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The Study in Brief
Outsourcing of services globally - commonly understood as the practice of companies sending service functions to be done more efficiently abroad - is a topic of heated debate in the U.S., fueled by job losses in recent years. Because technology makes it possible and attractive to purchase information technology (IT) and other services abroad, some observers say that developed countries could lose large numbers of skilled service jobs to workers in less-developed, lower-cost regions.
This Commentary cuts through the debate to assess where Canada fits into the picture of global services outsourcing. According to limited available data, Canada is currently a prime destination for companies that outsource some of their service functions globally. Moreover, Canada's employment record over the past few years does not give cause for alarm about outsourcing. And global services outsourcing activity appears to assume a much smaller economic role than some public commentaries indicate. Indeed, most services still have to be provided locally.
Acquiring a service function from abroad is no different in principle from trade that takes place across the street. Nor is it different from trading manufactured components, say auto parts, across the Canada- U.S. border. As with all trade, there may be painful short-term dislocation for some who lose their jobs. But overall, gains are likely to disperse across the economy in terms of lower component prices for firms, lower final prices for consumers, and higher living standards both in Canada and in developing countries.
There is much we do not yet know about current and future global services outsourcing developments. Still, some priorities are clear. Governments should not restrict companies' ability to invest and acquire service components from where they can be produced most efficiently. Instead, the public and private sectors must invest in those areas that make Canada an attractive destination for global outsourcing, and that enhance workers' ability to adjust. This includes education and skills development, further services liberalization and other steps to improve competitiveness. Ottawa must also be vigilant in protecting its interests against any U.S. measures that discourage outsourcing or investment abroad.
The Author of This Issue
Danielle Goldfarb is a Policy Analyst at the C.D. Howe Institute. She holds a B.Comm. in Honours Economics from McGill University...