Sweatshops, child labour, and poor working conditions. We have all heard of the negative implications of outsourcing. Then why do retailers continue to manufacture overseas? The answer is simple: the cheaper the labour costs, and increased profits. While it means half of the world’s population lives off less than $2.50 a day, it means billions of dollars in revenue for multinational companies. Wal-Mart, Joe Fresh, The Gap, and Nike are just a few popular examples of the thousands of companies who acquire cheap labour overseas. These million dollar revenues are often at the expense of the very individuals who manufacture their products. Though large companies profit from outsourcing, they often leave behind countless social, political, and economic problems.
Many large multinational companies acquire labour in countries like China, Vietnam and Indonesia, where workers are paid mere pennies, ranging from an astonishing $0.26 – $0.34 an hour. Employees work long shifts enduring poor working conditions. Does anyone else see the discrepancy here? If these conditions were existent in Canada, there would be constant lawsuits filed against the company. Consider the recent collapse of a garment factory in Dhaka, Bangladesh, on April 24, 2013, which claimed the lives of nearly 400 workers. This accident preceded a fire in another factory near Dhaka, killing more than 100 workers. Adherence to building codes, much less human rights codes, is rare in these countries. Labour laws are not enforced in third world developing countries, leading to detrimental consequences.
So why should a retailer choose to produce locally? Despite all the supposed cost-savings, there are several benefits of producing locally. For example, a company can create jobs, further advancing the local economy. A brand known to produce locally can strengthen its brand image amongst consumers. Local production is often associated with higher product quality standards, as well as environmentally friendly practices. A company can also gain faster lead times, while delivery costs lower and items arrive quicker.
Many western companies overlook the option of producing in The West, which is a simple solution to eliminate labour exploitation and ensure domestic job opportunities for the local community. One of the rare successful companies is American Apparel that uses vertical integration to produce locally. Instead of outsourcing, they have all their manufacturing set up in Los Angeles. They firmly believe that it is only fair to pay adequate wages. American Apparel has achieved revenues of $633,140,000, and higher gross margins compared to their competitors. They also have the advantage to achieve fast turn around time for production, hence streamlining the supply chain.
One cannot deny the spreading force of outsourcing. Despite the benefits of outsourcing, there remain dangerous and detrimental consequences. It not only has negative effects in the host manufacturing country, but also in the corporation’s home country. Outsourcing provides employment opportunities for foreigners, which could go to local citizens. The countries in which multinational corporations acquire labour usually have terrible working conditions and risk the threat of exploiting workers. Conclusively, in my opinion the consequences of outsourcing greatly outweigh the benefits.
However, I would like to hear your point of view on this controversial issue of outsourcing vs. going local. Comment below and share your viewpoint!