Outsourcing: A corporate competitiveness strategy, not a search for low wages

Abstract

Popular use of outsourcing as a description of corporations’ search for cheap labor reflects a belief about the motives and consequences of economic restructuring, not careful analysis. As I show, several factors are at work simultaneously that are likely to increase outsourcing: rapid technological change, increased risk and the search for flexibility, greater emphasis on core corporate competencies, and globalization. In this broader context, outsourcing is the result of a complex change in the cost boundaries facing firms as they choose between inside and outside production. The question of what happens to wages is one to which there is not a simple a priori answer.