Benefits and Challenges of Outsourcing in China

International Business Term Paper

Country Background

China, officially the People’s Republic of China (PRC), is a country in East Asia. Capital of China is Beijing. China is the most populous country in the world with current 1.38 billion population. It is world’s third or fourth largest country covering approximately 9,596,960 sq. km (3,705,406 sq. mi). China contains 56 ethic groups; from which 5.2 billion population is Han. China has a varied climate, it ranges from a subarctic climate in the north to a tropical climate in the south. Most of China’s population is concentrated in the east and southeast, where the climate is milder.

Official national spoken language is Putonghua or Mandarin. Religions in China consists of Buddhist, Daoist, Christianity and Islam. The currency of China is Yuan. China is the second largest economy today, world’s largest exporter, and the second largest importer of merchandise goods. By 2030 China is expected to be the world’s largest economy once again.

Bordering countries of China includes: Bhutan, India, Burma, Afghanistan, North Korea, Kazakhstan, Kyrgyzstan, Laos, Mongolia, Nepal, Pakistan, Russia, Tajikistan and Vietnam.

Business Proposition

Outsourcing in China is beneficial to U.S. There are a lot of misconceptions and certain perspectives related to this topic. People tend to highlight the negatives and have very strong opinions based on that, without having overall knowledge of specific facts relating to outsourcing. Some of the opinions or stereotypes include: American companies manufacture in China solely because labor is cheap, Factory workers are overworked and not paid fairly, and “Made in China” means cheap quality. I believe the entire business industry should not be judged based on such outliers. Bad business practice and poor conditions happen everywhere around the world and it goes beyond the manufacturing industry. Therefore, I reckon this topic is very interesting and important because it will untangle the logistics and reasonings with statistics and give a better understanding of Chinese manufacturing industry.

Supporting Evidence and Analysis

Outsourcing in China is beneficial to U.S. because it helps United Sates economy. Hiring people to work for cheaper in China vs. paying at least minimum wage in U.S. is better for our economy. Money is the exchange of value and in this case, we are getting back more in return for what we paid for. Because money itself has no value, it’s what is being exchanged that has a great value. Not only that a business will spend less by manufacturing in China but also, save money that can be used and spent in United States economy. A solid working economy is not based on how much money exists in that economy, but it depends on how that money is being exchanged.

American consumers also benefit from outsourcing through reduced cost of goods. Even though businesses will not pass all the cost savings on to customers, retailers will lower prices in an effort to attract new customers and thereby increase sales (giving up profit margin for increased quantity). For example, a trip to Kroger will illustrate the amazing availability of low-cost goods manufactured in China. Kroger and other similar stores that use outsourcing have enabled Americans to spend much more than they would be able to if outsourcing did not exist. Reduced cost of goods is highly beneficial especially of everyday necessary goods for a middle class and poor Americans. It makes living easier and affordable for most. Additionally, outsourcing provides to a more secure America and promote peace by aligning international economic interests. Associations between U.S. and China provide a helpful example.

Global interactions between countries hold a strong value. Both China and the U.S. have many rival global interests, from human rights distresses to the demand for oil. However, the two countries are very closely connected through the business ties regarding outsourcing. China’s low-cost production delivers profits to U.S. businesses and low-cost goods to American consumers. In return, U.S. demand and investing in China helps to fuel China’s growing economy. This process goes full circle as freshly generated wealth in China and is invested back into the U.S. As the Chinese and American economies are so interdependent and useful to one another, it seems improbable that either country would see armed encounter as a practical option to resolve other disputes.

Opposing Evidence and Analysis

Despite the many positives of outsourcing, there are also some negatives. In the competition to increase profits, companies can face a repercussion from multiple sources. For example, some companies that have relocated call centers abroad have seen blame and even loss of consumers due to miscommunication and irritation at the failure to comprehend foreign accents. Domestic problems also surface in corporations that outsource, as domestic staffs and unions feel their jobs are in trouble. Pressure develops between the organization and the employees, and overall productivity suffers. When a firm does outsource and shuts down a local facility, poverty, redundancy, and corruption can increase within weeks. Cities like Flint and Detroit, MI are perfect examples of the discomfort that can be caused from outsourcing. Companies can be abused and be seen as cruel for moving domestic jobs foreign for the sake of corporate profits.

For people that do get laid off because of outsourcing, the effects can be harmful. The cheap goods at Kroger are not so cheap if there are no earnings coming in to pay for them. It is correct that people have the potential to find new jobs, but maybe not jobs equivalent in pay or in the same community, and as more corporations remain to outsource, displaced employees may face greater complications with landing another job. In fact, some studies of industrial jobs show that 1 out of 3 workers displaced by outsourcing are still jobless after three years, and those that do find new jobs take a standard cut in pay of 15%. Outsourcing has a negative impact on employment and takes away jobs from local citizens.

There are some very factual disadvantages to outsourcing from the national standpoint as well. For example, differing industry and regulatory ethics can be a major challenge. There have lately been several major products recalls from imported products, incorporating children’s toys imported from China that were recalled last year since they were painted with lead paint. Climate change is also a convincing issue, and while the U.S. maintains specific emission standards, the U.S. imports goods from other nations that do not monitor those same requirements. Human rights violations and child labor are additional concern. The U.S. certainly does not desire American businesses to use outsourced labor in which labors suffer under unfortunate circumstances that are far below American legal standards. Lastly, the monetary interdependence between nations can potentially act as a double-edged sword, as the Russia and Georgia conflict may unfortunately demonstrate. Despite the solid economic incentives for the West and Russia to accommodate, political and security interests may influence the separating of economic ties and cause financial suffering to all parties involved, including countries who have outsourced to Russia or vice-versa.

Conclusion

Eventually, it is our debate that outsourcing is good for the U.S. economy. Outsourcing is essentially an offshoot of the free-market system and will increase opposition and productivity on an international level. The key to winning over opponents of outsourcing is to spread the long-term view of outsourcing and enlighten Americans about the benefits outsourcing provides based on better output and raised standards of living. As technology remains to make the world smaller and smaller, the model of patriotic thinking will hopefully shift to universal thinking, and outsourcing will help to bring people of all countries and backgrounds together.

References

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