Outsourcing, Risk, and Responsibility: On the Precarious Freedoms of
Disembedding for the Labor Process
Craig D. Lair
Gettysburg College
Department of Sociology
clair@gettysburg.edu
Abstract
There can be little doubt that outsourcing is becoming an increasingly prevalent phenomenon not only
in business life, but also in the affairs of governments and in the lives and individuals and families. But
what exactly is outsourcing and what consequences does it have both for those who outsource their
activities and those who take them on? I will argue that such a theory can be found in seeing
outsourcing as a specific form of organizational disembedding that offers entities a set of freedoms – i.e.
possibilities of action and non-action - that would not be possible in the absence of this practice.
However, many of these freedoms are precarious in that they involve a multitude of risks and dangers
both for those outsourcing their affairs and for those who take them on. This paper highlights two such
precarious freedoms – how outsourcing allows entities to contract (i.e. limit) their responsibility and to
shift a number of risks onto both suppliers and workers.
1
Introduction
There can be little doubt that outsourcing is becoming an increasingly prevalent phenomenon
not only in business life,1 but also in the affairs of governments (e.g. the use of private prisons and
private military contractors)2 and in the lives and individuals and families (e.g. the use of take-out food
and cleaning services).3 In all these spheres entities are handing over an increasing array of their
activities to others to perform.4 But what exactly is outsourcing and what consequences stem from this
practice? Undoubtedly attempts to address these issues have come from a variety of theoretical
perspectives (e.g. transaction cost economics,5 the perspective of “core” competencies/specialization,6
as creative destruction,7 etc.) but for various reasons8 these have failed to offer an adequate theoretical
account of outsourcing and its nature. This, in turn, has limited the ability to explore the wide-ranging
consequences that result from this phenomenon, particularly in the realm of work. As such, there is a
need for a more comprehensive theory of outsourcing’s nature and consequence. I will argue that such
a theory can be found in seeing outsourcing as a specific form of organizational disembedding that
offers entities set of freedoms – i.e. possibilities of action and non-action - that would not be possible in
1
For various examples of this, see Klier and Rubenstein (2008) in terms of the automobile industry; Brown and Linden (2005)
for semiconductors; Blackmore et al. (2005) and Lacity et al. (2009) for information technologies; Kaka (2009) for business
process outsourcing; Brooks (2006) and Crouch (1997) for outsourcing in the pharmaceutical industry; and Goelman (2005) for
radiological outsourcing, to name just a few examples.
2 See, for example, Light (2006) in terms of government contractors, McCoy (2009) in terms of private military contractors,
Sabol and Couture (2008) in terms of private prisons, Molnar et al. (2007) for the privatization of education through education
management organizations, and Sanger (2003) in terms of the outsourcing of welfare provisions.
3 See Lair (2007) for an overview of these issues.
4 See Ritzer and Lair (forthcoming) for a more comprehensive overview of this issue and the specific activities that entities are
outsourcing.
5 E.g. Aubert et a., 1996, 2004; Ellram et al., 2008.
6 E.g. Prahalad and Hamel, 1990.
7 E.g. Samulevicius and Samonis 2006: 142; Greaver 1999: xiv; Singer 2004; Drezner 2005; Olsen 2006: 8-9.
8 In general, the accounts of outsourcing offered to date have suffered from at least one of the three following limitations: they
have looked at outsourcing exclusively in terms of economic issues, thus overlooking its social implications; they only look at
outsourcing in terms of one, and in some cases two, of the dimension of social life noted above (i.e. in terms of economic,
governmental, and individual and familial activities); or they have seen outsourcing as exclusively a positive (good) or negative
(bad) phenomenon. This paper, and the larger project from which it is drawn (Ritzer and Lair, forthcoming), attempts to
overcome these limitations by exploring the economic and social consequences of outsourcing across all facets of social life,
and by noting how the benefits of outsourcing are often inexorably intertwined with a number of negative elements. That
being said, given the focus of this paper on how outsourcing is affecting the labor process in the context of responsibility and
risk, it tends to concentrate on issues more relevant to work in the economic and governmental spheres.
