Outsourcing and Relocation in the 21st Century Global Economy

Introduction: A Shifting Global Economy

As our world has grown smaller through the advent of new technologies, the economics of business in this highly competitive global economy now revolve around profits achieved through corporate migration. Consumers worldwide have new expectations for lower pricing combined with higher quality products and services, placing a great deal of pressure on the business community. Couple these consumer demands with the pressures imposed by the investment community, and one gets a true sense of twenty-first century business.

All areas of the American economy — from both the service and manufacturing sectors — have had to search for novel strategies that systematically reduce costs while still providing increased revenues. In the past, businesses simply reduced their labor forces to meet profit demands. During the 1990s, layoffs, downsizing, and corporate restructuring were terms that essentially equated to reduced labor costs for increased profits. But layoffs are no longer the answer. Today, relocation and outsourcing are the solutions to thin profit margins. There are many examples of corporate America literally moving whole factories and numerous jobs to foreign locations to meet the demands of consumers and investors. Outsourcing and relocation are now logical and viable solutions for doing business in the twenty-first century.

Structural Economic Change in the United States

Economics boils down to the basic formula of supply and demand. The United States has always been known for the success of its free enterprise system and has consistently led by example when it comes to creating new business models, ideas, and innovations. But today, business and economic news in the United States has been dominated by corporate doom and gloom. Blue-chip stocks have been at historic lows while layoffs have become the norm as unemployment keeps climbing. The Enron scandal is just one example of the pressures placed on corporate America to keep producing large profits to meet investor expectations.

"The United States is going through a massive structural shift — many economists, business analysts, and corporate executives haven't figured this out yet. The shift into a new economy based on information technology is well underway." (McGarvey, 1996) The old way of doing business has not been conducive to meeting the demands of the new global economy. That is the reason for so much troubling economic news, such as strikes, layoffs, and plant closings. Yet, surprisingly, the United States economy has been experiencing steady growth because of a shift in corporate mentality toward finding cheaper labor, offshore factories, and other related new business opportunities.

Relocation and Outsourcing in the Automobile Industry

A good example of growth through relocation and outsourcing can be seen in the adjustments made by the automobile industry. The automobile industry has actually been producing profits over the past few years, far surpassing the dismal economic results from only a decade ago. The adjustments the industry has made are a direct result of how companies plan to do business in the future. Relocation and outsourcing have become the industry's core business strategy. In other words, manufacturing automobiles has become a global business fueled by cheap foreign labor in new emerging markets throughout Asia and South America. Companies like Ford Motor Company and General Motors have relocated their factories overseas to take advantage of these emerging markets and to move away from the high-priced labor costs in the United States.

The automobile industry understands that the new consumers of the future will live in countries like China, India, Mexico, and other emerging market nations. It is simply cheaper for the automobile industry to build cars and parts abroad because labor and tax costs are so much lower. Moving factories closer to parts manufacturers has also helped support just-in-time manufacturing techniques and eliminated the high cost of importing components built abroad and shipping finished cars back to foreign markets. It no longer makes sense for the automobile industry to build cars in the United States and then ship them to overseas consumers. Corporations like Ford and GM have found relocation and outsourcing to be a viable solution for cutting costs while still meeting the high-quality demands of their customers.

Conclusion: The Future of American Business

As our world continues to grow more interconnected through technologies such as the Internet, fiber optics, and satellite communications, the economics of business increasingly revolve around profits achieved through organizational migration in this highly competitive global economy. The need to satisfy both consumers and investors places the business community under enormous pressure. Both the service and manufacturing sectors of the United States economy continue to search for novel strategies that will allow them to reduce costs while increasing revenues.

In the 1990s, profits were achieved by reducing labor forces, and buzzwords like layoffs, downsizing, and corporate restructuring equated to increased profits. But layoffs can no longer serve as the primary solution, as production operations are already running at a premium. To increase profit margins in the future, American organizations will need to move whole factories and countless jobs to foreign locations in order to satisfy investor demands. Relocation and outsourcing will therefore continue to be the logical solution for doing business in the twenty-first century.

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McGarvey, Robert (1996, May). Changing times. Entrepreneur Magazine, 122–127.