There is a stable trend of manufacturing companies in the US moving to outsource production. On the one hand, this is a reasonable decision, since the production of products abroad reduces their final cost. On the other hand, when implementing the transfer of production to outsourcing, it is necessary to consider the potential negative factors. There are many implications that companies must regard to make an informed decision. Among the most dangerous consequences are the danger of deception by outsourcing agents, a negative impact on the company’s image due to job cuts in home production, and foreign production’s inconsistency with production standards and labor standards. Manufacturing outsourcing can have long-term consequences associated with a decline in the workforce’s quality and, accordingly, products, accidents, environmental pollution, and the devastation of the domestic labor market. This paper argues that outsourcing production to developing countries often has too many negative consequences that may outweigh the positive aspects of such a decision.
Negative Implications of Outsourcing Manufacturing to Developing Countries
The negative consequences of outsourcing manufacturing to developing countries are usually due to the unfair approach by the owning company. In general, the researchers acknowledge that outsourcing has recently become widespread and can bring significant benefits to the business. Scientists also note that, despite the prevalence of this practice, before deciding to outsource production, a company should develop an optimal strategy for implementing this solution (Farughi & Mostafayi, 2017). Experts provide some examples of areas that can be affected by the negative consequences of a decision if the strategy is not carefully developed: “outsourcing potentially affects several productivity outcomes, including, but not limited to, financial performance, productivity/efficiency, sales/market share, costs of production, business efficiency and innovation” (Strange & Magnani, 2017, p. 1). Hence, the first argument is as follows: Before deciding to start production, it is necessary to conduct a thorough analysis of the potential threats and negative consequences and plan a strategy for implementing the transition to outsourcing production.
Further, one crucial factor that often indirectly affects a company’s business is the long-term impact on the home labor market. Experts note that companies mistakenly believe that the home labor market cannot provide them with a higher quality of labor and, accordingly, a product in exchange for higher salaries (Delaney, 2021). It is also noted that the trend of outsourcing production can have long-term adverse effects on the labor market of skilled workers, such as engineers and designers (Delaney, 2021). Therefore, the second argument is that before deciding to outsource production, the company should analyze the ethics of such a decision and take care of that to prevent potential adverse effects. For example, as a safety net, a company may retain at least half of its home production to have a Plan-B in case of a production closure abroad.
The third and most important argument concerns production and labor safety. Today many well-known brands such as Apple, IBM, Cisco Systems, Wal-Mart, and Nike have outsourced their manufacturing (Stewart, 2021). On the one hand, such a decision brought additional benefits to companies and helped establish more acceptable prices for their global market products. However, many manufacturers who follow well-known brands ignore industrial safety regulations and labor safety regulations. This neglect usually leads to accidents and long-term effects on human health.
The regulations and laws of most developing countries differ from those of developed countries. To avoid lengthy bureaucratic processes, many companies, for this reason, choose developing countries for production outsourcing. Equally important, many companies are trying to save money on expensive but safe and compliant equipment (“Outsourcing manufacturing to developing countries,” 2021). As a result, emissions of harmful substances freely pollute the environment and cause immediate damage to workers’ health. Given that developing countries often lack procedures for controlling environmental pollution and informing the public about existing threats, company owners usually easily avoid responsibility even in emergencies.
Experts point out that often working conditions do not meet European standards. Workers live in overcrowded dormitories, work up to 16 hours a day, and are brutally monitored during their work. Companies may know and turn a blind eye to these violations, or they may be the victim of agents who help set up outsourcing of production and connect investors and engineers to factories (“Outsourcing manufacturing to developing countries,” 2021). Therefore, the fourth argument is that companies should consider the potential damage caused by working with agents when indirectly outsourcing production.
It is noteworthy that today there is no existing transnational legislation that could regulate outsourcing production. If people suffer, only local company representatives can be held accountable (“Outsourcing manufacturing to developing countries,” 2021). When outsourcing production starts, companies send employees from the company’s headquarters to the developing country, including engineers, workers, chief engineers, and CEOs. However, when the production process becomes more or less established, companies withdraw their valuable talent, which local employees replace. They often have less competition and therefore put their health at risk, given the common problems with the safety of production.
Moreover, companies appoint locals to managerial positions, and these may be acquaintances and relatives of local political ethics who also do not have competence in production processes (“Outsourcing manufacturing to developing countries,” 2021). This trend poses severe risks to residents’ life and health in the absence of any serious legal consequences for the owning company. Therefore, the fifth argument is the need to introduce binding transnational legislation for all, which will regulate the activities of such industries.
Outsourcing advocates usually make a lot of superficial arguments about the benefits and advantages of such a solution. For example, experts note that in some cases, the owner company can get employees with higher competencies than in the home market and pay them half as much, reducing the final cost of the product. Outsourcing of production can also help save on rental prices for real estate in which production will be located.
However, while the desire to reduce production costs is usually a critical factor in outsourcing manufacturing decisions, the long-term impact on a company’s image and product quality can be significant business damage. Therefore, before deciding to outsource manufacturing, the company needs to think about how it can compensate for the consequences of the home labor market, protect itself from unscrupulous agents, and adhere to industrial safety and labor protection standards.
Thus, it was argued why outsourcing manufacturing to developing countries often has negative consequences that may outweigh the positives. First, the decision to outsource manufacturing should not be made without developing a well-thought-out strategy that takes into account possible risk factors and negative short-term and long-term consequences. Second, the company must compensate for the effects on the home labor market or keep at least half of its production capacity in the home market. Further, companies must comply with occupational health and safety regulations, despite the temptation created by the lack of rules in many developing countries. Companies should also consider the potential harm from working with unscrupulous agents. Finally, there is a need to introduce international legislation that will regulate the activities of production outsourcing.
Delaney, K. (2021). The high cost of outsourcing manufacturing. RTE Brainstorm. Web.
Farughi, H., & Mostafayi, S. (2017). A hybrid approach based on ANP, ELECTRE, and SIMANP metaheuristic method for outsourcing manufacturing procedures according to supply chain risks-Case study: A medical equipment manufacturer company in Iran. Decision Science Letters, 6(1), 77-94.
Outsourcing manufacturing to developing countries. (2021). Web.
Stewart, M. (2021). Which five companies do the most overseas manufacturing? Web.
Strange, R., & Magnani, G. (2017). The performance consequences of manufacturing outsourcing: Review and recommendations for future research. Breaking up the Global Value Chain, 3(1), 1-10.