NCPA - National Center for Policy Analysis

Outsourcing Good For U.S. and World Economies

February 4, 2004

It's worth noting that the United States is not the only country where outsourcing is happening. British and Australian companies are also outsourcing to India, while European companies are outsourcing to the Czech Republic and other formerly communist countries, where wages are low but education levels are high, notes Bruce Bartlett.

It's also important to know that when countries outsource work to India or China, they are only doing so for very low-end operations that require little skill or training. The high-end work and wages stay here--work that might not be retained if it could not be augmented by outsourced functions in low-cost countries like China and India.

A Jan. 30 report in the Wall Street Journal illustrates how this works, using the case of a computer mouse manufacturer called Logitech:

  • It sells a wireless mouse called Wanda for about $40 that is assembled in China.
  • Of the $40, China gets only $3 while the rest goes to suppliers, many based in America, which make components for the mouse, and to domestic retailers.
  • The biggest component of Logitech's cost is its marketing department based in Fremont, California, where the staff of 450 Americans makes far more than the 4,000 Chinese who actually manufacture the product.

Those 450 Americans, making good wages in California, might not have jobs at all if Logitech wasn't able to stay competitive by outsourcing some of its costs. Studies have also shown that workers displaced by outsourcing are often retrained for better jobs within the companies doing the outsourcing. For example, Cisco Systems, the computer network firm, is a leader in outsourcing but has not reduced the number of its domestic employees. They have been redeployed into other areas, doing higher value-added work. These jobs often pay better than those that were outsourced.

Source: Bruce Bartlett, "Outsourcing Good for U.S. and World Economies," National Center for Policy Analysis, February 4, 2004.

 

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