The outsourcing of production to other countries has become a common practice for businesses looking to become more competitive. Yesterday’s developing countries have become today’s hotspots for cutting down production costs. India and China in particular have become some of the world’s biggest manufacturers, and in turn, the biggest polluters. This is all thanks to big businesses, mainly from the United States, looking to gain a competitive edge.
Outsourcing to other countries, also referred to as ‘offshoring’, primarily helps businesses save on their overall cost of production. Companies often look to hire entire departments in emerging markets with lower standards of living in order to save labour costs. Other benefits from offshoring include access to state-of-the-art technologies which would cost hundreds of millions of dollars to replicate.
The U.S. economy relies on key industries such as IT and manufacturing. However, the outsourcing of jobs within these industries has weakened the employment rate in the U.S. and conversely, has strengthened that of the foreign country. Outsourcing also eliminates the need for lower level jobs such as basic bookkeeping. As a result, those who lack higher education may find themselves unemployed as the need for lower level jobs slowly disappear. This is, therefore, likely to hurt the masses more, while the affluent are less likely to be affected. What’s more, as wages drop, the tax base erodes, leaving less money for domestic spending.
This poses a threat in the long run as entire economies could slowly contract due to the aforementioned factors that come with outsourcing. Businesses will continue to outsource many jobs in order to keep up with competitors. However, over time, economies will experience dying industries as other countries take over, resulting in an elevated unemployment rate and potentially a shortage of certain skills that may become useful again in the future. For example, if manufacturing skills are lost, then the country would not be in a position to setup manufacturing of a new widget without a massive retraining effort.
Furthermore, offshoring goes against a country’s need to create jobs. Offshoring started off with manufacturing, but nowadays many jobs in the service sector are being performed overseas. Businesses act in self-interest by taking advantage of lower labour rates in countries which not only have low labour standards for workers, but also towards the protection of the environment. However, businesses aren’t worried about the societal impacts of their actions, they’re more focused on increasing shareholder value. This is the fundamental conflict between the values of a company and those of the country. On balance, since the negatives of offshoring are downplayed or underestimated, in the long run, unfettered offshoring yields a net loss for the country as a whole.
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