The Outsourcing Question

1
The Outsourcing Question
2
The Sub-questions

• Scale of Outsourcing
• Scope of Outsourcing
• Style of Outsourcing
• Do Savings Create Opportunities?
• What Is the Limit?
• Political Views

3
The Paradigm
4
Motivation

• Outsourcing (Offshoring) has been going on for
  a long time in various forms. The Network
  Economy has facilitated this process by making it
  possible to outsource intellectual work in
  addition to factory work. This clearly has
  affected both the scope (variety) and scale
  (amount) of outsourcing going on. Clearly
  economies of style remain untapped. Where is
  outsourcing going? Who will win?

5
Whom Does Outsourcing Help?

• The standard economic argument is this
• Outsourcing helps by assisting costs to seek
  their lowest level, thereby maximizing profits.
  By extension, then, outsourcing helps focal
  countries by creating increased profit for focal
  country investors or by lowering prices for focal
  country customers.

6
Implication

• At low levels, outsourcing benefits both host
  country and source country by providing lower
  prices to consumers, higher profits to investors,
  and better incomes to source countries.
• That might not be the whole story, however.

7
Evolution

• As outsourcing grows, competition for sourcers
  increases, driving costs up, reducing advantage
  and profit.
• Focal firms seek lower cost sourcers. So long as
  these are available, costs remain low.
• When they cease to be available, outsourcing
  loses its advantage.
• By then, whole industries or countries may be
  dealt out.

8
Historical/Geographical Lessons

• One-crop countries (eg. Coffee, opium)
• One product countries (eg. textiles)
• One-service countries? (software?)
• Colonialism revisited
• Hollowing-out of economies
• Irreversible damage?

9
Hollowing Out
10
Are intellectual services different?

• One-product or crop countries suffer
  disadvantage for N years
• Intellectual services depend on learning
• This might take a long time to recover advantage
• WRT software development, there are few entry
  level jobs any longer in IT in N. Am.
• But there are MANY higher-level jobs begging to
  be filled.
• How can recent grads get experience needed to
  move into higher-level jobs?

11
It comes to this

• Should a country like the US, which is rich in
  both resources and talent, restrict outsourcing
  (offshoring) and if so, then how shall these
  restrictions be made and enforced and for what
  kinds of industries?
• Subsidiary question isnt the market in labor
  the same as the market for goods and services?
  Shouldnt free trade help everyone?