The Outsourcing Question1

2 The Sub-questions Scale of Outsourcing Scope of Outsourcing Style of Outsourcing Do Savings Create Opportunities? What Is the Limit? Political Views

The Outsourcing Question3 Host Country The Paradigm Host Industry Focal Firm Source Country Payment Service Source Firm Custo- mer

The Outsourcing Question4 Motivation Outsourcing (“Offshoring”) has been going on for a long time in various forms. The Network Economy has facilitated this process by making it possible to outsource intellectual work in addition to factory work. This clearly has affected both the scope (variety) and scale (amount) of outsourcing going on. Clearly economies of style remain untapped. Where is outsourcing going? Who will win?

The Outsourcing Question5 Whom Does Outsourcing Help? The standard economic argument is this: Outsourcing helps by assisting costs to seek their lowest level, thereby maximizing profits. By extension, then, outsourcing helps focal countries by creating increased profit for focal country investors or by lowering prices for focal country customers.

The Outsourcing Question6 Implication At low levels, outsourcing benefits both host country and source country by providing lower prices to consumers, higher profits to investors, and better incomes to source countries. That might not be the whole story, however.

The Outsourcing Question7 Evolution As outsourcing grows, competition for sourcers increases, driving costs up, reducing advantage and profit. Focal firms seek lower cost sourcers. So long as these are available, costs remain low. When they cease to be available, outsourcing loses its advantage. By then, whole industries or countries may be dealt out.

The Outsourcing Question8 Historical/Geographical Lessons One-crop countries (eg. Coffee, opium) One product countries (eg. textiles) One-service countries? (software?) Colonialism revisited Hollowing-out of economies Irreversible damage?

The Outsourcing Question9 Local logistics; global distribution Consumers Hollowing Out Distributors Goods and Services Creators No local source of goods or services Wealth and skills International Sources

The Outsourcing Question10 Are intellectual services different? One-product or –crop countries suffer disadvantage for N years Intellectual services depend on learning This might take a long time to recover advantage WRT software development, there are few entry level jobs any longer in IT in N. Am. But there are MANY higher-level jobs begging to be filled. How can recent grads get experience needed to move into higher-level jobs?

The Outsourcing Question11 It comes to this: Should a country like the US, which is rich in both resources and talent, restrict outsourcing (offshoring) and if so, then how shall these restrictions be made and enforced and for what kinds of industries? Subsidiary question: isn’t the market in labor the same as the market for goods and services? Shouldn’t free trade help everyone?