IN LONG RUN, OUTSOURCING WILL BENEFIT EVERYONE

By Rubens Ricupero and - - Reprint | | Print |

This column is available for visitors to the IPS website only for reading. Reproduction in print or electronic media is prohibited. Media interested in republishing may contact romacol@ips.org.

GENEVA, Apr 1 2004 (IPS) - The emerging reality of global enterprises that can shift their business across borders with increasing ease to maximise profits poses both an opportunity for competitive countries and a challenge to some of the standards prevailing in other societies, writes Reubens Ricupero, . In this article Ricupero writes that a heated debate is under way on whether or not outsourcing undermines the accepted trade liberalisation paradigm, is leading to a job exodus from developed to developing countries, and what the cost/benefit ratio is and whether protectionist government intervention is needed. Claims of a big wave of offshoring to poor countries swallowing up high-skill jobs in rich countries do not reflect reality. Outsourcing export opportunities for developing countries are much broader than generally presented, with a wide range of these countries significantly increasing their presence in global outsourcing markets. While the realisation of these opportunities may in fact lead to increased job losses in advanced countries, it should be recognised that these short-term costs will ultimately be trumped by the long-term gains of cheaper services being available to consumers in both advanced and developing countries.

The emerging reality of global enterprises that can shift their business across borders with increasing ease to maximise profits poses both an opportunity for competitive countries and a challenge to some of the standards prevailing in other societies.

International trade is evolving rapidly in the context of globalisation. The information technology revolution is accelerating trade transactions and creating new actors, modes of delivery, directions, and norms of business. The volatility of financial flows and sharp exchange rate movements can send tremors across international markets in an instant, affecting costs and profits.

Many of the aspects of this evolution of international trade raise prospects of realising development gains, but they also fuel anxieties in rich and poor countries about the potential drawbacks of globalisation. One of these developments is the rising importance of outsourcing. Businesses from developed countries are already mining the rich seams not only of low-tech manufacturing manpower in developing countries, but also of high-tech services and research and development through outsourcing.

At the same time, a heated debate is under way on whether or not outsourcing undermines the accepted trade liberalisation paradigm, whether or not it is leading to a job exodus from developed to developing countries, what the cost/benefit ratio is, whether protectionist government intervention is needed, and, if so, whether it will work, and finally, how this can be dealt with in the WTO and other trade negotiations.

The United Nations Conference on Trade and Development (UNCTAD) has been monitoring this phenomenon and has noted its evolution from one occurring primarily among developed countries to one including a new North-South dimension. Offshoring — i.e., outsourcing overseas — is indeed a rapidly growing segment of outsourcing, but despite much excitement about its significance to North-South trade, the current share even of frontline countries like India (3 per cent of global information technology spend) in this business is small. Hence, claims of a big wave of offshoring to poor countries swallowing up high-skill jobs in rich countries do not reflect reality.

On the other hand, it has to be acknowledged that offshoring does constitute a dynamic new area and may provide a big window of opportunity to ensure durable development gains to developing countries through international trade. In this context, it is encouraging to note that outsourcing export opportunities for developing countries are much broader than generally presented, with a wide range of these countries significantly increasing their presence in global outsourcing markets. While the realisation of these opportunities may in fact lead to increased job losses in advanced countries, it should be recognised that these short-term costs will ultimately be trumped by the long-term gains of cheaper services being available to consumers in both advanced and developing countries.

Some of the developing countries are already becoming regional growth dynamos with global presence. They occupy a place of importance in the trade of major developed countries. Last year for the first time ever, the United States imported more goods from developing countries than from developed countries, while its exports to developing countries increased to over 40 per cent of all exports. This is another reason why the trading system and trade negotiations must respond to and accommodate developing-country needs and concerns.

Some developing countries have the potential to become powerhouses of economic activity the way Europe, the US, and later Japan did during the 20th century. The Chinese example of a major importer and vigorous exporter boasting rapid and sustained growth may be replicated elsewhere, albeit on a smaller scale. And this points to the global importance of nurturing developing economies, bulking up their production capacity and purchasing power as a contribution to spreading global prosperity and expanding markets. In addition, the increasing productivity of developing countries will spur innovation in the advanced economies.

I have no doubt that offshoring is a legitimate part of global trade liberalisation. It enables developing countries to leverage their comparative advantage: abundant, competitive labour, and a lower-cost environment. I can do no better than to paraphrase the British Trade Secretary, Patricia Hewitt, on the ”myth” behind the offshoring fears in the UK — its biggest beneficiary — to respond to this and to the cost/benefit ratio argument: ”We cannot argue liberalisation abroad and practise protectionism at home. However strong the short-term costs appear to be, the long-term benefits are greater for, consumers and for jobs,” and, may I add, for the economy. (END/COPYRIGHT IPS)