Pros and Cons of moving production overseas

outsourcingBy the 1980’s the production of many manufactured goods started to gravitate from developed countries to those of developing status. The main driver for manufactured firms has been the lost-cost labour and as the market environment has became more and more competitive new factories opened up in Mexico, China, Thailand and many eastern European countries. As reported in The Economist, Jack Welch the CEO of General Electric said that ‘factories should be built on barges so they could be floated around the world to take advantage of economies of scale and exchange rate fluctuations.’

Perceived benefits of overseas production

* workers in low-cost countries had jobs and rising living standards
* local workers can leave more menial jobs to overseas workers – eg Polish builders in London – Russian service sector workers in Ireland.

Perceived costs of overseas production

* job losses in developed countries especially for manual workers. Economist Alan Binder estimated that 40 million American jobs could go to the emerging economies.
* it has become a major concern of workers in developed countries especially with the growth of the Internet. A significant amount of IT service jobs can easily be done in countries like India, Philipines etc.

Change of thought after GFC

Since the start of the GFC in 2007 unemployment has soared in a lot of Western countries reaching well over 20% in some countries. This has made the general public more sensitive to jobs going overseas and ultimately has led companies thinking twice about departing their shores. Politicians have also showed discontent at companies looking to relocate overseas although the staff of German company Siemens agreed to increase the working week from 35-40 hours for no extra pay after the company had threatened to shift the production of mobile phones to Hungary.

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