WP1930S22 Business Outsourcing
Take a look at the items around you. How many of them are from an American or German brand, while having labels like “Made in China” or “Made in Malaysia”? Beyond tangible goods, intangible services can be performed by external vendors too, like IT operations. These are all “business outsourcing”. Firms from developed countries hire companies in developing countries to perform the less-then-essential part of their business. Outsourcing indeed brings benefits, but also inevitably burdens. Particularly, my focus is on how the Global South can better balance environmental pollution that outsourcing brings and economic development needs that outsourcing helps fulfill, in the clothing and footwear industry. Some advocate for nation-specific standards which respect each country’s priority based on different development statuses. However, a global criterion reverses the existing profit-oriented outsourcing system dominated by developed countries, by empowering all firms in the Global South to reject polluting orders, which ultimately makes the whole world eco-friendly in the long run.
While financially benefiting developing countries, the current outsourcing system predominantly favors the Global North. Job opportunities are indeed boosted in developing countries. For example, in the textile, clothing, and footwear (TCF) industry, from 1970 to 1990, Malaysia’s worker number grew by 597%. However, the system prioritizes developed countries that they enjoy low-cost labor without suffering much burden. The Global South is left to deal with all environmental costs during production. Lacking the ability to achieve environmental protection and economic development simultaneously, it is in dilemma. India is an accurate example. Haryana constantly suffers from water pollution because of the dyeing and bleaching process for fast fashion clothing exports. People need jobs, so production has to continue. Detrimental pollution cannot be unregulated because crop harvest is essential to feed Haryana people. We need a solution.
There are two potential solutions. Nation-specific standards refer to each country under different socio-economic statuses making its own self-benefiting decision. If a country is starving, it prioritizes economic development even when outsourcing pollutes. After fulfilling survival needs, a country moves to restrictive policies on those outsourcing firms that pollute for long-term sustainability.
By contrast, a global criterion is one set of rules, agreed upon and strictly followed by all countries. The process of setting up standards is important: each country should get only one vote. It can be in other forms, but weighing every country equally is important so that the result isn’t skewed by more powerful nations. With this and knowing that there are 152 of them outweighing the Global North, the Global South has the chance to manage the new standard. When developing countries collaborate, they can manage to change the standard that all of them would stop producing goods that harm the environment during manufacturing for the developed countries. Instead, they give welcoming policies for eco-friendly orders. As for defining the level of pollution, ideally, we utilize the regulations from the most environmentally friendly country Denmark.
Not only solving the Global South’s dilemma, the new global standard also leads to a more sustainable future business cycle. Rather than choosing one — economy or environment — with the new global standard, developing countries achieve both. Without producing polluting items, they protect the environment. Job opportunities are protected because the standard is not saying an absolute no to all kinds of firms that outsourced to them. The eco-friendly firms are welcomed. Situations with more labor supply than needed won’t happen — un-eco-friendly firms won’t give up the opportunities to outsource and the reasons are elaborated later. Back to the analysis for eco-friendly firms: supported by the Global South’s massive cheap labor, these firms win market shares. Their growth attracts more firms to be sustainable and eventually, the whole business cycle becomes eco-friendly. Therefore, the global approach helps the whole world in the long run.
Global North would support the approach as well for financial reasons and the gain of new job opportunities and higher customer stickiness. As discussed already, firms with green products of course welcome the policy. Those with production processes currently polluting transform to innovate their products in order to continue outsourcing. Nike, a famous American sportswear company, is an example. Footwear and apparel, made up of 88% of Nike’s revenue, are all produced by contracted outsourcing manufacturers in Vietnam (43%), China (28%), and Indonesia (25%). Comparing the average gross monthly wage per full-time employee, US people earn about $5,783 while in Vietnam, China, and Indonesia, people earn $221, $879, $323 respectively. Nike saves a huge amount through outsourcing. Therefore, with the global standard, firms like Nike would rather focus on developing green products. As a side effect, the research-and-development process requires more professionals and creates more job opportunities for developed countries too. In fact, as more people have environmental awareness, companies with more green products gain more customer stickiness too.
Some argue that nation-specific solutions are better for respecting different countries’ development priorities. If Myanmar, one of the least developed countries, doesn’t mind environmental consequences to boost the economy, it should do so. Unfortunately, this is problematic. A good, long-lasting national solution relies on a stable society and strong government. Not only Myanmar, most developing countries don’t fulfill such requirements. Also, among developing countries, development statuses differ. More prosperous ones may imitate what developed countries have done to them to the less prosperous ones. The nation-specific approach only transfers the burdens to the least advantaged ones. Therefore, the global approach is better as it implants a new system and calls for a green business cycle, which empowers every developing country.
Admittedly, the global approach is not flawless because of countries’ power inequality. The global standard largely relies on developing countries’ collaboration. The developed countries are powerful enough to threaten or offer special advantages to certain developing countries and break the collaboration. How and who to enforce the rule is also hard. Powerful countries may bail out themselves.
In conclusion, regarding how developing countries deal with outsourcing to sustain economic growth while avoiding environmental pollution, nation-specific standards give freedom of choice to each country. On the other hand, an international standard — enabling the Global South to only produce eco-friendly orders from developed countries — does better by introducing a new outsourcing system. This is important because it aligns with what Kris Olds said that we should always regard ourselves as global citizens and think about others when making decisions. With the global approach, we not only address all countries’ needs but also lies the foundation to an eco-friendlier business cycle in the long run. In this case, we truly manage to solve a global issue with a global mindset.
