Procurement Intelligence Unit

That depends on a lot of things, and I imagine that depends on who you ask. The first question I might ask is, are you referring to the offshoring of production (that is, the manufacturing of goods) or the offshoring of services? The US today is largely a service based economy, as I'm sure you're aware.

Hi Craig, 

Well, I think that manufacturing as a share of GDP is hovering around the 10% mark and declining. But, I would apply my comments to all forms of offshoring - either for service or manufacturing sectors. 

Moving call centres abroad lowers the costs of producing a service, just as shifting a factory overseas creates savings. 

Like any question more complicated than elementary arthimetic, the answer is, "it depends." Entities benefit from competition if they are able to adapt. That means that the competition must be one in which it is possible to compete. So if a company outsources to antoher company that is subsidized by a major nation-state which is committed to keeping their compnay alive at all costs, then there is no competition possible and the oursourcing economy is injured (and in the long run the entire global economy could be injured). If the company to which work is outsourced has created a competitive advantage on its own, then the outsourcing economy can decide to compete and innovate its way back in to the outsourced business. This is much more painful and erratic than I have just described since initially low labor rates in undeveloped countries tip the balance -- but those are temporary differences. Also, nation-state policies do not necessarily create non-competitive conditions and so I am not proposing a completely laissez faire future.

Great points Guy, it is shows how an apparently technocratic issues such as offshoring turns to the political. 

I am generally an advocate for free trade, but where I may see limitations is in regard to developing economies. This may apply to your nation-state committed to ensuring the survival of companies. Most new companies in the emerging world cannot compete with their rivals in the G8, because they lack the years of experience and capital accumulation that have spurred growth in the Western-based multinationals.

I would argue, therefore, that even in the situation of temporary protectionism in the developing world, sheltering newly offshored companies, would be good for the global economy - as well as the USA. 

Idealistically, I would say that provided an economy can replace the the value of the outsourced work with higher value activities, then outsourcing is a win - win strategy. However, if an economy can not achieve this, then the result is likely to be damaging over the long term.


It is true that many western companies take a comparatively short term view of the outsourcing decision without fully considering that today's outsourcing partner may be tomorrows competitor. So companies must guard against outsourcing critical know-how and IP.


Poorly executed outsourcing can certainly damage an individual company and so cumulatively by default, must damage the economy. Procurement leaders therefore have a key role to play in ensuring that outsourcing decisions are conducted as part of the business strategy review and as part of a rigorous sourcing process.

Each country should take care of its own economy and its own society first. 
The Globalization and 'total outsourcing' is invented by the promoters of Financialism (financial sector and multinationals) where the money/profit is used to measure everything in life, and on this planet. So for a few cents they are happy to 'kill' thousands of jobs at home, and they will continue to do it as long as the QE goes on - the fiat money covers everything.

 Savo,

I'm afraid to say that I have to disagree. I think this is a problem of game theory: where each country (or "player") looks to their own interest, all the players lose. But by allowing businesses open conditions, the net value of the global economy increases, which filters through to all the participants.

Dave, 

I think that you are right about the terms of trade: unless IP is protected, there may be damaging consequences to offshore outsourcing. 

However, although the economy may be unable to absorb the unemployment in the short term, it does not mean that joblessness will continue in the long run. There will be a transitory period, in which the economy will struggle to manage the new structure - I would argue that the US is currently at this point. 

However, the long term benefits will filter down, only it will require creativity and industry before businesses can take advantage of new order. 

I think that "sheltering" new companies in developing nations -- as long as it does not become a crutch -- is a good thing for the global economy. When the Japanese decided to modernize their textile industry in the 19th century, they invested in the modernization and did not offer any protection to the smaller, cottage textile works. As a result, they modernized their textile industry vcery quickly at the cost of losing the cottage work. India elected to try to modernize theit textile industry while protecting the cottage workers. What tey got was a huge, government subsidized cottage industry with minimal modernization for decades until they bit the bullet. The message is that sheltering cannot be allowed to protect inefficiency if the overall goal is to become independently competitive. The free market does work -- it is just not terribly gentle, and if we or anyone else wants to remain competitive, we have to work hard at it and not simply expect to be competitive because we were competitive yesterday. Pro athletes train year around because if they don't, they get replaced by someone in better shape. Companies and countries need to recognize that reality.