2
the absence of this practice. However, many of these freedoms are precarious in that they involve a
multitude of risks and dangers both for those outsourcing their affairs and for those who take them on.
Though a number of such precarious freedoms are engendered in the outsourcing process, this paper
explores two that are of particular relevance to the labor process: the contracting of reasonability (i.e.
the ways in which outsourcing is used to limit and free entities from various forms of responsibility) and
risk shifting (i.e. the ways in which outsourcing is allowing certain forms of risks to be pushed onto
suppliers and/or workers). I will conclude by offering some general conclusions on outsourcing and its
relationship to the work process.
Outsourcing as Organizational Disembedding
As it is normally used in the business context the term outsourcing refers to instances in which a
company purchases goods or services once performed within the organizational structure of a company
(i.e.” in-house”) from an outside supplier. An example of this would be an automobile manufacturer
purchasing engines for its cars from an outside company instead of building this part itself. The practice
of outsourcing is often characterized in terms of the “make vs. buy” decision; i.e. does a company make
what it needs itself, or does it buy it from others? Though the idea, and indeed practice, of outsourcing
are not new,9 it was not until the early 1970’s that business executives began to use the term
“outsourcing” to describe this reliance on external suppliers and the increasing decision to “buy” instead
of “make” the goods and services used in their operations.10 However, it was not until the late 1980’s
and early 1990’s that this idea was widely implemented primarily in terms of manufacturing jobs. Over
9
Davis-Blake and Broschak, 2009: 322.
Corbett, 2004: xiii
10
3
time, and given recent advances in information technologies (IT), white-collar and other “high-skilled”
jobs have increasingly been, and are increasingly liable to be, outsourced.11
Nevertheless, despite its origins in the business context, as a practice outsourcing is not limited
to the actions of businesses; the reality is that any number of non-business actors– particularly the
state, individuals, and families – also engage in essentially the same type of activity by transferring tasks
once performed “in-house” to suppliers located in the market. Thus, outsourcing can be generally
defined as the transfer of activities conventionally performed by a certain type of entity (e.g. a business;
the government; individuals or families) to an external business (or businesses) in exchange for money.
Though there are a number of other important clarifications to consider in this definition and in
determining exactly which transfers of activities are or are not instances of outsourcing,12 the general
point to note is that outsourcing is not limited to the sphere of business activity.
But what exactly is outsourcing? That is, what exactly is involved when it is said that an entity,
be it a business or otherwise, has transferred some or all of its activities to an external supplier? It
would seem that on the most basic level outsourcing is a form of organizational disembedding. The
concept of disembedding is drawn from Anthony Giddens who defines it as “the `lifting out’ of social
relations from local contexts of interaction and their restructuring across indefinite spans of timespace”.13 For Giddens disembedding is a major facet of (late) modernity and is meant to highlight how
under modern conditions activities are increasingly organized on a large, and in some cases a truly
transplanetary, scale. As conceived of in this manner, disembedding is a largely geographical process
and closely tied to another of Giddens’ ideas - that of time-space distanciation. Giddens defines
distanciation as “the conditions under which time and space are organised so as to connect presence
and absence” and “the complex relations between local involvements (circumstances of co-presence)
11
Bardhan and Kroll 2003.
See Lair (2007) and Ritzer and Lair (forthcoming) for a more extensive discussion of these issues.
13 Giddens, 1990: 21.
12
4
and interaction across distance (the connection between presence and absence) that are now
characteristic of the modern world” (emphasis in original).14 While this geographical element of
disembedding is certainly important, when it comes to the issue of outsourcing it can be seen that a
more fundamental form of disembedding is involved, one that occurs at the level of organization.
