Is Outsourcing Exploitation or Chance for Developing Countries?

Anıl Sural

Graduation Thesis

Advisor: Prof. Dr. Mustafa Kibaroğlu

2Is Outsourcing Exploitation or Chance for Developing Countries?

Anıl Sural

Introduction

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Globalization is a concept that

emerged all around the world in

the last twenty years. There are five

dimensions for globalization. Those

are economic dimension, political /

security dimension ,technological/

communicative dimension,

environmental / demographic

dimension and cultural dimension.

Especially it means the world

becomes a single market. After all

liberalization started, it means no

strict trade border for countries. Is Outsourcing Exploitation or Chance for Developing Countries?

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Multinational corporations are the dominant providers in China's high-end market.

US multinational companies choose China for manufacturing side. First of all,

labor costs are cheaper when you consider US or Europe. And when they have

manufacturing, it is easy to enter domestic market. When they enter, China it

means you can go Asia markets.

Is Outsourcing Exploitation or Chance for Developing Countries? Anıl Sural

Raw materials in China are cheaper than US. Supply chain and logistics activities

are easier then US. These all drive down operating expenses. High population is

problem for China. Because when population increases, wage will decrease. There

is opposite equation.

5Is Outsourcing Exploitation or Chance for Developing Countries?

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What is Outsourcing?

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Outsourcing means using international

cheap labor force and also doing in the

countries with cheapest sources of labor

and supplies. Some of the companies

transfer their internal activities and

decision rights of action to outside

suppliers or companies.

Outsourcing is a situation in which a

company employs another organization

to do some of its work, rather than

using its own employees to do it.

Is Outsourcing Exploitation or Chance for Developing Countries? Anıl Sural

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The main areas in which a business can be effective except outsourcing are

finance, human resources, accounting, legal and administrative procedures,

external resources, delegating activities. Thus they can save time and resources

which provide a great extent. However, the costs are pulled down. Basic

manufacturing directing labor costs today range from less than $1 per hour in an

emerging country to $6 to $12 per hour in a developed country. In certain U.S.

industries, direct labor costs in manufacturing exceed $20 per hour without

benefits.

Is Outsourcing Exploitation or Chance for Developing Countries? Anıl Sural

8Is Outsourcing Exploitation or Chance for Developing Countries?

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1. India 2. Indonesia

3. Estonia 4. Singapore

5. China 6. Bulgaria

7. Philippines 8. Thailand 9. Lithuania

10. Malaysia

*Source: http://www.sourcingline.com/top-outsourcing-countries

Top 10 Outsource Countries

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There are many positive and negative aspects of outsourcing. When we look

at the other side, there are negative impacts for workers. Workers are

disenfranchisement and lack of good working conditions. Moreover, their

gain would highly decrease. Businesses outsource their core competencies

towards the activities of the remaining cost of the cost savings provided was

asked. They have reached their goals in providing only save money. Improving

the quality of product or service, entering the larger markets, and increasing the

number of customers of other businesses are targets.

Is Outsourcing Exploitation or Chance for Developing Countries? Anıl Sural

10Is Outsourcing Exploitation or Chance for Developing Countries?

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Outsourcing from China Side

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The world's second largest economy is Chinese economy. Argued that the

protection of the country's 2020 growth of 7.5 per cent. In addition, large

fluctuations in economic performance for the lack of maintenance of stable

economic growth and inflation must be kept under control with the prevention and

invisible risks.

Is Outsourcing Exploitation or Chance for Developing Countries? Anıl Sural

Recently, China has witnessed an intense debate about whether there can be an alternative to the United States or not. In the unipolar world, China is discussed in whether there will be a second pole.

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Multinational corporations are the dominant providers in China's high-end market.

In addition, due to China's abundant low-cost human capital and infrastructure,

some have set up their global service-outsourcing bases here to provide support

and services for other countries. Multi-national companies have invested in China

which has positive impact on this country. It increased productivity and social

security on labor market. China's economy has provided a high added value. In

addition these improve cities’ values. China learns now how produce, supply chain

and logistics management.

Is Outsourcing Exploitation or Chance for Developing Countries? Anıl Sural

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The Chinese government views an outsourcing arrangement as a pioneer in

attracting demand and the preferred mode to provide access to technologies

into the Chinese market. For foreign companies, like ‘’price''; economic platform

that accelerates the introduction of new technologies, large internal funds and

investment and a means to accelerate their based on the state of the economy

and the transition to a mixed effect '' benchmark'' to direct resources into strategic

industry guidance are important.

Is Outsourcing Exploitation or Chance for Developing Countries? Anıl Sural

14Is Outsourcing Exploitation or Chance for Developing Countries?

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Outsourcing Workers Conditions in China

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High population is the one of the biggest

problem for China, as well as being a

major source of economic power. The

participation of about seventy million

people in the next ten years, the labor

force is envisaged.

One of the biggest obstacles standing in

the way of China's development is to meet

the needs of thispopulation and to cope

with lack of infrastructure. Heavy

investments are made in order to remedy

this shortcoming.

Is Outsourcing Exploitation or Chance for Developing Countries? Anıl Sural

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Apple originally from California, United States and they created or supported nearly

600,000 jobs for U.S. They do not manufacture in United States. They use global

outsourcing and Foxconn manufacture for Apple in China. And in 2012, Apple is an

independent consulting firm to appoint an audit for Foxconn working conditions.

