Outsourcing and Free Trade
Free trade is a trade model of goods and services between countries that do not have government-imposed restrictions such as import taxes, tariffs and quotas. It is characterized by the free access to enter the market. The idea that each country owns properties (goods or services) that have different market values supports the idea of free trade. The expectation is that each country can trade without being imposed with burdened rules, thus giving benefits for both producers and consumers in each country that are involved in free trades.
The notion of free trade is developed along with the notion of free movement of labor between and within countries for both blue collar and white collar jobs, as well as with the concept of free movement of capital or investment between countries.
Free trade is intertwined with globalization in so many ways; they are both concepts that try to unite countries in the world by lessening boundaries. The expectation is to integrate national economies into the international economy. Furthermore, WTO (World Trade Organization) endorses the pro-free-trade policies between countries in the world that only underscores globalization
Free-Trade affecting Outsourcing
"As China is America's foundry, India is the back office ... so that America may deploy her resources most effectively elsewhere." (Atul Vohra , President of Majesco Software)
Free trade, especially in terms of services, has resulted in outsourcing, meaning that some works are forwarded to be done in another country. The trend has been looming in the States since the last few years. In the field of information technology, for example, many companies pass their works to be done by their partners in India. Computer hardware companies such as Hewlett-Packard and Dell assemble their computers and other hard wares in China. Why is this happening? Those American companies may argue that it is much cheaper to do outsourcing to China or India than to pay their American labors.
Every year, outsourcing becomes more popular as outsourcing proves to be profitable for many giant companies. The target countries of outsourcing also receive favorable impacts. India has proven that many of its citizens that possess high IT skills are truly potential assets for the nation, especially amidst the world that is undergoing revolution of information technology. China, although famous for its low-paid workers, proves to be able to maintain the quality of their products.
It is predicted that outsourced jobs and migration rate of professional workers will increase. The experiences that U.S. big companies have had with outsourcing show that those workers in many developing countries have skills that are comparable to their counterparts in more developed countries. Workers with high professional skills might end up being migrant workers in some domain countries such as US and UK.
"It's not hard to see how outsourcing to India could lead to the next great era in American enterprise. Send the maintenance to India and, even after costs, 20 per cent of the budget is freed up to come up with the next breakthrough. The result: more workers focused on real innovation. What comes after services? Creativity. It's not a matter of blue collar versus white collar; the collar to wear is Nehru" (Chris Anderson , Editor in Chief, Wired , in an editorial.)
Outsourcing thus Migrant Workers, America's workers and America's economy problem?
Outsourcing does not only bring some benefits but also threats. As trend says we will see outsourcing soaring in the near future, some American economists commented on how this trend might be dangerous to all labors in the States. They said that the more jobs being brought away from America, the more jobless people we will see in the county. The effect will look greater in the fields that are usually associated with outsourcing. If you see many online papers
U.S. politicians like to debate with each other about this problem, especially when the economy of the U.S. is shattered due to recession. They call for protectionism policy and pro-people, pro-common wealth policies. Then comes a question: is this an irony for America, the world's leading voice for globalization and free trade?
Is outsourcing really a "BIG" problem?
A few years ago, when outsourcing has not been as common as today, the similar idea regarding protectionism has often been discussed. Migrant workers have often been seen as threats, the thefts of local jobs. In this sense, there is a similarity between outsourcing and migrant workers.
"Stop using migration as a scapegoat. It was part of a solution, not the problem. Without migrants many jobs that provide services and generate revenue would go unfilled and many societies would age and shrink" (Kofi Annan , UN Secretary General, at the European Union while accepting the Sakharov Award)
As mentioned above, outsourcing are generally beneficial for all parties involved in it. Taking that into a cost-wise perspective, the benefits may outweigh the cost of doing outsourcing. Outsourcing will help better develop bilateral or multilateral relationships between countries as well as increase economic activity of the target countries. Moreover, the initial reason why outsourcing occurs is because there are job spots that are not fulfilled as they are not attractive for local workers, thus prompting some large companies to outsource. The hope is that those local workers will work for jobs that have better payment and that are really suitable for them.
As for the free-trade problem, we have heard many pro and contra opinions. The opponents of free trade say that free-trade with too much freedom will end up destroying local products as local products tend to be less competitive than products from abroad, especially when there is no special import tariff imposed to the traders. The low quality and the pricey costs are often the problems as well. The problem also infers that what really happens is a sole-direction dependency (i.e. there is no interdependency between countries). If the trend stays the same, then the classic problem will keep occurring: poor countries remain poor while rich countries remain rich.
Thus, to protect free-trade from an unrestricted freedom, protectionism for local products is offered as a panacea. Hopefully, local products may sustain amidst the forcing effects of free-trade and globalization.
Morality in free trading
"All economists know that when American jobs are outsourced, Americans as a group are net winners. What we lose through lower wages is more than offset by what we gain through lower prices." (based on opinion by Steven E. Landsburg, a professor of economics at the University of Rochester in New York times Published: January 16, 2008)
Protection policy may help counteract the effect of free trade and outsourcing, however all choices are belong to the consumers. Sometimes protectionism for certain products would not work very well if similar products from other countries are far cheaper. Something to keep in mind is that products of a country do have certain preeminence compared to products made in other countries. As they are essentially "local" products, they are also specialized products. For example, services given by a company from a country are often pretty distinctive from another company's services. Costumers do make choices that are often based on technical and cultural reasons. Take oranges as an example. Although Thai oranges are bigger than many local Indonesian oranges, people in Indonesia are far more familiar with the taste of local oranges. Thus, they will prefer local oranges. Another example is people's preference not to do online shopping. Although the web offers everyone opportunities to buy products of every country with just several clicks, many will still choose local products.
What we are seeing now is the fact that free trade, globalization, and outsourcing are undergoing evolutions that are not yet completed. Debates are certainly going on. While we are questioning the benefits of free trade, globalization and outsourcing, we are also adapting ourselves into a more global world. We are all learning about globalization by plunging our lives into it. However, the question remains: Are we on the right track to create a world that is better for all?