5.3.5 Outsourcing and Off-shoring

Does globalization lead to more wealth for everybody?


Courtesy of Jaber Al Nahian
In April 2013 an eight-story building collapsed in Bangladesh. The Savar building, originally designed for offices, had been converted into factory space for the garment industry. Clothing for stores such as the Children's Place, Joe Fresh, and Wal-Mart was made by the approximately 5000 people who worked in the building.

Although cracks in the structure had appeared the day before the collapse, garment workers were ordered to return to work the following day. The building crumbled during the morning rush hour and 1129 people died. More than 2500 were injuredҀ”the deadliest accidental structure failure in modern history.

The collapse of the building demonstrates how connected people are around the world. You, or someone you know, could very well be wearing a piece of clothing made by a person who died in the Savar building β€” person who worked for $70 a month in unsafe working conditions so that the shareholders of large
multinational
a corporation with headquarters in one country and trade operations in many other countries

Typically, multinational corporations have branch plants (production facilities) in several countries. They do this to take advantage of reduced productions costs such as lower workers' salaries, lower taxes, and less restrictive labour laws and/or pollution controls.
transnational corporations could make profits.

Outsourcing or off-shoring occurs when a transnational corporation sets up operations or subcontracts operations outside its country of origin. Generally, this is done to make a profit for the corporation either by the use of cheaper labour, by having to obey fewer labour or environmental laws, or by having to pay lower taxation. Outsourcing provides employment to workers who might have limited opportunities, and it provides profits for corporations. Transportation and communication technology makes this all possible.

Business process outsourcing is another form of outsourcing in which the business processes of a corporation are completed outside the country. This includes work such as accounting, call centres, and other jobs that rely on ICT (Information and Communication Technology).
outsourcing
the business practice of moving the production of a good or service from a central plant or facility in the home country to another location; also called contracting out

It often involves transferring jobs to another country, either by hiring local subcontractors or building facilities in areas where labour is inexpensive.

For example, outsourcing occurs when Ford and GM close automobile parts factories in Canada or the United States and open new plants in Mexico, or when Walmart hires a Chinese firm to make all its bicycles, or Nike contracts its clothing from a garment factory in Bangladesh
A
sweatshop
a factory or place of harsh labour where working conditions violate human rights

Sweatshops exist in developing and developed countries, but most controversies are concerned with factories that are the result of outsourcing by transnational corporations. Here, workers work long hours in unsafe conditions for low pay.
sweatshop is a factory or workplace, frequently in the developing world, in which workers work long hours for low pay in often unsafe working conditions. Often, today's sweatshops produce goods for transnational corporations such as Wal-Mart and Nike as well as for consumers in their own countries. Governments in developing countries such as India, China, Vietnam, and Honduras encourage outsourcing of work from US and Europe to factories in their countries to provide employment for workers and profits to employers.

A
maquila
a factory where imported parts are assembled and from which the finished product is re-exported

Most maquilas are in Mexico or other Central American countries. Weak enforcement of environmental and labour laws means that these factories can exploit their workers and cause damage to the environment.
maquila or maquiladora is a factory where imported parts are assembled and the finished products are exported. Maquilas were first built along the Mexican-US border as part of
North American Free Trade Agreement (NAFTA)
a legal agreement among Canada, Mexico, and the United States with the goal of increased trade and reduced barriers to trade among them
NAFTA, but now they are in many countries in Latin America. Maquilas provide low wages, a lack of environmental or labour regulations, and low taxes. Products include clothing, auto parts, and other goods.

Perspectives on Sweatshops: Arguments for and against the use of sweatshops and maquilas are frequent.

Opportunities

  • Sweatshops are a natural stage in industrialization and will lead to a more educated and advanced workforce.
  • Sweatshop jobs, while difficult and poorly paid, are better than most jobs in the countries where they exist.
  • Without these jobs, workers would have few or no opportunities.

Challenges

  • Workers in the developing world are exploited so large corporations can benefit.
  • Workers in the developing world are exploited so consumers in the developed world can buy goods cheaply.
  • Poor environmental standards lead to environmental damage.

Watch


  • China Blue is a 2005 documentary about a 17-year-old factory worker who makes jeans for about 6 cents an hour

  • American Jobs is a documentary about the loss of jobs in the US.

  • The short video from the Associated Press provides a couple of perspectives.

Digging Deeper


For a way to see if products are sustainably purchased, see The Good Guide, a site that investigates many products and rates them based on environmental sustainability and social justice.

Reflect


Does outsourcing contribute to sustainable prosperity for all?

Realize that many perspectives are possible.

  • Consider the question from your own viewpoint as a consumer in Canada.
  • Consider it from the viewpoint of someone whose job has been moved to another country.
  • Consider it from the viewpoint of the worker in the developing nation.
  • Consider it from the viewpoint of the factory owners who are trying to make profits.