Offshoring: China

Introduction

Goods and services now move more freely among countries than ever before. Ongoing declines in the cost of long-distance communication and transportation and in national restrictions on international trade and investment have allowed economies around the world to become increasingly integrated, thereby enhancing productivity growth and expanding consumer choices. In parts of the developing world and especially in East Asia, globalization has been accompanied by an increase in living standard hardly imagined just a generation ago. At the same time, globalization has also become the focus of widespread controversy. In particular, concerns about adverse consequences for income distribution have fueled policy initiatives that threaten to turn back the clock (Lawrence, 44).

Inequality Across What Population?

China and India offer clear examples of how answers to seemingly similar questions may be quite different. Both countries have recently experienced high rates of growth, in both cases resulting in a major reduction in the fraction of their population living in poverty. Growth has also translated to corresponding gains to an “average” individual in those countries as measured by gross domestic product (GDP) per capita, a figure that is often used in comparisons across countries (Leamer, 79).

Moreover, rapid increases in GDP per capita have reduced the gap between these still-poor countries and the much richer nations of the Organisation of Economic Co-operation and Development (OECD); global inequality measured on this basis has thus fallen. But within most of the world's nations, whether rich or poor in terms of GDP per capita, inequality has risen. In the United States, inequality in U.S. incomes has been increasing since 1980, most recently due to increased wage dispersion at the very top of the distribution.

Together, China and India account for a major share of the world's poor but also of the dramatic recent reduction in the number of poor worldwide. Moreover, these reductions have occurred as the two economic giants have opened their economies to international markets. In part because of what has happened in India and China, the “world inequality level” among households as measured by a Gini coefficient has trended downward since 1973 and by 2000 was nearly the same as in 1910.

Technology

A substantial portion of offshore services involves computer programming, and “technology” played an important role there, as well. In the late 1990s, it was feared that many older computer codes would cause substantial problems for businesses when the year 2000 occurred, so the old computer code had to be rewritten. The task was too large for domestic programmers, so much of this work was sent out to places like India. By 1999, 185 of the Fortune 500 had outsourced programming to China and Chinese software exports totaled US$ 1.8 billion. The results of this collaboration of necessity helped convince developed nations that lesser developed nations could produce timely, accurate, and cheap code, and writing code continues to be the largest outsourced task today.

Offshoring to China

When an organization is outsourcing to an overseas country, it is called offshoring. If we look at the past, we will come ...