A long time ago, I started writing about “Offshoring – the pros and cons from a social and commercial perspective“. I promised then to delve deeper in three subsequent posts, and this is the first of those long-overdue posts:
Off-shoring is not only ethical, it’s a socially responsible and progressive step.
That’s a claim that’s going to get me in hot water! (And even I would place a couple of caveats on that statement.) But, done properly, off-shoring is, at the very least, acceptable. Whereas the patriots chanting “Keep our jobs in Australia” bay for the blood of any executive who considers off-shoring, I put the case that to blindly condemn any off-shoring is primarily selfish, and potentially immoral and inhumane.
Each side of the debate relies upon certain foundational assumptions to validate their case, and these assumptions are rarely consciously explored or questioned. But in this, the second of my series of posts on the topic of offshoring, I seek to turn the spotlight on these assumptions and argue that, to offshore or not to offshore is fundamentally a question of entrenching or rejecting human inequity.
We want to maintain inequality – that’s what fuels our lifestyle.
In the developed world our lifestyles are supported through the vast inequities between our own economies and those of developing countries. It is a fact that China, Philippines, Taiwan and other such developing countries can engage labour for a tiny fraction of our local employment costs, and these vast inequities enabls us to purchase an LCD computer monitor for one fifth of the average weekly wage, or an iPad for about one week’s wage. By contrast, the ‘average’ human being (by which I mean, the majority of the developing world’s population) could not realistically expect to pay for such a luxury in a lifetime. Where can a Chinese citizen source products that are produced by somebody working at a fraction of their own wages?
When we walk into a retail shop and pick up a bargain, we generally don’t protest about the off-shoring of manufacturing – we’ve pleased to reap the benefits of low cost labour, as long as it’s out of sight. But when our local textile manufacturers close factories, or we start to feel fearful about job losses because a telecommunications provider is outsourcing their call centre operations to India or Philippines, we close ranks and start to noisily protest about the ‘injustice’ of offshoring.
In reality, we’re playing a constant juggling act to preserve the inequities between national economies without hurting our own financial well being. We want to have our cake and eat it too.
The fact is, we want the luxuries that come from purchasing cheaply produced commodities overseas, but when this principle starts to send ‘too much’ business overseas and erode local jobs we decry it because we’re feeling some pain.
But what stance would we take if we looked with compassionate eyes at how ‘the other half‘ lives?
The reality is that over 3 billion people live on less than US$2.50 per day, and they desperately need economic growth, more jobs, better wages, and so many of the things we take for granted. To redress such inequity will involve some pain and sacrifice. It will require acknowledgement that people outside our own nation are real people too, and should not be intentionally subjugated to our wants and desire.
Having enough money to put a roof over your head and food in your children’s mouths is a basic human right. And it will inevitably involve a net flow of funds from developed economies into developing economies.
It will involve accepting that offshoring is an acceptable and ethical practice (again, see my caveat below) as it boosts developing economies and increases job opportunities.
When economies grow their own population starts to earn and spend more, average wages go up, and progressively the cost differential between our developed labour costs and the developing labour force costs will be reduced. This starts to make our imports more expensive, both in relative and absolute terms, and reduces the number of luxuries consumers can afford to purchase. Essentially it results in a gradual increase in the standard of living in developing countries, and a reduction in our own spending power and, consequently, the extravagance of our own lifestyles.
Eventually, some kind of equilibrium is theoretically reached. An equilibrium where the inequities are diminished, and the average standard of living for billions globally is improved. An equilibrium where developed economies have to tighten their belts a little, and become less consumeristic.
Buyer beware! If you’re a corporate executive, manager, or business owner looking at ways to reduce costs and improve your competitiveness in your own local economy, I believe off-shoring is a valid alternative to consider. But it’s validity stems from the benefits it delivers to developing economies. So it’s important to maximise those benefits for the communities to which you’re off-shoring.