Hi Guy, 

I couldn't agree with you more. I would argue that tariffs in the developed world - such as the EU's CAP regime - are highly damaging to the development of poorer countries. 

Arguably, we should be offshoring more, not less, to these states. 

Jonathan,

that thinking sounded good 20-30 years ago, but now it is obviously dead.

Our Anglo-Saxon economies are ruined and now we keep asking BRIC for help, because they are not 'taken over' by the Financialism.

It is time to start to copy China, translate their books, and learn their language :)

And the WEF 'experts' think that the 'world needs $100 Trillion more' ???

I thin that "sheltering" new companies in developing nations -- as long as it does not become a crutch -- is a good thing for the global...

The true business perspective is that it is truly dependent on what is being produced at what cost. Inflation effects everything it's not just the people but all the ancillary cost as well that goes into making that product or delivering a service.. Politicians are not business men.

Offshoring is ruining the US economy because products are being sold in CONUS which were made OCONUS. This sends US money OCONUS leaving only a product which will wear out and be replaced. Our American citizens/taxpayers/workers are using money they earn in the USA to buy products made Offshore. Which means disposable goods are being imported and US money continues to be exported, and the unemployment rate remains at 9-10%.
The Henry Ford model of production and consumption was have parts and subasemblies produced in the region and shipped to an assembly plant. Sell the product regionally and nationally. This business model has worked in the US for 100 years and will work in developing economies OCONUS and in the 3rd World. Each country and government should be able to sustain itself by producing consumerable products within the home region.
We are now watching the concept of a "global economy" cause inflation and unemployment in the US. American products being offshored should be returned to the USA for production. Plenty of willing labor available in the urban cities and rural areas such as Appalachia.
The fast food, hotel, hospitlality, and lawn care industries are currently absorbing many of the employment base which was previously utilized by manufacturing in many local communities.
Create a business environment in each state and community which will seek manufacturing plants of products which are sold and consumed in the region.
Let's change the current business model of the global economy from some countries as producers and other countries as consumers, to each country should be able to produce it's own consumer, commercial, and industrial goods. Each country should only go offshore if the raw materials, talent, or labor force is not availabe.

In the expanding global economy all countries and markets will both gain and lose something. Successful countries/markets will define what type of economic, competitive activity they wish to participate in. Some will succeed and others will not. This is the nature of the competitive marketplace. The US today, cannot compete with China to produce cheap products. It would take years to rebuild manufacturing plants, make regulation changes, etc., in order for the US to be competitive with China. Therefore, the US may not want to try and compete with China in this economic arena and offshoring for companies that compete in this market makes sense. However, the US does have a high degree of competence in producing and designing high-tech and medical equipment, pharmaceutical products/drugs, etc. This is an economic arena where companies competing in this market probably are better served by remaining in the US and not off-shoring.

Cliff, 

I wholeheartedly agree. The US is better off taking advantage of its competitive edge in this high-value areas. Unfortunately, this will cause pain as the economy restructures to strip away some of the inefficient legacies of the past. 

The USA needs to accept the nature of the modern economy and adopt to it - not fight the market. 

I will only ask two questions to all the participants here. Why the companies felt the need of outsourcing? Why developing nations have lower manufacturing cost?

I do not understand Global economy or general economic terms, however do believe that answer to above questions would be helpful.

Great topic... I see both sides of the issue but the below statement, quoted from the article seems a bit idealistic (and perhaps a little insensitive?) considering the current unemployment rate and the economy in the US. 
"Jobs losses in one country are recouped elsewhere - normally in a poorer nation in need of development and opportunity. This creates development and richer trading partners for the US." 
That being said, I'll reiterate that I do see both sides of the issue. On a personal level, I would love to see less offshoring, but from a professional perspective, I understand the business need for cost savings. It's just necessary to perform due diligence to ensure that it's a long-term cost savings, and not a shortsighted, short-term cost savings that will end up costing the business more in the long run. 
I'd love to learn the perspectives of other group members.