Advantages of Outsourcing by Multinationals

Readers Question: Is outsourcing beneficial for multinationals and their home countries?

The benefits of outsourcing for multinationals include:

• Lower wages for labour intensive stages of production. A good example, is the outsourcing of call centres from the UK to India. Wages in India are significantly lower than the UK, enabling a reduction in costs.
• Comparative advantage. Production can be concentrated in the most efficient location.
• Improvements in Technology. Improvements in internet and communications means it is easier to outsource and keep control on what is happening.

Problems of Outsourcing.

• Standards may be different. E.g. People have said that the English of Indian call centres is more difficult to understand.
• Outsourcing for Developing Countries.
• Outsourcing is a growing phenomena amongst developing countries. Again there is controversy about whether outsourcing actually benefits the developing countries.

Benefits of Outsourcing

1. Creates Direct Foreign Investment. This boosts the rate of economic growth
2. Creates Employment. Outsourcing has provided a new arena of employment.
3. Benefits Current Account. (inflows of investment)
4. Extra demand for workers may put upward pressure on wages in the long term.

Costs of Outsourcing.

• Exploitation of local environment. Multinationals can move production to countries with weaker environmental standards.
• Exploitation of Workers. A contentious issues. Workers may look to be exploited by western standards. But, conditions and wages may be the same or better than many domestic industries.

See also:

• Costs and benefits of Globalisation