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Outsourcing In 2125

Outsourcing In 2125

Outsourcing In 2125

Outsourcing In 2125

The Gulf Coast has been a hotspot for seafood since long before America was colonized. The Gulf represents an industry of approximately $900 million in fish caught each year, with a large percentage of those fish frozen and sent to China for processing. In China, they defrost, clean, prepare, package, refroze, and sent back the fish to the United States for consumption.

This acts as an excellent thought experiment on if this process makes sense, and should it? The math works from a business standpoint—it is cheaper to catch fish in the US, freeze it and ship it, processes it, and send it back. However, is this the best way for companies to expend resources? The trip alone is over 14,000 miles there and back. This is all wasted motion of travel. This leads to a massive environmental cost due to CO2 emissions from shipping. The question is: do companies outsource because it is the best use of energy, or is it a default use based on manipulated economic forces?

The Origins of Outsourcing

Outsourcing came to life in the 1980’s. Theorists had proven that specific tasks could be done cheaper by a company that just focused on the single task. The companies providing the outsourced services were the experts that could scale production. This would then let the main company focus on their core competencies or how they provide value.

Outsourcing grew in practice and politicians followed. This opened additional trading partnerships in regions where some tasks could be significantly cheaper, namely in Asia. Next followed the World Trade Organization (WTO) to regulate and facilitate global trade, followed by the North American Free Trade Agreement (NAFTA), which further eased trade regulations between Canada, the United States, and Mexico. In hindsight, this took place to take advantage of the cheaper labor costs in Mexico.

Benefits & Detractions

There are numerous positives to outsourcing and the good business it creates. Theoretically, outsourcing enables those that have special skills to double down on their craft. In other situations, using foreign partners that are located closer to raw materials needed for production helps lower transportation costs. China, for example, holds significant reserves of iron ore, putting them in a prime position to make steel.

The most commonly cited upside to foreign outsourcing is that it raises the overall quality of life in other countries. Expanding the industrial world to another country improves their economy. That economic improvement then leads to a greater quality of life for many individuals in that country.

However, with every positive comes a negative, and outsourcing has many. From an immediacy standpoint, the philosophy takes jobs from one region and shifts them to another, resulting in major job losses. These losses typically come all at once and can cripple local economies. Outsourcing agreements also tend to take advantage of less developed countries and their cheaper labor pool. The competitive balance is thrown off when two countries with vastly different economies partner. The side with the upper hand stands to achieve massive economic gains when the negotiating positions start as unbalanced.

Modern Manufacturing

The personal computer is an excellent example of modern outsourcing. During the 1990s and early 2000s, many computers were made in the United States. At the same time, the internet was beginning to take shape, making the personal computer a must-have for each household. On average, computers cost approximately $2,000 or more, which was a significant purchase for many.

Some lesser-known brands began moving their manufacturing operations to China. There, they could produce computers with a significantly cheaper labor cost, which resulted in being able to sell computers for as low as $300. As such a significant cost advantage, it forced most other computer manufacturers to move their operations to China as well to remain competitive.

These lowered production costs created an immediate benefit to the consumer. The lowered prices offered more households the ability to purchase a computer and access the internet. It also brought jobs to China, which significantly raised quality of life in the country.

However, with the positives also came negatives, where this shift in outsourced manufacturing reduced jobs in the United States only to exploit another country’s labor pool. The shift increased the travel and environmental footprint needed to move products. Lastly, it made each company vulnerable to supply chain disruptions and political tariff issues.

Therein lies the ethical conundrum. As a company, you are reducing costs to create your product and expanding access to your product while also elevating the quality of life in another region of the world. Yet, your good intentions could also be seen as exploiting developing nations and unnecessarily burdening the environment. It creates a grey area in which outsourcing is clearly good for business, but is it good for mankind?

Staff Augmentation

Companies have a strong desire to be agile and flexible, which means they do not always maintain the same size workforce—when times are busy, they bring on more employees and when times are slow they have to be able to let some go. This is where a staffing agency comes in. Staffing agencies offer the benefit of a wide range of potential employees to fill a variety of positions without the need for training and recruitment, thereby saving the company money. When temporary staff are no longer needed, the agency is notified, and the workers are placed elsewhere, or wait on standby for the next available job.

An outside observer may ask, “What are the benefits of staff augmentation—why don’t the companies simply hire the workers themselves?” The benefit starts with the laws around employment, which have grown increasingly complex. They need an army of HR experts just to help companies manage employee processes, significantly increasing secondary costs. Staff augmentation also helps when companies need to hire massive amounts of people for seasonal positions such as holiday sales, where an agency might bring in 60+ people for just two months. Staffing agencies allow them to do this with greater ease.

There is a hidden side to staffing organizations, however. These firms typically serve under-skilled workers needing employment. The workers go to a staffing agency which then employs them and places them with a company. There they work just as if they were employees of the company. If the position gets terminated at a moment’s notice though, they typically don’t remain employed with the staffing agency.

Staff Exploitation

A company might pay a staffing agency $20 per hour for the work performed, and then the staffing agency turns around and pays the employee $12 per hour, taking the extra $8 per hour for overhead and profit. A shell game is created creating hidden salary deductions. Does taking 40% from an already low-paying job constitute exploitation?

An ethical conundrum exists in this version of outsourcing as well. The labor market can be finicky, and it is highly beneficial to have a firm manage that process for you. Theoretically, as a company you are providing jobs and passing along cheaper costs for your shareholders. However, is it coming at the expense of a vulnerable class?

100-Year Gaze

How will outsourcing look a century from now? It all comes back to reducing costs. As a company, you can reduce operational costs, but not at the expense of the vulnerable.

America adopted a similar model in earlier times with indentured servitude and slavery, which allowed American settlers and plantation owners, respectively, to exploit others for cheaper operational costs. Of course, modern outsourcing doesn’t come close to the same level of cruelty, but the premise is similar. While we often turn a blind eye to this today, will future generations a century from now be apologizing for the manipulation and exploitation demonstrated by their ancestors?

Unfortunately, our economy has doubled down on this system, and entrapped. Trapped in a heavily intertwined system that resembles the United States in the mid-1800s with the cotton industry. Ethically, we assume the practice of outsourcing is sound because it is widely used. We tell ourselves that it lifts everyone in the value chain. Sometime soon though, we may begin to question the morality of outsourcing and realize that we cannot extricate ourselves from this system even if we wanted to.

References

Outsourcing, Where to Draw the Line?

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