Ethics in Outsourcing: Balancing Cost and Worker Rights

Introduction: The Outsourcing Debate

The subject of ethics in outsourcing is a complex one, with people falling mostly into one of two camps. Many companies and their executives focus on keeping costs down and stakeholders or shareholders happy. However, looking only at the bottom line can be ethically perilous due to the defined, protracted, and very real effects that outsourcing has in countries to which jobs are moved. Factory safety and unsafe working conditions are just some of the effects that occur. While this does not happen in all instances, it certainly does occur in some. This paper assesses whether outsourcing is ethical and whether it could or should be done at all. If it should be done, the paper evaluates what safety and ethical measures should be taken.

Summary of Problem and Current Situation

The subject will be analyzed using the ethical lenses of virtue, utility, justice, and rights. A position will be taken regarding what should be done with respect to outsourcing, supported by an ethics-based justification. While outsourcing may seem attractive when it comes to the selling or use of goods and services, there are notable ethics-related downsides that can emerge as part of the practice.

The practice of businesses outsourcing some or many of their operations and tasks to other companies has been occurring for years. These outsourcing activities can take on many forms. Some outsourcing stays within the United States, but a lot of it goes overseas. Examples of domestic outsourcing would include the outsourcing of data and financial services such as sensitive document shredding, payroll handling, and human resources tasks. Overseas outsourcing is typified by two major job categories: manufacturing and customer service. Manufacturing usually takes place in areas like China, Bangladesh, Mexico, and other parts of Central America. Customer service and administrative roles are sometimes handled in countries like India and the Philippines. Foreign outsourcing is done to save money for the outsourcing firm. However, there are ethical and cultural tradeoffs to engaging in outsourcing (Benkovskis & Wörz, 2014).

One perspective is the nationalist and populist side of the argument. Many people and groups in the United States—including unions and proponents of American-made goods—are concerned about the decline in domestic manufacturing. The United States still engages in significant manufacturing, but many products sold in retailers like Walmart and car dealerships are made, in whole or in part, in other countries. The major ethical concern is that outsourcing allows companies to dodge higher wage and benefit requirements in the United States and take advantage of lower standards in other countries, most notably China. While China is labeled by many as having greater economic output than the United States, what is often not mentioned is that China has three to four times as many people and few to no wage, benefit, or safety protections. Even major American companies like Apple have been caught in controversies over these practices (Frost & Burnett, 2007).

Utility and Consumer Impact

The main concern that outsourcing companies point to is that many Americans focus on price and supply when shopping. Many people either do not know or do not connect where something is made with its cost. If Chinese-made goods sold at Walmart were made in the United States, they would likely cost significantly more. Some people are willing to pay more for American-made goods, but the question becomes whether that trend is substantial enough for retailers to capitalize on. For discount chains like Walmart, the prospects are dim, though a blended approach where American-made items are labeled for interested consumers might work. When it comes to customer service, there is concern—and some prejudice—about a person who is clearly foreign answering a customer service call for an American firm (Jayaraman et al., 2013).

The first ethical lens is that of utility, which holds that the "rightness" or "wrongness" of a behavior is determined by its consequences. When it comes to outsourcing, there is both good and bad. The good comes in the form of low prices, allowing people to buy needed and discretionary items that they might otherwise not afford. One could argue that this affordability is necessary given trends such as the disappearing middle class and rising costs of necessities, which harm the poor more than the rich. However, the counterpoint is what happens to the people who make those products. Wage, hour, and safety laws in China and other common outsourcing countries are abysmal. Wages per hour are often nominal at best and pale in comparison to those in the United States and other industrialized countries. The cheap prices realized by American consumers come at a steep ethical price, made possible by dangerous conditions and inadequate pay.

Virtue, Rights, and Justice Frameworks

Many hold that when applying the utility test, one must consider the conditions and outcomes of all people affected by outsourcing, including those who make the goods or deliver services, not just consumers. In short, outsourcing is a boon for consumers and shareholders on the American side and for executives in the outsourcing country. However, workers in the foreign country are often treated like second-class citizens or even slaves while making goods (Jones & Felps, 2013).

The virtue test echoes the negative aspects raised by the utility test. The virtue lens asks whether the action represents the kind of person the analyzer desires to be. For those oblivious to conditions in foreign factories and sweatshops, this question may not arise. However, for those aware of what happens in foreign factories producing goods for American consumers, the question is difficult to ignore. The virtue framework would suggest that a person should actively avoid buying outsourced goods such as clothing and toys because those goods are not made under the best working conditions. The only saving grace is that the practice is so pervasive that companies feel compelled to participate to remain competitive. Target, Kohl's, and other retailers essentially must do it because Walmart does it. However, this is a shallow argument because virtue is not about popularity; it can differ based on perception and opinion. Some argue that cheaper goods represent the greater good, while others refuse to overlook the collateral effects (Jos, Hartman & Fontrodona, 2012).

The answer to the rights test is even less ambiguous. The human rights test fails unless people in these other countries are paid at least what local workers earn and the facility is safely and ethically operated. Comparing American standards to those in other countries is difficult, but minimum standards should prevail everywhere. While some outsourcing situations, such as customer service personnel, involve decent pay, this is not universally true. International human rights standards should form the baseline for any outsourcing arrangement (Wettstein, 2012).

When it comes to the justice test, the answer depends on whether there is a balance between offering cost-effective goods and services to Americans without trampling on the rights and opportunities of foreign workers. If Apple, for example, made iPods in a country where the factory paid wages exceeding local standards and operated to OSHA-level safety standards, this could pass the justice test. Even better would be manufacturing items in the United States, which Apple has increasingly done. Per the justice test, there must be a balance of burdens and benefits. Keeping costs down for budget-conscious consumers and families is not inherently wrong. However, doing so at the expense of the country's ethical standards cannot be permitted (Frost & Burnett, 2007).

Ethical Standards and Accountability

To suggest that outsourcing will go away is unrealistic. The author will remain grounded in what could be rather than utopian presumptions. Further, there are many jobs in this country that many Americans refuse to do, such as fieldwork and simple manufacturing. While there are manufacturing jobs in the United States, many require high-end skills that young people often lack. The position taken here is that outsourcing should be allowed but cracked down on and punished when it is clear that an American company is using a vendor treating workers like slaves. While this can be difficult to verify when facilities are not domestic, it should be a condition of doing outsourcing that there be an option to inspect the factory or facility if questions arise about worker safety and fair treatment. Assuming the worst for all outsourcing is unfair, but neither is turning a blind eye to abuses.

To suggest solutions that end outsourcing in the United States is a non-starter. Just as the United States shifted from an agrarian to an industrial economy in the 1800s, it is now shifting to a knowledge sector and service economy today. There will be no reversing that trend. The potential benefits for less developed countries making goods at a lower price point for American consumers does have some merit. However, people should have more opportunity to buy American if they wish, and outsourcing factories and facilities must adhere to proper standards and outcomes if they are to do business with this country.

Conclusion: Regulated Outsourcing