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    Theory of comparative advantage

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    I am trying to defend my view on the following:

    In the two years prior to its merger with Nextel, Sprint Corporation cut approximately 2,000 employees. In addition, Sprint outsourced nearly 90% of its Information Technology functions from within the company to lower-cost countries outside the United States. Approximately 400 of the 2,000 layoffs occurred in the Kansas City, Missouri area, which is where Sprint headquarters were located at the time (they moved to Virginia after the merger with Nextel).
    In the three years prior to the layoffs above, Sprint terminated more than 20,000 other employees because of lagging sales and fierce competition in the telecommunications industry.

    My view is: - Sprint acted as a well-managed business that takes the actions necessary to remain competitive in a very competitive market. If Sprint did not make such moves, its profits would lag behind its competitors, its stock price would fall, and investment capital would flee the company. As difficult as the decision to terminate employees is, Sprint operates in a very competitive environment and owes its stockholders the best return it can provide.

    What economic theories & concepts can I use to support this?

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    Solution Preview

    This is a theory of comparative advantage. One of the central pillars of trade theory is that countries will specialise in producing those products, which they are comparatively better at making relative to other products and other countries. On the one hand, such specialization allows a country to take advantage of economies of scale (i.e. larger scale operations producing goods more ...

    Solution Summary

    This discusses the theory of comparative advantage