Will somebody please explain why outsourcing is good in the long run?
Answer:
It depends on what you mean by "good". From the viewpoint of most companies, outsourcing to other countries is usually good from a financial standpoint because production is cheaper and there are often fewer regulations.
From the viewpoint of the other countries, as you mention, it often helps them get a more equal footing economically. This is especially helpful if they do not have the resources (money, technology, experience, etc.) to develop industries to produce well-paying jobs on their own.
However, the reasons listed above are for *overall* effects. When companies (and economists) talk about how outsourcing and globalization is *good*, they usually don't take into account the side effects of such practices. While it's true that globalization and free trade often increase the overall wealth of both countries involved, the increase in wealth is not necessarily evenly distributed, i.e. most of the increase in wealth may go to a relatively few people. Also, outsourcing production of goods to countries with less stringent environmental standards may increase the overall monetary wealth, but at the cost of potentially polluting the local environment.
So whether outsourcing is *good* depends largely on your perspective.
Because other countries don't have the funding for these businesses--as well as the fact that if they even had the business--who would buy from them--Take China for instance--there are some very poor regions in China--so America goes over and offers them jobs--Now America gets cheap labor--and the willing Chinese make more money to put into their economy. Now if there was a Chinese business in this same poor region --the workers would get paid less because of supply and demand. Understand??
Outsourcing occurs because third world countries are economically freer than many Western countries. By economically freer, I mean that government doesn't interfere with the economy as much. Because of this economic freedom, companies find it better to do business in these areas. Think about it for a second. If you owned a company, would you prefer being a higher tax jurisdiction or a lower tax one? If the latter then it's because less of your expenditure is going to the government and more can be spent on paying employees more, paying shareholders larger dividends or reinvesting in new equipment.
Why do you outsource? Do you eat food from a grocery store? If so, you're outsourcing most of the hard work of growing, raising, harvesting, butchering and processing your food to others. You do this because the cost of getting your food from the grocery is low compared to the effort of producing your own food. The grocery store and all of its suppliers have produced value for you.
If you had to produce your own food, it would likely eat up 75%-80% of your waking hours to produce enough calories to meet your basic needs. Compare this to how much of your waking hours you devote for food now. That'd be the number of hours it takes for you to work to pay your grocery and restaurant bills and the amount of time you spend preparing your meals.
My guess is that it's somewhere between 10% - 20% of your time. And for that 10% - 20% you get a wide variety of foods from all around the country and the world, much more variety than you would get if you had to produce your own food. You get fresh foods year round, even if its out of season in your country. You get food that's ready for easy preparation. And you get an abundance of calories. That's a lot of value.
So, the reason you outsource your food supply to others is very much the same reason companies outsource their production or labor to other markets. Because, overall, it creates value.
If you had a choice between a $7 t-shirt made in China and an $11 t-shirt of equal quality made in the USA, which would you pick. Some might choose to spend more to support the US, but many others would choose the $7 shirt in order to pocket $4. After all, that $4 can buy a cup or two of java.
Perhaps we wouldn't have enough discretionary income to buy premium coffee if we didn't have willing workers in other countries to supply our wants and needs at a cost advantage. No China, no Starbucks.
The value creation process is difficult for many to see. But, it's out there and has been chugging along for thousands of years and stepped into high gear just a few hundred years ago. But, talk to some people who endured going to the bathroom in an out house. While we youngins take it for granted, those people can relay to you the true value of indoor plumbing.
Well, there are three reasons to outsource. One, you can't do the thing you need done. If you're an individual, an example is surgery on yourself. If you're a company, an example is computer services if you are not a computer company. Two, you outsource things that you'd rather not do. For an individual, perhaps mowing the lawn. For a company, perhaps payroll managment. Three, you outsource things that you could do and would like to do, but which cost you too much because you aren't all that good at it yet or because you only have so many time or dollar resources. As an individual, you mail a letter rather than flying to New York to hand-deliver it. As a business, you can get much cheaper labor putting together textiles in another country. As the mix changes -- you obtain a more skilled (or less) workforce, you get tight on funds or get a better cashflow going, or you suddenly have (or don't have) the time to do things you never (or always) could handle yourself before -- the attractiveness of outsourcing changes. It's a fluid world; if we don't like that a certain skill or product is purchased elsewhere, we need to figure out how to make it available at home at a competitive price. The folks in other countries outsource to us, too.
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