Homes Outsourced Production Activities - Assignment Example

With a trade cost of 50%, the activities that are cheaper to import from Mexico include; production components, assembly, office services, and R & D respectively. At 50% no activities that are cheaper to produce in the U.S. as compared to Mexico.
c). At 30% and 25%, the activities that are cheaper to import are production components and assembly while those that are cheaper to produce include: office services.

Part B: Short answers

1). The main difference between outsourcing in manufacturing versus business service is that in manufacturing the company may be given the mandate to manufacture goods locally using the patent of the parent company. On the other hand, the parent company may enter into a contract with another firm whereby, that firm is given the mandate to offer services either locally or in the foreign market (Avadhanam, para.4)
2). Skill premium is where the wages earned by both skilled and skilled laborers who work in the same field increase relative to each other. The skilled premium in the U.S. has widened the wage gap between skilled and unskilled labor for the past 30 years (Kannan, p.115).

3). The effects of outsourcing on workers’ wages include; reduces wages earned by workers, and skilled workers may obtain more wage benefits as compared to unskilled. Finally, it causes suffering to workers who worked at outsourcing firms.
4). It is difficult to measure and establish a causal effect of outsourcing on a worker because outsourcing varies with the characteristics of a worker.
5). It is true that U.S. skilled workers fear the security of their jobs due to the possibility of outsourcing. This is because a firm may find it cheaper to outsource labor rather than utilize local labor (Kannan, p.136)

Part C: Reading
1). The three factors that make Kenya an attractive site for Business Process Outsourcing include: the availability of 3 fiber optic cables, the emergence of 4 undersea cables, and the availably of a highly skilled labor force (The Economist, P.3).
2). The reasons why there are higher trade costs associated with outsourcing business services in Kenya is because of unfair tax code, higher political risk, and higher crime rates (The Economist, P.4).