Outsourcing

Outsourcing refers to subcontracting a production process, or the provision of a service, to a third-party company. As a result of outsourcing, firms transfer entire business functions to external service providers. Geographers have contributed to the study of outsourcing by investigating (a) the spatial aspects of outsourcing, (b) the social and cultural effects of the trade flows generated by outsourcing, and (c) the role of outsourcing in the globalization of the economy.

Geographical work on outsourcing originated in the 1980s, when the Fordist system of mass production entered a worldwide crisis. The geographers Allen Scott and Michael Storper, working on industrial change in California, described the emergence of tightly interconnected networks of small firms in place of the previously integrated large businesses. Without using the term outsourcing directly, they described a regional pattern of firms adopting outsourcing to spread risk and contain costs. These early works introduced a spatial component in the analysis of outsourcing: The concentration of providers of outsourcing services in certain regions allowed for an easier and more efficient coordination of the production processes.

Later, the Washington Consensus of neoliberal-ism and the worldwide increase in international trade led geographers to shift focus from domestic to international outsourcing. Overall, they identified the distinctive character of the current phase of economic globalization as international fragmentation of production, involving a production process spread across production sites in various countries. Outsourcing and intrafirm trade within large corporations are the mechanisms allowing such fragmentation. International outsourcing is a qualitatively new phenomenon, because the earlier phases of globalization involved mostly trade of finished products.

In recent years, geographers have analyzed the economic and sociocultural consequences of outsourcing while participating in interdisciplinary schools of thought, such as (a) the Global Value Chains (GVC) Initiative, (b) the work on Global Production Networks (GPN), and (c) within the discipline, the work of economic geographers analyzing global as well as regional change.

The value chain describes the full range of activities that firms and workers perform to bring a product from its conception to its end use and beyond. The GVC Initiative investigates the global expansion of value chains through international outsourcing and direct investments, and its consequences on innovations, local firms, and labor. The work on GPN expands the analysis of value chains, arguing that “the notion of a simple single-stranded ‘commodity chain’ scarcely does justice to the complexity of the processes involved” (Jackson, [Page 2109]2002, p. 6). Instead, it represents the relation among firms as complex, network-like, and regulated by a variety of institutions at different scales. One example of regional analysis is the work by John Pickles, Adrian Smith, Robert Begg, Milan Bucek, and Poli Roukova on Eastern European apparel industries. They analyzed the role of international outsourcing in revitalizing the industry (Figure 1), its consequence on labor conditions and wages, as well as the impact of norms and regulations on the industry.

Figure 1 International outsourcing between Western Europe and Bulgaria. Firms in high-wage countries (in the table, the EU 15—the 15 Western European members of the European Union) export cloth to low- and mediumwage countries (Bulgaria). They outsource the sewing and stitching to producers in the low-wage countries and reimport the finished apparel products.

Source: Author's elaboration of COMEXT data.

Note: The data refer to knitted cloth and apparel. The values are expressed in euros.

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