Outsourcing and Giffen effect

My brother who recently joined Delphi automotive Systems is worried about the recent bad news surrounding his company. I, being the primary influencer in his decision choosing Delphi over a couple of other companies, needed something to reassure him and myself. So, I decided to look into the future in a positive light.

Bad days at Delphi are due to high costs. Now, it has to cut costs and hence manpower. Counting on what Robert Giffen has wonderfully formalised (த), I feel that there will actually be increase in both headcount and welfare measures to retain talent here in India even if the cost increases here in the future.

This case is analogous to the textbook example of potatoes and meat. In an economy where people eat potatoes and meat primarily (meat is costlier), when the buying power of the people reduces, they will cut down on meat consumption and compensate that with more potatoes even if the price of potatoes keeps increasing (of course, it should still be less than that of meat).