Wednesday, February 13, 2013

The Offshoring debate in The Economist

The Economist recently had this lively debate on outsourcing/offshoring which is a politically sensitive topic in several developed countries. Do MNCs have an obligation to outsource/offshore less and address the issues of unemployment within their own countries? While the debate and comments offer valuable insights on the issue, Jagdish Bhagwati held the position (not surprisingly) that globalization does more good than harm.
"There always were criticisms of "cosmopolitan" multinational corporations (MNCs) which "lacked loyalty" to their home country, seeking to migrate where their returns were the greatest. There were also critics who argued that a country had to have "national champions": how could Danone be allowed to become rootless, sold to the highest bidder who owed no loyalty to France and the French? Did Nokia not betray Finland when almost 90% of its shares were held by investors outside Finland? MNCs were also outsourcing worldwide, so it became increasingly difficult to think of a Volvo as a Swedish product (except in its origin) when its parts came from everywhere and were even assembled abroad in Mexico and not in Sweden. 
The world has become more integrated since these criticisms surfaced in the 1990s, with MNCs and their products becoming less and less identifiable as American or French. One would have thought that, by now, reality and the benefits of closer integration would have silenced such criticisms, or at least muted them. But the motion suggests that the critics have found a new and superficially more reasonable voice. Yes, it says, MNCs can become cosmopolitan on several dimensions. But they owe it to their countries of origin to maintain a "strong presence" in them."
What implications does this debate have to the "Made in the world" concept that is gradually entering the trade lexicon - implying that a good is not made entirely in any single country but is sourced from different parts. Should goods be increasingly made in a single country? Should companies reduce or stop offshoring or outsourcing their operations so that goods can be completely manufactured in their own country in order to increase employment? WIll it lead to increased local sourcing of products? Can it lead to a "protectionist" trend? What is the implication of this for the competitiveness of the business? How does one balance the issue of growing domestic unemployment and increasing economic necessity to outsource/offshore for economic gains? Are the profit maximizing interests of MNCs and interests of nation-states of reducing unemployment at cross-purposes?

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