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Debate: Outsourcing

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Is outsourcing (and “offshoring”) a positive phenomenon?

Background and context

International trade has always depended to some extent on countries basing their exchange on their own competitive advantage. For example, a developed country might import raw materials from an underdeveloped country and export finished consumer goods. Recently there has been an accelerated shift towards outsourcing, where companies contract with third parties to perform functions for them, for example manufacturing goods on their behalf, managing their payroll, providing data services and IT support, and even providing customer support or billing services. This has been especially evident in “offshoring”, where jobs which were previously done in the West are done in a lower-wage country (e.g. in China or India) by workers employed by the same company or, increasingly often, by a contractor. This is a politically sensitive issue, for example in job protection in some U.S. swing states such as Ohio.

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The consumer: Does the consumer benefit? Are prices lowered by outsourcing?

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Yes

  • Outsourcing lowers the cost of goods and services Not all goods and services which are consumed in a high-cost economy need to be produced in that economy. There is long-standing tacit recognition of this domestically within most countries – for example, only certain activities tend to be carried out in central urban areas where land and operating costs may be higher than elsewhere. Offshoring simply applies this logic on a larger scale, by allowing the comparative benefit of a lower cost of production to be passed on worldwide.


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No

  • Offshoring is simply a way of unfairly exploiting cheap foreign labour. By shifting production to low-wage economies, companies are able to profit from paying substandard wages and sometimes offering appalling working conditions. The fact that there are so many poor, underdeveloped countries with substantial unemployment means that countries will “race to the bottom” in a desperate attempt to undercut each other and so make themselves more attractive for offshoring investment. In other words, offshoring and outsourcing decreases costs for companies, but does not necessarily benefit the consumer through quality service or lower prices.


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Efficiency and Productivity: Does outsourcing enhance efficiency and productivity?

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Yes

  • Offshoring increases transparency between companies and countries. It does so through a more ruthless display of pricing competitiveness. This means that there is a freer market between companies and those who are not efficient and that are less likely to succeed. This is good for consumers and the economy more generally, because goods and services will be produced more cheaply and efficiently. This does not necessarily mean that corners will be cut or jobs lost – the threat of overseas competition may serve to sharpen a company’s own focus on efficiency, or else to innovate in ways which set it apart from offshoring companies.
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No

  • Technology and other services would be more effectively done domestically. Due to language barriers, among other boundaries, productivity has decrased in the "help-desk" industry. Even if outsourcing creates cheaper labor, the amount of time to obtain the task rises, thus creating no advantage to outsourcing.


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Competition: Does outsourcing encourage competition? Is this a good thing?

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Yes

  • Outsourcing leads to a beneficial competition. Competition in the outsourcing market has intensified significantly. There were 34 different service providers that signed the Top 100 deals in 2005, up from 29 service providers in 2004 and 20 in 2003.[1] Such incresed competition leads to lower prices, better quality, and greater selection. Also, greater competition spurs the reallocation of labor and capital to more profitable sectors of the economy.[2]


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No

  • Offshoring leads to ruthless competition. Those who favour offshoring peddle an “efficiency myth” which ignores the human cost of some market forces. Efficiencies are not necessarily passed on to end consumers. Instead, the most vulnerable people in the supply chain (typically workers but also small businesses) are forced into a viciously competitive, no-win situation. Meanwhile, consumers pay much the same price as before, perhaps for a worse product or service, while the company involved inflates its profits at their expense.
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Developing countries: Does outsourcing benefit developing countries?

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Yes

  • Offshoring helps development of underdeveloped countries: Offshoring relies on a basic industrial base and the necessary supporting infrastructure, including some sort of education system. This will be present in most developed countries but may be partially or wholly absent in underdeveloped countries. The prospect of profiting from outsourcing contracts will encourage both public and private investment in infrastructure, both physical and social. In addition, offshoring provides bigger markets than would ever be possible domestically for an underdeveloped country, which allows it to benefit from economies of scale and capital inflow to develop more rapidly. And over time, the demands of companies for accountable, non-arbitrary government will encourage the rule of law and democracy, as will rising education levels and a growing middle class.
  • Offshoring allows more developed countries to focus their economic activity on more highly skilled, value-adding processes which may be more financially profitable than, for example, low-end manufacturing. Additionally, they create large numbers of newly affluent middle class consumers in underdeveloped countries which can provide substantial new export markets.
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No

  • Offshoring undermines liberal democratic values: Offshoring involves a focus on cost at the expense of all else. It favours regimes where cheap, consistent labour is available even where this is because of poverty or government authoritarianism (e.g. the banning of trade unions). Therefore, the sorts of social systems seen in developed countries are seen as costly and lose out in comparison to low-wage economies which also support far less social infrastructure. This is doubly damaging, as it leads to a spiral effect in developed economies whereby a diminishing number of workers thus must support an increasing number of social claims, which accelerates the economy’s competitive decline.
  • Many developed countries suffer increased unemployment as a result of offshoring: As a result of increased jobs because of offshoring in developing countries, various industries have now completely closed or on the verge of it due to vacancy rates.


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International stability: Does outsourcing foster international cooperation, respect, and stability?

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Yes

  • Globalisation makes cross-border interaction more rapid, cheap, and stable: This globalizing effect increases both economic and political ties in a manner that generally enhances cooperation among nations.
  • The sad truth is that the economic systems of countries are not created equal. Modern, western industrialized nations built their economic strength on colonialism, colonial slavery, and colonial theft. Due to this recent historical imbalance, many poorer nations have an "edge" with outsourcing, if a poor currency and low wages are considered an edge.
  • The problem with criticisms of outsourcing is an implied double-standard. The success and dominance of American products, from MacDonalds to Hollywood cinema, are not necessarily heavily criticized as disruptions to local economies. Rather, because the spread of American stores and the sale of American products around the world benefits Americans, such "American-sourcing" and selling, and at times even a ruthless dominance of local (non-American) markets is not critiqued in the same way as outsourcing.
  • Outsourcing may be a characteristic of a new stage in the global economy. Part of the critique of outsourcing is an imbalanced bias against the competitive nature of the global economy, a competitiveness that is not necessarily critiqued when it has direct advantage for American companies and products. It seems that critics of outsourcing are no longer supportive of a global economy, when that economy risks a shift in the traditional balance of power, a shift that involves providing jobs and in time a stronger economy for former colonies, who are simply trying to compete in a marketplace dominated by former Imperialist powers.
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No

  • Offshoring is a form of economic and cultural imperialism. Offshoring portrays underdeveloped countries as being cheap sources of support for the developed economies. The focus is not on helping the poorer countries to develop strong economies, but to exploit their weaknesses to satisfy the consumer culture of richer countries. In doing this, the mass export of roles which depend on cultural knowledge (for example, call centre jobs) imposes an alien and patronising cultural framework onto local workers.


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Pro/con resources

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Yes

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No


See also

External links and resources

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