Thoughts on outsourcing

I’ve increasingly become interested in supply chains and the outsourcing of product manufacture (note: I’m only referring to product manufacturing and nothing else). The latter is shrouded in positive and negative opinions from everyone including economists, the government and environmentalists.

The detractors argue that outsourcing has a negative impact on our GDP and unemployment rates; socially conscious tribes, not so concerned with economics, believe that it exacerbates sweatshop conditions in developing economies and environmental damage as result of increased shipping. Their points are fair and you needn’t dig deep in order to excavate the evidence: FTSE 100 companies occupy headlines for using child labour and reports claiming that western countries are ‘outsourcing pollution’.

In addition to the real world problems, consumer perceptions of products made in outsourcing hubs have, historically, been less than favourable. Early outsourcing attempts resulted in the manufacture of poor-quality products and the tags, ‘Made in China’ or, ‘Made in Taiwan’ connoted cheapness.

However, times are changing and so is the world of product manufacturing. Thoughtfully governed operations such as KTC are providing high-quality, sweatshop free outsourcing and logistics companies now offer carbon neutral shipping, which offsets emissions through energy efficiency initiatives and investing in verified emission reduction projects around the world.

Take product quality, labour exploitation and environmental damage off the table and you’re left with local employment and the GDP arguments. Does outsourcing erode the local job market? Not necessarily. Even with outsourced production, people are required in business operations including distribution, sales and customer service. Additionally, jobs are created throughout the business web: the businesses that support business.

I first read about agile business webs in Wikinomics back in 2008 and I’m now starting to think that small, agile businesses, which leverage supporting businesses when required, are exactly what’s required to refresh the UK economy. Moreover, processes such as outsourced, just-in-time manufacturing and distribution lower commercial overheads and barriers to market entry, which in-turn stimulate the growth of new businesses, making markets more granular—and monopolies smaller.

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