Decision to outsource for UK firms
Outsourcing has been a portion of the main diet of business actions in UK for a very long time. UK has started to outsource a considerably superior section of service actions and products than they did two years ago (Oulton, 2001).Every corporation today sees outsourcing as the strategy of increasing their revenues as well as growth. China has a strategy that they use to encourage outsourcing, that they call ‘dumping’. This is whereby they capture they capture the market and destroy competition of particular products by providing products that are of much cheaper prices. As a Neomercantilist state, China greatly discourages imports and it does this by controlling capital movements and centralizing currency decisions in central government’s hands. It is this aspect of cheaper products that have continued to appeal more firms in the UK to get their products made in China.
Outsourcing creates flexibility for firms, ensuring that they gain supreme application of the accessible assets within the business. It also offers these firms the cost benefits and thus helping to free up their administration assets. Ross, (2011) supports outsourcing for UK companies illustrating that it helps these firms to be more focused because time management is one of the most important resources for a firm, when a procedure has become effectively contracted out, the administration gets more actual time to endeavour and search other areas of the business and this helps advance the operation of the business.
This is further supported by Griffith (2003) who indicates that in traditional settings, 80% of the time was sent managing details while the other 20% was spent on planning and customer relations but these ratios have been reversed with outsourcing hence improving productivity for the firms. Outsourcing creates the room for the firms to be able to explore new technologies that can be useful for their businesses. Rubin (2009) supports this illustrating that, China is greatly known for its advanced technology which has greatly helped to improve their services to the international companies that seek their services. Outsourcing greatly helps the UK firms to gain 24hrs development cycle with the workers in China working round the clock. This helps the firms to get more production at cheaper rates and this helps in increased revenues for the firms (Griffith, 2003). Manufacture of products in UK is more expensive as compared to China. A good case example is that of a branded T-shirt that retails of 25 Euros, the cost of manufacture for this T-shirt in China is 4.24 Euros which is inclusive of everything. The same T-shirt made in UK costs around 8.85 Euros which almost double the cost in China (Hills, 2017). Outsourcing as explained by Dolgui et al., (2013) lowers costs and encourages competitiveness. The cost of reductions that stems from this process leads to lowered cost prices and hence the increase for demand. This process can hence be used for employee benefit in the sense that workers can produce more per 60 minutes hence driving up actual pays. Oulton (2001) supports this point indicating that two thirds of the monetary welfares from contracting out fall back to UK. The economic benefit is mainly experienced with the low prices in goods and services which lead to expanded markets for the UK goods and hence increasing the profit for the UK firms.
Impacts on the employment and labour in both China and UK
- UK
The biggest concern in regard to outsourcing within UK has been about job losses. Bhagwat et al., (2004) illustrates that the gains from the increased trade especially when it comes to outsourcing are scattered across the entire populace of UK but the damages are concentrated on a moderately small fraction of the population. There are employees that produce services which now firms bring in cheaper from China and this means that they get displaced, meaning that they end up becoming jobless. These employees that lose their occupations due to competition are forced to retrain and even relocate trying to find another job which is not always easy and it greatly affects the economy (Bhagwat et al., 2004).
Outsourcing of services and products from China has led to great job losses in UK because when the firms outsource services, they get cheaper labour and they hence do not need the human resource from the people in UK Kraciuk, (2017). In the years between 2001 and 2004, many high tech firms in UK shed off about 500,000 jobs which led many people to become jobless (Lewis, 2018). The saddening part of job loss due to outsourcing is that it is permanent with the fact that outsourcing is continuing to increase. Wages have also been greatly affected, back in the year 2002; the wage was around 450 Euros as compared to the 350 euros which is the average UK wage (Lewis, 2018). The wage has greatly decreased with the increased outsourcing by the firms that do not see the need to pay high wages when they can get the same products and services from China at a cheaper price. The few people that are left employed in the business service sectors are hence forced to struggle with reduced wages as an effect of outsourcing. The UK workers are forced to compete and settle for lowered wages instead of risking their jobs to Chinese workers through outsourcing
- China
China has approximately 1.3 billion people and this makes China the most populated country in the whole world. Having so many people means that there is a large supply of workers and this leads to low wages to help accommodate all the workers in the job market. The majority of the Chinese are rural and lower middle class and they are always willing to do more than one shift for low wages just as long as they have job (Belgman, 2017). It is this supply of workers that makes China on of the greatest destination for outsourcing for firms from the developed nations such as UK.
Graph showing the compensations rates for workers in China (Belgman, 2017)
China does not really have any strict laws when it comes to matters of human resource or even matters of low wages or even child labour as compared to the West where such matters are greatly observed. This has greatly contributed to the increased employment of children in the factories because they are willing to take lower wages as compared to the adults (Kraciuk, 2017). The costs of compliance to health and safety regulations and also environmental regulations in China are less as compared to the UK. The Chinese government imposes very few health and safety regulations, workman’s compensation and insurance are not provided. In China when a worker gets hurt on the job, he or she is not compensated even if it is to the point of one getting disabled which is really inhumane (Belgman, 2017).
