Published: March 10, 2004 in Knowledge@Wharton Gregory Mankiw, who heads the White House Council of Economic Advisors, ignited a firestorm of debate this month when he said outsourcing of U.S. jobs is probably a good thing in the long run. As tends to happen with hot-button issues in presidential election years, sensible discussion of this question soon was drowned in an uproar of political posturing. John Kerry and John Edwards -- who are seeking the Democratic nomination to take on George W. Bush in November -- denounced the government's so-called conspiracy to ship jobs overseas.

Even Dennis Hastert, the Republican speaker of the House, criticized Mankiw. In the past few days, other respected economists -- such as Columbia University's Jagdish Bhagwati -- have come under fire when they tried to explain the economic rationale behind outsourcing. 

 

Politics apart, the reality is that outsourcing is as old as the corporation. One business arranges with another to make a widget or provide a certain service that it cannot do itself, or does not wish to do, so that it can focus on the parts of the business it does best. The sourcing arrangement is normally seamless, and it matters little to end-use customers who have been paid to perform the outsourced work.

 

Flash-forward to today, though, and it becomes clear that the phenomenon of outsourcing has taken on a whole new dimension that companies even a decade or two ago would find astonishing. Experts at Wharton and the Boston Consulting Group say sourcing is no longer a tactical option that can help a firm save a few dollars here and there. Rather, it has emerged as a strategic necessity in an era when opportunities offered by “low-cost countries,” such as China, India or Mexico, abound. Indeed, these experts say that the sourcing juggernaut will continue to move forward, despite occasional missteps and retrenchment, and transform national economies in both the developed and developing worlds in the process.
[continue]

Page 1 of 11 > >>