Final answer:
Outsourcing can offer cost savings and allow companies to focus on their core businesses, but it may also lead to quality control issues and communication barriers. Intra-industry trading provides product variety and promotes competition and innovation. Both intra-industry trading and outsourcing can be linked to economies of scale.
Step-by-step explanation:
Advantages and Disadvantages of Outsourcing
Outsourcing is a complex strategy that offers a range of advantages and disadvantages. From the perspective of a company looking to outsource, some of the key advantages include:
- Cost Savings: Outsourcing can lead to significant reductions in labor costs, as labor can be sourced from countries with lower wage levels.
- Focus on Core Business: By outsourcing non-core activities, a firm can focus its resources on areas that provide the greatest return.
However, outsourcing also presents several disadvantages, such as:
- Quality Control Issues: Remote oversight can lead to a lack in quality, since the outsourcing company may not adhere to the company's quality standards.
- Communication Barriers: Cultural and language differences can result in misunderstandings and poor communication.
Empirical evidence shows that companies like Apple have benefited from cost reductions and specialized skill availability through outsourcing, while also occasionally facing criticism for quality and labor practice issues at supplier facilities.
Advantages of Intra-industry Trading and Economies of Scale
When it comes to intra-industry trading, the advantages are numerous. Two key advantages are:
- Product Variety: Consumers benefit from a wider array of choices within a given product category.
- Competition and Innovation: More competition can lead to better products and innovation within the industry.
Intra-industry trading is closely related to economies of scale, as larger markets allow companies to produce at a larger scale, which lowers the average cost per unit. This, in turn, can lead to more competitive pricing and increased trade volumes.