based on what is known as an opportunity cost. In this case, if a Western firm feels that the time and money spent in making the goods or services in their country can be employed elsewhere leading to more profits, it would then outsource such activities. On the other hand, if the Western firms think that by outsourcing the activities, they stand to lose out economically, then they would rather make the goods or services in their own countries.
Keywords: Economics of Human Resource, Development Economics, Productivity and Efficiency