These workers make about 51 cents an hour. It should be noted that Apple's Foxconn

workers are used to work longer hours, as much as 70 hours a week. Apple mandated

that the maximum overtime should be 20 hours a week, so Foxconn workers now

only work 60 hours a week.

Is Outsourcing Exploitation or Chance for Developing Countries? Anıl Sural

17Is Outsourcing Exploitation or Chance for Developing Countries?

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Also in dormitory condition, many people live in the one room. Most of the workers were forced to work 12 hours a day standing, lack of payment for overtime, preventive measures are not taken at the beginning of the business emerged. Foxconn hired child employment and 14-year-old youth was run as an intern on the factory. The minimum age limit of 16 in the factory was due to Chinese labor law. 22 employees committed suicide because of working condition. When they hire people, they will sign a contract and it is written: I will not commit suicide.

18Is Outsourcing Exploitation or Chance for Developing Countries?

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How does United States see outsourcing?

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Dynamic and powerful determinant of the

economic structure of the U.S. economy

is the functioning of the market actors.

United States of America is the world's

largest economy and the most important

industrial center. 70% of production and

services are provided by the private

sector.

US companies affect US Economy

directly and they have quite good impact.

Actually US firms have an impact all

over the world economy. US are the

world's largest energy producer, consumer

and importer. They have rich natural

resources and they fired skilled labor.

Is Outsourcing Exploitation or Chance for Developing Countries? Anıl Sural

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U.S. firms use global outsourcing for manufacturing activities. Because they want

to decrease cost, especially labor cost. Globalization has affected all over the

world and developed countries want to use developing countries’ cheap labor, raw

materials, energy, and so on.

Is Outsourcing Exploitation or Chance for Developing Countries? Anıl Sural

They have begun to take advantage of more opportunities. Multinational US companies use developing countries for production in due to lower costs by performing these countries managed to establish a more efficient value chains.

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Reasons for the production of the iPhone in China. A very large amount of glass used

in the display can be combined together and the fact that China is coming soon.

Apple founder and former CEO Steve Jobs, the iPhone, before placing the product on

the market to have a glass screen, and asked to be produced in large quantities within

six weeks. This can only be achieved by China.

Is Outsourcing Exploitation or Chance for Developing Countries? Anıl Sural

Another reason why Apple chose China for production is flexibility, size and

efficiency. Earlier time Chinese manufacturer with a vast experience in

manufacturing electronic controls and the tight bandwidth limitations in the United

States were more flexible and efficient.

22Is Outsourcing Exploitation or Chance for Developing Countries?

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Insourcing American Jobs

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President Obama Hosts "Insourcing American Jobs" Forum at the White House in

2012. The purpose of the forum is the opportunity to produce more cheaply abroad

to "outsource" the U.S. production has been re-take the country. United States Global

firms outsource for 3 E. These are efficiency, effectiveness and economy. This 3 E

perspective: companies are inefficient or if outsourcing is a more efficient all the

work to make this resource it is outsourcing.

Is Outsourcing Exploitation or Chance for Developing Countries? Anıl Sural

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‘’ I don’t want America to be a nation that’s

primarily known for financial speculation and

racking up debt buying stuff from other nations.

I want us to be known for making and selling

products all over the world stamped with three

proud words: “Made in America.” And we

can make that happen.

I don’t want the next generation of manufacturing

jobs taking root in countries like China or

Germany. I want them taking root in places like

Michigan and Ohio and Virginia and North

Carolina. And that’s a race that America can

win. ‘’

Is Outsourcing Exploitation or Chance for Developing Countries? Anıl Sural

United States of America president is Barack

Obama had an important speech on January

07, 2012. This message from Obama:

25Is Outsourcing Exploitation or Chance for Developing Countries?

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Outsourcing and Global Outsourcing are different two terms. One of them is domestic. US companies can use outsourcing for their firm and they use labor force for decreasing labor cost and want professional skill worker. It does not decrease or increase domestic market so it does not affect unemployment rate.

120,000 employees work for Apple in China

26Is Outsourcing Exploitation or Chance for Developing Countries?

Anıl Sural

Conclusion

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When we focus on Apple case, first of

all, we can see two important countries.

These are world’s largest economy. One

of them is United States and other side is

a candidate for biggest economy: People's

Republic of China.

United States does not want to produce.

They see manufacturing like errand. China

has potential for manufacturing and their

labor costs are cheaper than U.S. China is

glad to be outsource for other companies.

Because it is opportunity for China. They

do not have information technology for

generating new knowledge. China learns

manufacturing, supplying chain, knowing

how, logistics etc.Is Outsourcing Exploitation or Chance for Developing Countries?

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China has capacity and force for produce and earns money from U.S. On the

other hand, problems are starting for people. Americans loss their job and their

unemployment rate increase. They cannot find job. Chinese people do not have

problem for finding a job but they earn less money and their working conditions

are hard. Third parties are companies. Entrepreneurs are happy both countries.

American businessmen make more profit than Chinese entrepreneurs and Chinese

businessmen work for global multinational companies and earn money.

Is Outsourcing Exploitation or Chance for Developing Countries? Anıl Sural

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