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Management literature suggests that outsourcing is an effective device to create incentive collusion, which reduces opportunism, externalizes monitoring costs and facilitates a competitive organization of supply chains. However, we argue that the eagerness to outsource operations may cause an avoidable problem and that ethical behaviour may be reduced when the aim is to get rid of transaction or production costs. Outsourcing through offshoring relates to the relocation of business to another country. According to the Economic Policy Institute (Kimball and Scott, 2014), 3.2 million US jobs were outsourced to China between 2001 and 2013. New business models and supply chain networks promote the outsourcing of domestic jobs in both manufacturing and service industries. Some of the emerging market economies have developed refined and effective systems for acting as offshoring destinations. Lower international labour rates are financial incentives for outsourcing through offshoring. An analysis presented by the Wall Street Journal concluded that 35 large multinational US companies created new jobs faster than other US-based companies. However, although the companies that outsourced jobs globally grew faster, three-quarters of the jobs were created overseas (Thurm, 2012). In the USA, the number of workers in manufacturing dropped by 8 million over 30 years because many jobs were outsourced to third world countries. Some large companies have outsourced all of their manufacturing operations outside the USA. For instance, Apple and Nike have sub-contracted their manufacturing to independent companies and have been innovators of outsourcing as a business model based on the foreign operation of manufacturing processes (Roberts, 2016).
The reason behind outsourcing
The increased globalization of outsourcing operations in recent years has been the modus operandi of textbook models of competitive strategies. The received theory and empirical evidence have pointed to core business, taxation regimes, regulations, costs of production, labour, resources and energy and transaction costs as motivations for offshore outsourcing. During the past decade, private equity investors have put pressure on costs. Consequently, the cost focus is driving outsourcing strategies. Although the production costs of outsourcing are pretty clear, the true cost of the environmental and social impact of outsourcing is hidden behind a complex network of contractual relationships and arises through cultural, geographical and system differences.
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