The Research On The Causes And Effects Of International Outsourcing

Since the 1990s, with the development of economic globalization, more and more countries and firms are involved in the process of production of some final goods. It has formed the network of international production which multinational firms lead and many suppliers exist together on the basis of vertical international division. With the development of the network of international production, the pattern of international trade has changed dramatically. The growing shares of international trade flows consist of intermediate and unfinished goods shipped from one country to another to combine manufacturing or services activities at home with those performed abroad. Trade in parts and components, in middle products or in fragments of final goods and trade in service have exhibited a dynamism exceeding that of trade in final goods.The network of international production has been a new pattern of international division, international production and trade. The international outsourcing is an important way of the configuration of the productive structure.It is a situation where the firm requires another independent foreign enterprise to undertake the production or carry out the processing of a material, component, service, part or subassembly for it according to the specifications or plans provided by the firm offering the contract. International outsourcing involves setting up production operations in different countries to serve various markets, or buying and assembling components, parts or finished products world-wide. One distinctive feature of the second wave of economic globalization is the rapid growth of international outsourcing and trade.International outsourcing has emerged in a manifold of industries, including services and products:mobile phones, cars, computers, computer and information services and other business services, and so on. International Outsourcing has received an enormous amount of attention in the media, political circles and foreign scholars in recent times. International outsourcing has a profound effect on national welfare, income distribution as well as the nature and volume of world trade. The study of international outsourcing has become the hot topic. Research on international outsourcing has expanded the study field of international economics.China is not only a developing country, but also one of the biggest countries in world trade. The opening to the outside world has been more than 20 years. The rapid growth of foreign trade closely correlates with international outsourcing in China. China now faces a series of problems of economic structure transfer. International outsourcing is an important way for China to get involved in the international system of labor division. Based on analysis and comparison, proposals have been put forward concerning China's participation in international outsourcing. So study of international outsourcing is important not only in the value of theory, but also in its significance.This paper aims to examine the extent, trends, causes and effects of international outsourcing, and its implications for analyzing China's trade patterns and economic development. The paper is divided into 7 chapters, is organized as follows.Chapter 1 describes the aim and significance, methods of study, the frame and contents of the paper, and so on.Chapter 2 makes a general description of international outsourcing, including the definition, types of the international manufacturing outsourcing, and measurements, nature of the international manufacturing outsourcing and the international service outsourcing. The paper develops a set of stylized facts describing the trends in the international manufacturing outsourcing and the international service outsourcing to form the basis of a framework. It shows the growing trend of these two forms of international service outsourcing. At last, it analyzes industrial distributions and regional distributions of the international outsourcing.Chapter 3 explores in more detail possible causes of the increased degree of the international outsourcing now observed in world markets. The paper sets out a theoretical framework to analyze the sources and basis of international outsourcing, points out that technological revolution, institutional transfer are the essential reasons.For some multi-fragment goods, technological revolution makes them separate in the space. Alternatively or additionally different fragments may require inputs in different proportions. For different fragments, there are different comparative advantages of the developed counties and developing counties. If relative factor supplies and prices differ from region to region leading to the more labor-intensive fragment being located in the more labor-abundant regions, and the more capital-intensive fragment in other regions. It is the source of international outsourcing. From a theoretical point of view, in fact, the range of the possible ways in which firms organize production is composite:a firm producing a final good for which intermediate products are needed can choose to produce its inputs in-house (thus vertically integrating production), to outsource production of the same inputs to intermediate suppliers, themselves possibly located at home or in a foreign country, or to de-localize altogether the production of inputs in a subsidiary located in a foreign country, through a so-called vertical FDI. The decision of the international outsourcing may be driven by the trade-off between the trade costs and production costs. Under the conditions of the others keeping invariable, trade costs and international outsourcing negatively relate. If trade costs exceed costs of production, the firm makes a decision of international outsourcing. If trade costs do not exceed costs of production, the firm makes a decision of the others. The less trade costs are, the more international outsourcing is. On the contrary, the more trade costs are, the less international outsourcing is.The process of international outsourcing has clearly been enabled by significant technological innovations and institutional transfer. Dramatic reductions in costs of telecommunications, the internet and widespread low cost usage of computers led to the advent of the services outsourcing. Plunging international costs of telecommunication and developments of FAX and internet technology have allowed the production process to be widespread on a global basis with much less attention paid to national boundaries. The substantial reductions in international trade costs as well as increasing liberalization have probably played a significant role in international outsourcing. The international level the efforts to liberalize barriers to trade can be expected to encourage the tendency towards greater international outsourcing. Recent improvements in transportation and communications technology and economic globalization allow firms to allocate operations all over the world to lower production costs. With the rising domestic production costs in the developed countries such as wages and falling trade costs such as transport costs, tariffs and communications costs, the international outsourcing has met a rapid growth.Chapter 4 analyzes the effects of the international outsourcing on the gains of trade, technological spillovers, the distribution of income. The paper uses a simple H-O model to get the point that the countries involved in international outsourcing can get surplus, which will provide the theoretic basis of undertaking international outsourcing. The international outsourcing must systematically expand what the world is able potentially to do with its given resources should mean that, again, on average international outsourcing will be beneficial. The paper examines positive international outsourcing spillovers working through these channels, including the demonstration effect, labor training-turnover effect and linkage effect. It explores factors driving the degree of vertical spillovers from international outsourcing.The paper develops a North-South product cycle model of endogenous growth without scale effects, where the rates of innovation, outsourcing, and skill acquisition are endogenously determined to investigate the effects of international outsourcing on wage inequality in both North and the South. It considers two sets of exogenous events that increase the extent of international outsourcing. When increased international outsourcing is driven by technological change, the impact on the wage differential between skilled and unskilled labor in the North and the South is ambiguous. Whereas if international outsourcing is driven by policy changes such as production subsidies by the South or production taxes by the North, the wage gap in both economies widens. The rise in wage inequality, in turn, induces a higher fraction of the population to upgrade their skills. In the case of international outsourcing the paper do not even have a simple result like Stolper-Samuelson. The effect of international outsourcing on wages depends on the nature of the industry.Chapter5 makes a description of china's status quo of undertaking international outsourcing, points out the disadvantages. With further reform and opening up, the trend of China's international outsourcing undertaking becomes more and more obvious these years. China grasps the opportunity of the transfer of global manufacturing industry and has made a great progress in the process of manufacturing outsourcing development. It has been seen that China is rising as the world's manufacturer. In the same time, China makes a progress in the process of undertaking international service outsourcing.However, compared to undertaking international manufacturing outsourcing by China, or compared to other successful countries, such as India, there are the disadvantages and shortages of undertaking international service outsourcing by China. The lags of polices, for example, training of human resources, economic regulations, discourage the development of international outsourcing.Chapter6 comes up with strategies of enhancing international outsourcing on the basis of Chapter5, gives some suggestions and policy design on how to cope with the trend of international outsourcing.Finally, chapter7 wraps up and provides some basic conclusions and directions for further research.