Indeed, what outsourcing entails is the “lifting out” of social activities from their existing organizational
environment (e.g. from a business, the government, a family) and their restructuring across one or many
other sources located in the market. Hasle gives a good characterization of this in his discussion of how
outsourcing is changing the notion of the division of labor: “Traditionally, the division of labour has been
an internal workplace manner. With the extended use of outsourcing and other supply chain
arrangements, the division of labour is increasingly taking place between independent companies”
(emphasis added). Though limited to the business context, this discussion highlights what is the
fundamental feature of outsourcing: how outsourcing takes the activities of an entity (e.g. the internal
division of labor in the quotation above), disembeds them from their organizational environment, and
then restructures them across others (i.e. how the division of labor is increasingly taking place between
different companies). It is in this regard that outsourcing can ultimately be seen as a process of
organizational disembedding. As such, this is a process which can occur on any geographical scale, be it
local (e.g. as when janitorial functions are outsourced within one specific geographical location) or
global (as when call center jobs are outsourced from the U.S. to overseas locations). It is in this
organizational sense that the term disembedding is used here.
As will be seen below, this ability to disembed activities from one organizational environment is
in fact the principal freedoms that outsourcing offers, the freedom from which all of the others
discussed stem. However, it should also be noted that there is a flipside to the process of disembedding
that is also of great significant to outsourcing; that of reembedding. This conception is again drawn from
14
Giddens, 1990: 64.
5
Giddens who defines it as “the reappropriation or recasting of disembedded social relations so as to pin
them down (however partially or transitorily) to local conditions of time and place”.15 Like with
disembedding, Giddens emphasizes the geographical dimension of remebedding by noting how
disembedded activities must be reinserted into local contexts of time and place. As with disembedding,
the term reembedding is used here in an organizational sense in that it is meant to highlight how
outsourcing fundamentally involves the repositioning of disembedded activities into the organizational
environments of outside entities located in the market independent of how much geographical distance
is involved (again, this process of reembedding can occur on any geographical scale).
Though the ability to lift activities out of one organizational environment and to reinsert them
into another may sound like a relatively straightforward process, something quite significant is entailed
within it. Taken together, the ability to disembed activities from one organizational environment and to
remebed them in another offers entities possibilities of action and non-action that would not exist in the
absence of outsourcing. These possibilities are the freedoms that outsourcing makes possible.
However, it is also the case that mixed within these freedoms are both opportunities and risks for those
who outsource their affairs and those who take them on. This insight is drawn from an exploration of
disembedding in the realm of biography and how this offers individuals new freedoms of action that are
precarious in nature – that is, they are mixtures of both opportunities and risk. 16 This connection
between biographical disembedding and the engendering of precarious freedoms was first identified by
Ulrich Beck and his individualization thesis. In short, Beck’s theory is that when biography is
disembedded (i.e. freed from) from traditional social structures (be these of feudalism or first
modernity) new opportunities for living a life of one’s own arise. However, such opportunities are risky
in the sense that, freed from the old certainties of tradition and structure, life is now uncertain exactly
to the extent that it is an open project (e.g. how following one’s own individualized life course, as
15
16
Giddens, 1990: 79-80
Beck and Beck-Gernsheim, 2002.
6
opposed to the traditional path, could result either in success or equally in failure). Though the specific
opportunities and risks involved in individualization and outsourcing are quite different, the basic
dynamic involved in both is the same: disembedding offers entities new forms of freedom but such
freedoms contain within in them elements of risk and danger.
But what exactly are the freedoms that outsourcing affords, and in what ways are they
precarious? These issues are addressed in the following sections.
The Freedoms of Outsourcing
Though the issue of outsourcing is undoubtedly important for a number of reasons, perhaps
what is most significant about this phenomenon is the constellation of freedoms (i.e. possibilities of
action and non-action) that it makes possible. In other words, outsourcing allows entities to do things
that would not be possible in the absence of this practice. As was noted above, the principal freedom
outsourcing offers, the freedom from which all the others stem, is how outsourcing allows an entity to
disembed activities from within its organizational confines. In other words, outsourcing allows entities
to remove various activities from their organizational boundaries by transferring them and their
performance to sources located in the market. This ability to disembed activities by outsourcing them
can be seen as a type of freedom in the sense that it allows an entity to free itself of certain tasks that,
for whatever reason, it does not wish to, or cannot, perform itself.17 Indeed, one of the primary benefits
of outsourcing is that it allows entities to divest themselves of these types of activities. In this regard
disembedding offers a negative form of freedom in that it allows entities to not do certain things. For
example, the existence of firms willing to manufacture goods for others has allowed companies to not
17
This highlights a central point: it is only because there are others who can and will take on these activities that this libratory
aspect of outsourcing is possible. If it were the case that these outside others were not willing or able to take on these tasks
this freedom of divestment would not be possible.
