How To Understand the Economics of Flexible Labor Markets

Everyone is talking about the price arbitrage; the advantage of lower-costing labor and facilities available in far-off locations in the world. Local companies are out sourcing to countries as far off as India, China, Indonesia, Malaysia and Taiwan, to name a few. All this is certainly not new and is certainly not going to remain the same. Every now and then, a new country or a new centre will emerge which has a very large advantage to offer given the economic and global market demands. This area becomes popular; investors and companies flock there to set up shop, establish large businesses that will yield them larger returns and thereby improve the country, its population and bring it closer to the developed and prosperous countries in economic standing. So, what exactly makes this all work? What does it take for countries and geographical locations to offer these attractive advantages? What exactly is the economics of flexible labor markets? Here is how to find the answers to those questions.

  • Firstly, consider what it takes to start a business. It should have something worthwhile to offer; the offering should be equal to or better than the best in the business; people running the business or the human resource involved in it must be of high quality, capable of delivering quality; and in order to attract clientele it must have a great pricing value. Note, how the last point raises curiosity levels when mentioned in any forum; cost advantage is one of the highest factors considered, of course only after quality assurance and continuity of service.
  • Given huge leaps and bounds taken by technology and communications, it is now possible to virtually transport services across continents. That is how call centers in India shore up capacities to serve American and European customers, be it for credit card and finance related telephone queries, to airline booking, after-sales tele-support to medical and legal transcription. Countries such as India have the advantage of a skilled work force, working knowledge of English, ability to adapt accents and localize themselves to any part of the world, albeit virtually. Besides that, cost of labor, the wage and welfare bills are virtually one-fourth or less. Most out-sourced ventures function on a job-contract basis, the workers are hired by the outsourcing entity and thereby the principal organization is not required to pass on all of its employee perquisites to the outsourced organization's employees.
  • Additional factors include cost of land, building and infrastructure. All of this is fractional compared to costs of setting up a business, say in Manchester or in New Jersey. The time-zone difference is just right and people in these countries do not mind working round the clock, running up to three shifts of eight hours each every day so that they can cater to clientele across the world. Commence with countries in the east and chase the clock to the West and back.

These are some of the economics of flexible labor markets. New points could occur with changing economic and business scenarios, developments in technology and of course variation in customer needs.


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