Economic Dimension Outsourcing

Question: Write an essay on Outsourcing as a part of globalisation? Answer: Globalisation is the most burning issue in todays world economy. But the phenomenon is not so young. It started from Late 19th centuries (1870s).With various evolution, revolution, it took todays topic of discussion. From the time dimension it can be divided into three periods- 1870s to pre World War I; post World War II to 1980s; 1990s onwards. In the second phase, the world has been divided into three categories: First world like US ,Western Europe, Canada, Australia, New Zealand and later Japan; second world like communist states of Eastern Europe and the Soviet Union; third world like East Asia, Latin America, Sub Saharan Africa, i.e., the so called developing countries who are our cup of tea here (Abadli and Otmani). Globalization can be of different types. It is a multidimensional phenomenon among which economic, financial, social and political dimensions are mostly important. Economic dimension implies the greater choice for the consumer, larger market for the producer, enhancing productive capabilities by a more economical use of excess capacity in the various sectors from producers side and a more competitive market access from consumers side (LEE and VIVARELLI). The financial dimension implies the worldwide interconnectivity among the capital markets, where the savings and investment in most countries depend on the performance on the global financial markets. Here exchange rate plays a very crucial role (Kangoye). The social dimension is nothing but the economic growth, job creation and poverty alleviation which sometimes is affected positively and sometimes negatively by the openness of the economy according to the development intensity of the economy (Degani and Lee-Gallagher). Negative effects: In case of developing as well as underdeveloped countries the employment generation is also adversely affected by globalisation. Globalisation is the integration of two or more than two economies of the world. But, , to be integrated with one another, the cost and benefit from that integration should be same in magnitude for both the parties, which is not possible in case of developing and developed world. So ultimatum of such integration results in only dependence but no interdependence. So, developing countries are going to be trapped through a vicious circle of dependency in almost all respect, which needs a rethinking of the strategy of globalization in the developing world (Strange). Here, the need for political dimension of globalization emerged. Now the concept of outsourcing comes which is not so simple. It is an extended part of globalisation. Outsourcing is a very common issue in the developed countries like USA. There are mainly two types of labour available in the market. One is skilled and the other is unskilled labour. But the thing is that the price of the labour input of production in United States is very high compared to the developing countries like India, China, Pakistan, Bangladesh etc. So the Investors of the US, to minimise their cost of production outsource the unskilled labour to the developed countries. Here point to be noted that United States is a capitalistic country who only thinks about profit, not for the social welfare. So their optimising condition is different. They want to maximise the profit other than social welfare. Now the developing countries are mostly labour abandoned countries due to huge population. So there the supply of labour is high compared to its domestic demand. So they are readil y available to do those jobs provided from outside of the geographical area of their country. Now comes the issue of allowing by the government of those underdeveloped countries. They are obviously happy to get the opportunity because it provides jobs to that country. Usually the developing countries suffer from the population explosion problem. So unemployment is a burning issue there. Now as outsourcing provides employment to the excess supply of labour this is not at all bad for that country. But the issue is whether it is good for US economy to outsource the projects. Here point to be noted that US dont have overpopulation problem. But the question is whether it is available in current workforce or not. The thing is that United States mostly outsources the work needing unskilled job and it produces the skilled labour intensive job domestically. So the wage structure of the skilled and unskilled labour in both US and the country where it outsources changes (Greenaway, Upward and Wright). Positive effects: It is sometimes beneficial for both the economies. It increases demand for skilled labour for the economy in United States. So the price of the skilled labour that is skilled wage increases for that country. Similarly the wage of the unskilled labour increases in the other economy because of the demand of it both domestically and internationally. But the thing is it is not as high as in US own country because of labour abundance developing structures. So that why the US investors are hiring unskilled labour from outside of their country giving comparatively lower wage (Kuruvilla and Ranganathan). But the thing is that the developing countries are getting exploited by this way. Yes, it is true their employment generation increases. Wage for unskilled workers increases comparatively than autarky situation. But the skilled labour wage in this economy doesnt change at all due to its less demand and it quite obvious because it is only domestically demanded. Now for this reason the gap between skilled and unskilled wage decreases. The people in the developing country dont get incentive to become skilled. So the quality of the worker decreases in the developing country. But the trading partner of them that is the developed countries like US hardly cares about that. But situation gradually become worse when the demand for skilled labour in the workforce of the developing country increases than its supply. Then it is true that market mechanism push the price up. But due to fall in supply domestic production of those countries get hampered. Inadequate supply hampers the domestic produc tion. So the net export earnings decrease. Whereas in US unskilled labours get exploited domestically due to its higher wage and inadequate demand as outsourcing occur in globalised economy (Vagadia). References Abadli, Riad, and Abdelhafid Otmani. 'Clusters And Outsourcing Innovation Activity'. IJBG 12.2 (2014): 237. Web. Degani, G., and M. Lee-Gallagher. 'The Relationship Between Growth, Food Conversion And Oxygen Consumption In Developed And Underdeveloped American Eels, Anguilla Rostrata Lesueur'. J Fish Biology 27.5 (1985): 635-641. Web. Greenaway, David, Richard Upward, and Peter Wright. Globalisation And Labour Market Adjustment. Basingstoke: Palgrave Macmillan, 2008. Print. Kangoye, Thierry. 'Does Aid Unpredictability Weaken Governance? Evidence From Developing Countries'. The Developing Economies 51.2 (2013): 121-144. Web. Kuruvilla, Sarosh, and Aruna Ranganathan. 'Globalisation And Outsourcing: Confronting New Human Resource Challenges In India's Business Process Outsourcing Industry'. Industrial Relations Journal 41.2 (2010): 136-153. Web. LEE, Eddy, and Marco VIVARELLI. 'The Social Impact Of Globalization In The Developing Countries'. International Labour Review 145.3 (2006): 167-184. Web. Strange, Roger. 'United Nations Conference On Trade And Development: World Investment Report 2006. FDI From Developing And Transition Economies: Implications For Development'. East Asia24.1 (2007): 99-101. Web. Vagadia, Bharat. Strategic Outsourcing. Heidelberg: Springer, 2012. Print.