7
engage in production; the existence of firms willing to take on non-war fighting military activities (e.g.
base construction and maintenance) has allowed the military to free itself of these tasks; while the
existence of companies willing to take over the “dirty work” of running a home (e.g. cleaning kitchens
and bathrooms) has freed individuals and families from having to perform these tasks. From this it can
be seen that outsourcing offers a form of liberation by divestment: by disembedding certain activities
from its organizational environments and transferring them to others an entity is freed of performing
them.
Though this freedom to not engage in particular activities is negative in nature, there is a
positive side to this process as well: by transferring certain activities to others in the market, resources
(e.g. time, energy, and, in some cases at least, money) that would normally be involved in performing
these activities are freed up which can, in turn, be devoted to the performance of other, perhaps more
important or desired, functions. In other words, outsourcing not only gives entities a greater freedom
to not perform certain functions, the resources this frees up gives it greater freedom to focus on other
activities. In business theory this is talked about in terms of how the outsourcing of “peripheral”
activities can liberate resources that can then be concentrated on an entity’s “core” elements.18 An
example of this can be seen in how branding – the attempt to associate a product or product line with a
meaning that is independent of the physical properties of what is actually being sold (e.g. how Apple has
tried to frame its computers as being hip and cool as opposed to the square and stodgy PC) - is changing
what it is actually ‘produced’ by many companies. In the recent past there has been a realization that
what sells goods are not actual physical products but instead the meanings associated with their brand
(e.g. the appeal of Apple computers being found more in the meaning attached to them as opposed to
their technological capabilities). Given the values of brands and the fact that:
18
Hamel and Prahalad, 1990.
8
building a superbrand is an extraordinarily costly project, needing constant managing, tending
and replenishing… [economic logics dictates that] corporations should not expend their finite
resources on factories that will demand physical upkeep, on machines that will corrode or on
employees who will certainly age and die. Instead, they should concentrate those resources in
the virtual brick and mortar used to build their brands; that is, on sponsorships, packaging,
expansion and advertising.19
Many companies have in fact followed this logic by concentrating their efforts on building their brand as
opposed to actually making the things that they sell. They have done this in large part by transferring
their manufacturing activities over to others.
Ever since [it was realized that brands, and not products, sell], a select group of corporations has
been attempting to free itself from the corporeal world of commodities, manufacturing and
products to exist on another plane. Anyone can manufacture a product, they reason ... Such
menial tasks, therefore, can and should be farmed out to contractors and subcontractors whose
only concern is filling the order on time and under budget... Headquarters, meanwhile, is free to
focus on the real business at hand - creating a corporate mythology powerful enough to infuse
meaning into these raw products just by signing its name (emphasis added).20
By liberating themselves from the “peripheral” act of manufacturing these companies have been freed
to concentrate on the “core” activity of brand building.
One of the most famous examples of a company outsourcing their manufacturing activities in
order to concentrate on what they see as their core elements is Nike. Though Nike is well known as one
19
20
Klein, 2002: 196.
Klein, 2002: 21.