One of the ‘evils’ that many developing countries are guilty of is putting the wealth, control and power in the hands of a very limited number of individuals, whilst continuing to exploit the poorest people within their own country. You will quite rightly come under attack from the public if you get too greedy when you off-shore, and accept such individual profiteering in a bid to get only lowest possible cost base from your off-shore workforce.
I believe that the responsible approach is to take an active role in evaluating the employment practices of your off-shore partners, the contribution such companies make to their own local communities, the occupational health and safety standards maintained, and the overall flow-on of economic benefits to the employees and communities.
Ultimately, downward pressure on our local cost centres is a natural result of inequity, because other countries can deliver a wide range of services far cheaper than we can do it locally. Off-shoring to developing countries serves to assist developing economies and reduce inequity. This is commendable – but be a proactive rather than reluctant part of the solution: ensure that the business opportunities you provide to your off-shore partners are structured in such a way as to maximise the benefits to employees and communities.
Off-shoring is not (or need not be) unethical. But it will be uncomfortable for the public in developed countries.
Okay, it might be almost 3am but I’ve just read an article reporting on Bill Gates’ newly-coined term of “Creative Capitalism” that I finally felt is starting to ‘get it’, so I just HAVE to throw in my 2 cents!
I suspect that Bill Gates and I are still a fair way apart in our thinking on this, but if you put us in a room with 10 other individuals to debate how to “Make Poverty History”, I reckon we might be the two most likely to team up against the rest.
The point that Bill’s starting to articulate is that there’s a crucial role for commercial enterprise to play in turning around the fortunes of the 2 billion poorest people on the planet. We might approach the question of business involvement, or “creative capitalism”, differently but we both recognise that companies play an important role.
Up until recently, I’ve accepted unquestioningly the repeatedly reinforced message that I’ve heard throughout my entire life, that less fortunate people in developing countries need our generous donations (channelled through some fantastic aid and development programs) to help lift them out of their poverty – “a hand up, not a handout”. For many years my thoughts never progressed beyond that, because the work that is done by these awesome aid and development agencies is truly inspirational, effective and worthwhile.
But it’s not enough.
The single biggest shortcoming of this model is that it relies almost entirely on ongoing benevolence from richer countries, and the “average” citizen is so far removed from the realities of extreme poverty that they are very reluctant to be parted from their money – “after all, how much difference could my $20 really make??”
Whether we like it or not, money is what lifts people out of poverty, and therefore to have a truly successful long-term strategy, we need a “money machine” – business.
That might sound simplistic, and people will give me examples of how either (i) locally-owned businesses from developing countries are hugely profitable and yet don’t seem to make a tangible improvement to the local economy, or (ii) NGO development organisations are involved in micro-enterprise and other similiar business initiatives and yet, once again, the country as a whole seems to be permanently bogged down in their poverty. But I believe there’s a key missing element even in these situations.
It’s not enough just to establish enterprise if the profits are pocketed by one wealthy businessman. An increase in employment is helpful, but not enough.
It’s also not enough to just train people with better vocational skills, increased literacy, and greater business skills.
In my opinion, the key is to channel (a portion of) the generous donations from developed countries into establishing viable and competitive export businesses in these poverty-stricken regions, owned and operated by passionate “capitalist” business owners who love running their business – and then to have these owners reinvest from their profits into training, skills development, R&D, and other aspects of their local community.
A commercially-sound model of business which generates revenues from the richer societies to feed into the poorer ones, along with a true heart for the local society, education, training, and eradicating poverty is a sustainable model which creates an ever-increasing stream of earned income (rather than donations) AND betters the community in numerous ways.
It’s my dream (with plans already starting to emerge) to establish a commercially viable business in a developing country (my personal passion is for the Philippines, hence I’d start there) that has as it’s goals to:
(i) establish a strong export trade to developed countries
(ii) reinvest profits into training and employment opportunities, community programs, and growth of the enterprise
This conscious focus on prioritising the needs of the people above my own personal wealth is, in my opinion, the most important factor to rebuild a devastated economy and to present the poorest populations with really opportunity and hope for their futures.