Geo-Arbitrage

Geo-Arbitrage is taking advantage of price differences between locations or countries.

Often you hear the term as it relates to outsourcing. When the same work can be done overseas for less, that’s geo-arbitrage. The employer in this case can create instant cost savings simply by shifting some workforce to a lower cost area.

What’s more interesting to me is the geo-arbitrage that comes from the digital nomad set, or virtual entrepreneurs.

If you have a virtual business, one that be conducted entirely online or that deals exclusively in digital goods for example, you can essentially operate it from anywhere with an Internet connection.

These types of entrepreneurs have a unique opportunity to earn their living in dollars or euros, and spend it in pesos or baht. In my opinion, that’s geo-arbitrage too.

And I should make a point that geo-arbitrage isn’t just overseas. When I moved from Atlanta to the San Francisco area, my salary stayed the same — which is to say I essentially took a massive pay cut because of the markedly different costs of living.

An income of $30,000 a year won’t get you far in Manhattan or London, but you could live VERY comfortably on that income in many other parts of the world.

If your work and income were truly location-independent, where would you like to live?

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6 thoughts on “Geo-Arbitrage

  1. Great point about geo-arbitrage for entrepreneurs living in lower cost locations / countries. That’s one of the things I love best about outsourcing is the flip side which most people don’t think about – namely that folks in poorer countries have the ability to provide for their entire family often by tapping into the global marketplace and working for those in higher cost areas.

  2. Interesting thoughts. I think that geoarbitrage is encouraging people to ask themselves what they really want… is it the 2,000 square foot house, or a one-bedroom apartment and the freedom to travel?

    I think some people go overboard living on the backpacker circuit as a reaction to quitting their job, but challenging the system and its preconceived notions is always a good thing.

    The next wave, in my opinion, is selling high-priced goods to increasingly affluent consumers in those emerging markets while using cheap emerging market labor to do so. Think of how great Prada has it selling bags in Vietnam at often higher prices than they do in Italy, while paying lower labor costs. Even the potentially higher real estate costs likely don’t offset the savings.

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