The Role of Outsourcing in Global Trade

Offshore outsourcing is a widely used business process. This refers to the collaboration between a company and a workforce from outside the country. So, it’s pretty obvious that a process like this is extremely important for global trade and economic development. 

Why Outsourcing is Important For Global Trade?

BPO (business process outsourcing) allows companies to have access to lower-cost services and more specialized people. This way, they will have much more time and resources to focus on core business tasks and improve efficiency. These are great benefits, but the question is, how does it help global trade?

This process brings a chance to connect with so many different types of cultures and individuals, it improves the domestic market and establishes great access to advanced resources.

However, you must consider some drawbacks of the business process of outsourcing, and some of them don’t affect the global market that well. Some of them are

• Job losses in local markets 
• Trade imbalances
• Huge cultural differences, etc.

So is it worth it? Let’s find out!

The Evolution of Global Trade And Outsourcing

Outsourcing is not something new, it has been in the economy for a while. Some of the first traces of outsourcing go all the way back to the 18th century and Industrial Revolution. Agriculture, for example, was one of the most “outsourced” fields. Many large landowners would outsource the workforce-intensive task of crop harvesting to independent contractors, who would then hire their own workers to finish the job.

However, BPO and BPO companies earned their popularity in the second half of the 20th century. One of the main reasons for the expansion was the growth of international trade. This improvement allowed businesses to enter a whole new market (domestic or international). By lowering costs and making the whole process more efficient, BPO gained popularity in a really short time.

Transportation was more accessible and the transfer of information was much faster and easier. This change opened a whole new world of opportunities for companies to collaborate with someone from outside the firm or even the city and country.

And, of course, the internet and other modern digital technologies were just another step that helped business process outsourcing to find a way to almost any niche.

To this day, outsourcing continues to gain popularity by connecting so many different companies with people from all around the world. As you can already assume, outsourcing had a huge impact on economy development and global trade as well.

Outsourcing as a Factor In Global Trade Imbalances

While outsourcing offshore, companies can cause a shift of jobs and economic activities from one country to another. This is called trade imbalance. This imbalance is not always bad, especially if we’re talking about positive changes. However, in some cases, this can lead to reputation issues. Here’s an example.

One of the largest companies in the world, Apple, uses outsourcing as an advantage. Many of the components used in Apple’s products, such as iPhones and iPads, are made in China by companies such as Foxconn. 

The good side of this collaboration is the significantly lower cost. Salary, workforce, and resources are much lower and more accessible in China. In this case, BPO has resulted in a growth in Chinese goods imports to the United States.

However, when people found out about this, they were really skeptical about Apple’s quality. Even some US politicians said that Apple should produce its products in the USA to support the American economy and jobs. To this day, one of the largest manufacturers of Apple is located in China. Some people are still judging that move, but after all, ROI is what is important for Apple and that is definitely on their side.

Of course, this process was a big factor in trade imbalances between the USA and China. It probably wouldn’t be a problem if a few factories did something like this, but the problem arises when almost every larger company outsources. In extreme cases, this can lead to various issues like inflation. Not likely, but theoretically possible.

Some countries even have laws that legally restrict companies from outsourcing. By doing this, countries “force” you to support the domestic economy by limiting your outsourcing process. 

Is this selfish or moral? Well, it’s up to you to decide.

The Impact of Outsourcing On Global Economic Growth

So, enough of the drawbacks, let’s discuss the good side of this amazing business process!

We talked about the history of the relationship between outsourcing and the economy, so we can say for sure that this process had an enormous positive impact on economic growth. BPO leads to increased profit and investment too by connecting a wide range of talented people with companies in need of additional workforce.

So let’s say, for instance, that your company uses business process outsourcing. By doing this, you can save a lot of money without losing the quality of your work. Now, you have more money that you can use for expanding your business. If you increase investment, you’re more likely to affect the growth of your company.

And then repeat the process – find a new workforce, expand your way of work, and invest in the newest technology and best practices that may not be available in your home country. So now you can hire or outsource more people.

Final results? Your business is improving while you are helping with economic growth.

But what about international trade or global economic growth?

Business process outsourcing breaks country limitations and helps companies connect with each other. This way, BPO can help to boost trade between countries because businesses seek to establish a relationship with collaborators and customers from all around the world.

If you have an offshore collaborator, you don’t only have an amazing cheap solution for your side tasks, but also one of the biggest benefits of outsourcing. Time difference.

Maybe this sounds like a huge drawback because of the bit of luck in communication, but imagine your business as a machine that works 24/7. Or, even better, imagine getting up in the morning and checking your empty task board after you saw numerous assignments the day before. Sounds cool, right?

This is especially important if you need a customer support role. You can stay in contact with your customers even when you’re asleep.

But let’s get back to the topic with our next segment.

The Relationship Between Outsourcing and Trade Agreements 

The North American Free Trade Agreement (NAFTA) is a trade agreement between the United States, Canada, and Mexico that was formed in 1994. (Keep reading, it will make sense later!)

This agreement is linked to BPO because it removed numerous trade barriers among the three countries. In short, USA and Canada started using workforce for Mexico, making it a perfect, effective and very cheap option.

NAFTA helped a lot of companies in these two countries, so they can outsource a big amount of tasks while investing much less amount of money. Besides some judgmental states, this Trade Agreement was extremely valuable for all three countries.

In practice, nations have significantly shaped international outsourcing through trade agreements so that both (or more) parties could benefit from it. There are many different examples where trade deals can reduce tariffs and improve the environment for outsourcing.

Such agreements can lead to increased competition, lower prices, and new market access, benefiting both outsourcing companies and their host nations.

The Future of Outsourcing in Global Trade  

The world is changing, the global economy is changing, and outsourcing is changing day by day. But the question is, does this change affect outsourcing positively or negatively? 

Many businesses will keep outsourcing tasks for efficiency and cost-effectiveness.

Also, the outsourcing industry has been drastically influenced recently by technological developments including automation, artificial intelligence (especially ChatGPT), and machine learning.

Advancements enable businesses to automate low-skill jobs, reducing the need for human labor and boosting efficiency. We can hope that this trend will continue.

What do you think?