Ethics and Outsourcing

Outsourcing

obtaining goods or service from an outside or foreign supplier, especially in place of an internal source.

• Can apply to specific functions within a supply chain (micro-level), or gradual outsourcing entire industry (as in, with global trade).

Why do companies outsource?

Reduction in costs:

• Lower costs of labor and materials

• Lower taxation

• Less regulatory compliance costs

• Access to resources and energy

• Lower transaction costs

Trade and Efficiency – Comparative Advantage/Absolute Advantage

• China has an absolute advantage in both wheat and potatoes

• But, since India has a comparative advantage in producing wheat (costs less in opportunity cost), and China has a comparative advantage in potatoes, both countries should specialize

Efficiencies Counterargument

Cost-cutting leads to a “race to the bottom,” where suppliers neglect

Employees, the environment, and quality to produce at the lowest cost

Over time, ethical failures lead to loss in institutional trust

• Distrust in capitalism

• Distrust in certain supply chains

Outsourcing leads to loss in U.S. jobs

• Increase in job retraining would be needed to retool shift in industries

In order to produce sustainably, outsourcing companies must increase monitoring costs

Commoditization, over time, leads to “fast food” approach where customers no longer are willing to pay higher prices for goods

Rights/Virtues based arguments

Global trade tends to lead to spread in education, human rights, and democracy, as

spread of technology and cultures introduce concepts to citizens of cultures with more heavy control

• Increased trade leads to job and economic stimulation in impoverished economies

• Combining resources leads to new discoveries

• Focuses on global citizenship – less wars, etc. because we become interconnected

Virtue-Based - Counterarguments

Workers overseas are underpaid and overworked; foreign governments cede their power to foreign corporations

In reality, some parties prosper while others are hurt. Wage gaps have widened over the years as globalization occurs

Expansion of supply/consumption leads us to environmental overburdening