9
of, if not the, leading shoe and athletic apparel manufacturer in the world, it does not actually produce
any of the goods and merchandise that it sells. In fact, it would be quite difficult for Nike to actually
manufacture these goods since it does not own or operate any factories where this production could
take place. This absence of manufacturing capacities is the result of Nike’s decision to outsource
virtually all of its production to a network just fewer than 700 factories located in 52 different countries
that contract with it to produce its shoes and other goods.21 Though cost is one of the main elements of
why Nike outsources its production22 (an issue discussed in more detail below), the other is because this
frees Nike’s employees to concentrate on its core competencies that “revolve around its understanding
of athletes’ footwear needs (attained through research and development), the design competencies to
meet those needs, the marketing skills to deliver the message (including endorsement and advertising
skills), and the logistics systems to get the shoes delivered”.23 Thus, outsourcing allows Nike to
specialize in the creation and marketing of shoes designs by leaving to others the actual production of
these goods. As such, the company can claim that “[w]e grow by investing our money in design,
development, marketing and sales and then contract with other companies to manufacture our
products”.24
This relationship between the ability to divest certain activities in order to invest in others is one
of the principal motives for why Nike and many other companies outsource their activities. However,
this motive is not confined to the business sector only: both governments and individuals and families
also outsource some of their activities in order to concentrate their efforts on others. For example, the
military has begun to outsource more of its operations, and while there are many motivations behind
this, one of the main drivers of this trend is the desire to reduce the amount of ‘peripheral’ activities
that military personnel are engaged in. This is being done so that they can, in turn, concentrate on what
21
Nike, 2005-6: 25
Locke, 2002: 4
23 Greaver 1999: 95
24 Nike, cited in Locke, 2002: 4.
22
10
is ostensibly their primary core competency: war-fighting. Thus, the 2004 U.S. Budget noted that the
Department of Defense “continues to pursue ways to return military members to the war-fighting ranks
by increasing the ‘tooth-to-tail’ ratio through conversion of support staff to combat troops…25 [As such,
the] Department is attempting to open up for competition many of the commercial services it now
performs itself, such as health care activities to free up thousands of military positions for warfighting”.26 This theme has been consistently echoed in subsequent budgets. For example, the 2008
U.S. Budget announced that, to date, the DOD has “[c]onverted over 26,000 military positions to civilian
positions to relieve strain on the military force and ensure all military personnel are performing ‘military
essential’ activities”.27
Individuals and families are also using outsourcing as a means to concentrate on the activities
that are most important to them by relieving themselves of tasks they do not have the time, energy, or
desire to perform on their own. For example, Sandholtz et al. talk about a group of people they call
“outsourcers” who “strive to get control of their overstuffed lives” by “farming out certain tasks and
obligations (usually in their nonwork lives), then focusing more attention on the activities, relationships,
and causes they care most about.”28 Similarly, in her work on the “outsourcing of domesticity” journalist
Maggie Jackson29 profiles a woman who began to outsource many of her and her family’s affairs when
she realized that she could not both run the business she started and do all of her housework. As a
result, she hired a cleaning service, a personal organizer, two errand services, part-time personal
assistants (though they help both with her business and with family errands), a lawn care service, and a
personal chef. The result of all of this outsourcing is that “she’s pleased that she can take the kids to a
25
Though not all of these conversions will be to the private sector, and thus be instances of outsourcing (e.g. some tasks will be
transferred to other government agencies), many will fall under this category.
26 U.S. Government Printing Office, 2003: 85 – emphasis added.
27 U.S. Government Printing Office,2007: 43.
28 Sandholtz et al., 2002: 58.
29 Jackson, 2002.
11
museum or a friend’s house on weekends, rather than doing the housework or nagging her sons to do
chores.”30
On a different level, the ability to disembed activities from one context also allows a number of
freedoms in terms of where these activities are moved to. In other words, outsourcing offers freedoms
not just in terms of disembedding but also in terms of reembedding. In particular, this possibility of replacing where activities are performed allows entities to be liberated from the confines of their internal
capabilities and resources in the sense that they can transfer their activities to sources that have
different, and in most cases better, capacities than what they have themselves. All entities engage in
numerous activities at any given time and it is very unlikely that they will be highly proficient in all of
them. However, it is also likely that there are others who by virtue of their specific skill set (e.g.
specialized knowledge and training) can perform these tasks in a highly effective and proficient manner.