Chinese companies constantly short change the workers’ wages; they withhold their health benefits and expose the workers to harmful chemicals like mercury and lead. The Chinese workers in most companies especially in Hong Kong often break and lose their fingers as they are working using dangerous machineries without any form of protection. It was estimated that over 40,000 fingers are broken and others lost by Chinese workers on the job every single year (Barboza, 2008). The workers have to live in dormitories that mostly include six people with shared bathrooms, and they have to work 12 hours a day and six days a week meaning that they only get one off day to visit their families and rest. In the year 2007, many factories in China that supply corporations such as Disney, Wal-Mart and Dell among others were accused of un fair labour practices and this included child labour, low wages and over work on the employees without extra pay (Kraciuk, 2017). The western companies greatly contribute to these poor working conditions because they constantly press the Chinese suppliers for low prices without considering the cost of production and this force the Chinese suppliers to look for ways to manage the production with the low costs and it negatively impacts on the workers.
The problem of Chinese workers getting treated inhumanly is serious especially with the fact that the effort to try and improve labour conditions for the workers is hampered. The human rights defenders are often persecuted and the freedom of expression in China is gurgled with censorship, unfair trials and anguish (Belgman, 2017). There are more than five human rights activists that have been detained and others go missing while investigating matters of unfair labour in Chinese factories that produce products for firms in developed nations like UK.
Overall impact of outsourcing on welfare
Outsourcing has a negative impact on poverty, happiness, crime, alcohol and substance use and family life among others related to standards of living. The lowered wages have a great effect on the standards of living for both the UK and the Chinese residents. Amiti & Wei, (2004) supports this illustrating that, with lower wages, they are not capable of affording the recommended life standards which hence forces them to cut their consumption hence a lowered standard of living. Lack of enough wages to acquire basic needs leads to increased crime rates in both China and UK as people to try to get more money to make up for low income (Ndubisi et al., 2018).
The people in China though offered jobs, are forced to work under inhumane conditions without any protection from the government. UK outsourcing to China impacts negatively on the Chinese society (Ndubisi et al., 2018). A society that is constantly forced to work extra hours without pay just so that they can meet the large demands of the West Companies that do not bother about the conditions that their products are manufactured in.
Environmental effects of outsourcing for China
Greenhouse emissions in the 21st century have greatly increased most especially in the developing nations as compared to other decades and this is attributed to be a result of outsourcing. Since the year 2000, China has seen increased carbon dioxide emissions which are a result of production of export goods for countries like UK (Barboza, (2008).
Graph comparing CO2 emission in China and the rest of the world (Stoft, 2015)
Although there are some environmental protection agency that creates the policies to deal with environment protection, the laws created are generally ignored and never enforced most especially at the local levels which has greatly contributed to China being one of the countries that is most polluted. Chinese companies have the advantage of not dealing with their waste products and they just dump any products into the air and the water ways without considering the effects that these wastes have on the environment and the society at large. Barboza, (2008) illustrates that over 750,000 people die every year in China as a result of pollution as indicated by World Health Organization.
The developed countries such as UK are partially responsible for the environmental degradation in China with their choice to outsource from there without considering the effects hat their outsourcing has on this host country. These firms in UK choose China because of the reduced cost of production that come as a result of China not having rigid policies that ensure that productions within the country are done effectively and do not adversely affect the environment and the people. As a client in China, the UK firms have the rights to understand the process that is taken to deliver completed products from China to UK and this means understanding the working conditions of the workers as well as where materials to make the products are acquired and the manner in which waste is managed (Hills, 2017). Developed countries such as UK need to understand the implication that outsourcing is having on the Chinese workers and look for ways to ensure that these workers are fairly remunerated and that they are working in good conditions in order to enhance quality of the products produced.
Ethical implications of UK outsourcing to China
Although outsourcing is a good venture for businesses, there are some ethical implications that are associated with it especially when it comes to matters of safety and healthy work environments for the workers as well as the quality of goods and services provided. The reason why UK opts to outsource from China is because the country has lower living standards which mean that laws on safety, wage and health are not as strict as those of UK (Rubin, 2009). These low living standards and the non-strict laws attract UK firms because it allows them to cut costs and save billions without violation of Health and Safety Executives (HSE’s).
‘Sweatshops’ is a terminology that has often been associated with China, where the country has been accused for providing unsafe and unhealthy work environment for their workers (Ndubisi et al., 2018). Sweatshops is a term that defines the outsourcing manufacturing facilities in the developed countries where the employees receive low and unfair wages and are forced to work in poor conditions. (Greene, 2012) supports this illustrating that, there are three attributes that are associated with sweatshops and they include; long working hours, below minimum wages, risky and unhealthy working place conditions. Many firms within UK have strict and very specific policies on anti-sweatshop practices, outsourced China suppliers still operate these facilities and they are at times savvy in regard to hiding these illegal practices even to their corporates clients (Dolgui et al., 2013).
Workers working under unhealthy conditions in China can lead to poor health and in worse case scenarios to deaths of the workers. A good case scenario that happened in China was in the year 2011 where Foxcon’s factory that is located in China as accused of providing high stress environments for its workers which led to most of their employees committing suicides (Greene, 2012). 18 workers from Foxcon committed suicide in the year 2010 by throwing themselves from the top buildings as a result of poor working conditions and low wages which helps to establish the effects that poor working conditions in China has on the workers. The company was also accused of hiring underage workers most of them students that are not protected under the employment law. China employment and labour law of 2016 illustrates that all employees are protected under the labour law except retirees and for the university students that are yet to graduate (Rubin, 2009). This then gives the outsourcing suppliers a chance to manipulate students by giving them lower wages because they are then not liable for their welfare as employer.
As Belgman, (2017) illustrates, by UK firms outsourcing from China, they allow for the exploitation of the employees there while they celebrate as they acquire more profits from the cheap labour that they get. Employees are the most important resource for a business and if they are not well taken care off in regard to good remuneration and safe working environment, then their output is not as good (Ross, 2011).
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