How Big a Problem is Outsourcing?
It is great political fodder to talk about the horrors of outsourcing, and indeed it can be a major problem when there are no corresponding training programs to give workers skills they need to be competitive when their jobs go elsewhere. On the other hand, sometimes outsourcing part of the production line makes it possible to keep other jobs at home. Take for example, GM, which according to a NY Times article has been producing some of its engines for the US market in China.
G.M. neither promoted nor hid the fact that the Equinox engine (and that of its twin, the Pontiac Torrent) is made in China. The car’s sticker notes 55 percent of its content is [made] in the United States and Canada, 20 percent in Japan, 15 percent in China and the rest from elsewhere. But no sticker tells consumers the engine is built at Shanghai General Motors, a joint venture of G.M. and the Shanghai Automotive Industry Corporation, a Chinese company.
If the company had not built the engines in China, they would not be able to compete with companies like Toyota and Honda on price, and thus some of the jobs that compose the “55 percent” of US production would disappear with lower sales. Or so the argument goes. Of course the irony is that Toyota and Honda both plants in the US (although primarily for US market sales rather than re-importing to Japan).
Of course, the unions see it differently as their jobs go abroad.
The idea of using the Chinese engine did not sit well with the Canadian Auto Workers, the union that represents workers at the Equinox factory. Because of its complexity, engine assembly uses a higher proportion of skilled, well-paid workers.
And Basil E. Hargrove, the union’s president, blames what he calls unfair trading practices by Asian manufacturers for much of the North American industry’s problems.
“Today it’s South Korea and Japan, and tomorrow it’s going to be China,” he said. “It’s only a matter of time before G.M., Ford and Chrysler are going to deal with the crisis they face by going into these countries and shipping into here. Very few consumers ask: where is the engine built or where is the transmission made?”
So the question is, how big a problem is this?
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John Guise responds:
Posted: March 27th, 2008 at 9:16 am →
Basil — better known to Canadians as Buzz — Hargrove has taken some pretty progressive stances with his union before such as being okay with the right to strike. But he goes and destroys that by going completely against outsourcing — he seems to be trying imply it’s a safety issue but I’m not biting. I’d like to see him advocate retraining to get union members into more technical or service jobs, not spending so much time trying to stop the flow of low-paying assembly jobs to China.
J.
Pappi responds:
Posted: March 27th, 2008 at 11:17 am →
Why did a Times story about outsourcing from the US quote a Canadian union boss? Couldn’t they have found an American. Maybe the rep in Shanghai.
Matthew Stinson responds:
Posted: March 27th, 2008 at 12:13 pm →
Couldn’t they have found an American.
Yeah, they could’ve just quoted Barack “Outsourcing is the Devil” Obama.
Anyways, let’s play spot the irony in this story: a CANADIAN union is angry that an AMERICAN automobile company is using parts made in ASIA instead of in CANADA. “Damn Yanks ought to give all their jobs to us instead of them.”
One of the things that isn’t mentioned in the article is that some of the joint venture moves are to keep the Chinese companies honest. Chrysler partnered up with Chery because Chery arguably already stole the Chrysler Smart Car design for its QQ. By bringing Chery onboard as a partner, Chrysler gets to share some profits that would otherwise be lost to a cheaper Chinese competitor.
theotherrichard responds:
Posted: March 27th, 2008 at 6:36 pm →
Why is the assumption that outsourcing is a problem? For me outsourcing is great… it means that US products, dollar notwithstanding, are cheaper and that globalisation and fee markets are - very, very slowly - making the world a more equitable place. Plainly put, I think that the work should be spread around. There is a problem, for the countries that do the outsourcing, if they fail to fairly distribute the benefits of doing so to their own citizens and also do not invest in the infrastructure, education etc that got them to be outsourcing their work in the first place. There is also a problem for the countries being outsourced to if they can take on the work as they are subjecting workers or the environment to abuses that would not not be permitted or tolerated in the country outsourcing the work. The question as put, though, intrigues me; I am pretty sure that Bengali call center and Shanghai auto workers do not think to themselves: ‘How big a problem is outsourcing?’
Yuefei responds:
Posted: March 27th, 2008 at 9:51 pm →
Chinese companies outsourcing to China becoming the norm?
There is a newly-opened, large, Chinese manufacturing company here in the U.S. They have outsourced their advertising and information technology needs back to China; the IT is understandable, but the advertising? In addition, there staff is almost entirely from Hunan province, where the company’s headquarters is located, except for eight sales people.
Interestingly, on the day I arrived for my interview, building management in the lobby of the office tower called up to the company to confirm the company was expecting me. To my dismay, the company secretary didn’t understand. Finally after 10 minutes, it was confirmed that I had a valid appointment with the President. Perhaps they could improve their front desk by outsourcing to the local community.
Larry responds:
Posted: March 28th, 2008 at 1:16 am →
Outsourcing is going to be the norm, and will eventually beneficial to everyone, if every country complies with free trade rules instead of finding ways to get around them. And it also need internationally tradable currency in every country involved in the in/out sourcing. This way, eventually, the cost of outsourcing and insourcing would be ballanced. However the cost of energy is rising quickly, increasing the cost of logistics, and hence the cost of outsourcing. So, the real winner in all of these are the owners of resources, especially, those in shortage.
Larry responds:
Posted: March 28th, 2008 at 1:16 am →
Outsourcing is going to be the norm, and will eventually beneficial to everyone, if every country complies with free trade rules instead of finding ways to get around them. And it also need internationally tradable currency in every country involved in the in/out sourcing. This way, eventually, the cost of outsourcing and insourcing would be balanced. However the cost of energy is rising quickly, increasing the cost of logistics, and hence the cost of outsourcing. So, the real winner in all of these are the owners of resources, especially, those in shortage.
nanheyangrouchuan responds:
Posted: March 28th, 2008 at 7:35 am →
GM, other than Cadillac, is getting its head handed to it by Toyota and Honda despite GM cars being cheaper than their Japanese competitors. It has to do with quality and what people are willing to pay when they know what they are getting.
Outsourcing low end jobs is not a problem, outsourcing advanced manufacturing jobs erodes the capabilities of the outsourcing nation and also helps improve the military capability of the nations receiving advanced manufacturing abilities.