Outsourcing projects in a globalised economy

- November 18, 2013 4 MIN READ

One of the hot political topics facing the Australian political establishment today is the tendency of businesses to outsource projects to lower wage economies. In the new economy, business success is increasingly based on the effective use of intangible assets such as knowledge and skills; and we’ve seen a dramatic increase in international trade and investment flows over the past two decades, with many industries offshoring computer, consumer, financial, data-processing and business services. Many people hold the opinion that nothing should be outsourced, and the premise for this is that businesses will increasingly turn to Asian countries for “cheap smarts” rather than use home-produced talent. But what does it all mean in the long run? 

A key component of the knowledge-based economy is a greater reliance on intellectual capabilities than on physical inputs or natural resources; and the growth of this new economy is often seen a strategic response to low wage economies like China and India investing heavily in knowledge. At the same time, skilled labour has become increasingly more expensive in developed nations; and in many circumstances investing in local talent is unfeasible from a financial perspective. But outsourcing projects and creating a network of freelancers significantly reduces the overhead costs of running a business – an option that becomes more and more appealing everyday.

Critics predict that investing in international talent will lead to lower wage economies obtaining a much larger share of the “knowledge-based global economy” or the international production chain unless developed nations become more competitive in these areas. However, with the high costs of living (especially in Australia), being competitive means workers need to agree to poorer living conditions.

It’s a very odd situation. Many Australian businesses – despite their age or size – can’t afford to invest in an entirely local team, as it would significantly decrease, or completely eliminate, profits. Yet if workers agreed to a pay rate of $5 per hour or even less to compete with global talent, they wouldn’t be able to afford basic living expenses. It seems, then, that we’re a wealthy country with poor people. Many of us scrape by with the very little we earn, despite the almost incessant work hours. It is argued that if overseas talent offer their services for a fraction of what local workers earn, then more and more businesses are going to offshore tasks – and understandably so – and Australians will be left with fewer job opportunities. The crumbling of Australia’s workforce is yet to be seen.

From a business’ perspective, why wouldn’t you leverage low costs and the accessibility to “cheap smarts” afforded by the internet? At any given moment, hundreds of millions of people are online; and the possibilities for reaching diverse groups people are greater now than at any other time in history. Plus, internet connection speeds are so fast that information exchange is nearly instantaneous. In fact, when the term ‘Information Super-Highway’ was coined – broadband was in its infancy. Today, the world is connected online and the digital landscape only serves to reinforce the need to use virtual workers.

Many entrepreneurs spotted the need for cheaper labour nice and early, which is why there are a variety of websites dedicated solely to outsourcing projects. One such website is www.guru.com. This website is a virtual marketplace accessible from anywhere in the world and has over a dozen categories of freelance projects for freelancers and employers to find and post projects in.

Then there’s www.elance.comwww.odesk.com, and www.fiverr.com, where outsourcing projects is en vogue. There are top-notch professionals on these websites that cover many different areas: writing and transcribing, marketing and advertising, logo and graphic design, software and website design, and many more. Another entry into the growing coliseum of virtual employment is www.rentacoder.com. This website offers access to software and computer professionals from all over the world. India, for instance has been receiving jobs that companies in Western countries have been outsourcing.

In a globalised economy, it seems there is no way to stop outsourcing projects. It’s just the way business is headed, even if there is, as critics argue, a ‘West versus Rest’ power dynamic. While it seems Western countries are the only ones benefiting from cheap labour, it’s not entirely true. There isn’t a country in the world that doesn’t export or import goods and services and that’s because there isn’t a country that can provide for all the needs of its citizens on its own – that is, by ignoring the international system.

And while international trade began as a means to provide for a country’s needs, as capitalism spread throughout the world, the main motive of countries changed from provision of necessities to maximising their profits in order to build a strong, stable economy. While businesses may be paying overseas talent significantly less than what they would have to pay local workers, it’s usually considered high income in low wage economies. The cost of living in those countries are also much lower. The reason why overseas talent offer their services to Western businesses is because they can charge reasonably more while still being cheap for those businesses. In their countries, they are paid a lot less for the same services.

That’s not to say there is no inequality. In fact, it would be naive to assume so. But what’s become clear is that overseas workers are also trying to maximise their income. It’s a mutually beneficial, if not mutually and equally beneficial, relationship.