Outsourcing Arbitrage Defined

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Outsourcing arbitrage, for some, is a profitable business model. It’s the result of a service provider outsourcing his/her own services to other providers, ultimately creating a work-triangle with the hired entity being the “middle man” between the outsourcer and the working provider. It’s also a common practice, as mentioned in our Risks of the Outsourcing Chain Gang article. What outsourcers may not appreciate, however, even more than its associated risks, is being in the dark about how much it cheapens their expenses.

It’s What Creates a Profit

Arbitraged work is contracted out to a company or provider at a fraction of a project’s initial cost (else it wouldn’t be called arbitrage). It’s what creates a profit for the arbitrageur, with the biggest profits resulting from offshoring. Through this practice, a $1,000 web page might actually cost no more than $300 or even $30 to make.

Contradicting Roles

For the record, Just Outsourcing does not participate in outsourcing arbitrage.

What we want to know is how well outsourcing arbitrage sits with you. Outsourcing arbitrage angers the dickens out of some folks, while others couldn’t care less as long as the end result is satisfactory. Is it that big of a deal that a thousand dollar web page was made for just three Hamiltons? Arbitrage is just part of a free market, capitalist economy, after all, and a capitalist economy is what this country was founded on … right?

Historical theory aside, the issue isn’t that clear cut, and the fact that American culture and ethics play contradicting roles doesn’t really help the matter.

No Immediate Right-Or-Wrong Answer

According to Integra Information Systems industry profiles, for example, “general line grocery merchant wholesalers have a markup of 15 percent.” [Source] Mark ups on furniture might range from 200%-400%, according to TopTenz, and a 1,275% mark up on movie theater popcorn is today’s norm. [Source] To Americans like you and me, arbitrage is something we can’t avoid and have grown accustomed to.

Current events can be found in our Outsourcing Arbitrage News section.

At the same time, outsourcing arbitrage presents a unique ethical challenge, prompting us to question just what in the heck we’re paying for. Outsourcing by itself gives us a sense of control over a number of things, including costs. So we feel comfortable asking for things like references, samples, and whether $1,000 is too much to pay for a single web page.

What we might not be so comfortable with is feeling entitled to complain about mark ups – not when already we pay 15 – 400 percent above production costs for ordinary everyday items (like furniture and popcorn).

It’s a challenging conundrum, making the answer to whether outsourcing arbitrage is right or wrong a questionable one. That’s why we’re not going to answer it. We want you to answer it instead. So what say you?

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