By outsourcing activities that one is not proficient in to others who are, one is able to gain access to
capabilities that one does not internally possess. For example, although payroll is necessary for any
company, unless a firm is in the payroll business this is not likely not one of its core competencies (and
thus would not perform it as efficiently and effectively as an entity that specializes in it). Also, since most
people do not buy one product over another because of the payroll systems used by a company, if this
task were outsourced to a company that specializes in this activity they could presumably perform it in a
quantitatively and/or qualitatively better manner than if it were kept in-house. In business this is
normally talked about in terms of how outsourcing allows one to have access to “best-in-class”
capabilities – i.e. those who are the leaders in terms of performing a specific activity.31 However, this
same dynamic is evident in other spheres of life as well. For example, since the government increasingly
lacks internal capabilities in certain areas, particularly in the realm of technology, it has been forced to
30
31
Jackson, 2002: 67-8.
Quinn and Hilmer, 1995.
12
outsource these tasks simply because of its lack of internal resources.32 Similarly, though perhaps a
more mundane example, while most people can sufficiently cook a meal in order to feed themselves, by
outsourcing their food preparations to restaurants they gain access to persons with specialized skills in
this area and who may be able to provide qualitatively better outcomes in terms of the food that ends
up on one’s plate than if one cooked for oneself.
The same situation applies to the resources that one has at one’s disposal. Though an entity
may be as capable as others at performing a specific task, they may have a deficit of a specific resource
(e.g. time or man-power) that can be overcome by outsourcing. For example, though a busy
professional couple may be capable of cleaning their own home, and might do so in a very proficient
manner, it could be the case that because of their schedule they do not have the time or energy to
perform this task. However, if they outsourced this task to others they would be able to overcome this
internal limitation.
More generally we can see that outsourcing’s ability to move locations from one context to
another offers an entity the ability to free itself of the circumstances of a particular location. The most
prominent example of this can be seen in one of, if not the, main motivations for outsourcing, especially
in the business context33: the desire to take advantage of labor cost differentials. Labor costs are not
the same in all locations, nor are they the same in all organizational environments. By allowing entities
to disembed their activities from one location and to reinsert them in another, outsourcing allows
entities to take advantage of these differences in labor costs by shifting their activities to locations
where these costs, and others, are lower relative to their current location. Thus, one of the reasons why
so much manufacturing work has been outsourced to companies located offshore is because the
average hourly compensation for manufacturing workers in many other countries is a mere fraction of
32
The National Commission on the Public Service, 2003; Soloway and Chvotkin, 2009: 210-213.
Surveys of businesses and business executives have consistently found that cost reductions are the primary motivation for
outsourcing their activities (e.g. The Outsourcing Institute, 2005; Ventoro, 2005: 14; Gartner cited in Krishnamurthy et al., 2009:
43; EquaTerra, 2009). However, it is also true that many other surveys have found that these expected benefits have not come
to pass (e.g. Ventoro, 2005; see also Kalff, 2006: 67 for an overview of these).
33
13
what it is in the U.S.34 This can be seen in Table 1 which shows the average hourly compensation (in U.S.
dollars) for production workers in select countries.
Labor Cost Differentials for Manufacturing Workers in Select Countries (2007) 35
Country
United States
Argentina
Brazil
Canada
Mexico
Israel
Japan
Republic of Korea
New Zealand
Philippines
Singapore
Taiwan
Czech Republic
Denmark
Hungary
Ireland
Poland
Portugal
Slovakia
Spain
United Kingdom
Hourly compensation in U.S.
$30.56
dollars
$7.98
$7.13
$31.91
$3.91
$15.92
$23.95
$18.36
$19.19
$1.37
$15.43
$8.15
$9.67
$47.54
$10.49
$35.62
$7.69
$10.29
$8.49
$24.55
$36.66
Percent of U.S. labor cost
100%
26%
23%
104%
13%
52%
78%
60%
63%
4%
50%
27%
32%
156%
34%
117%
25%
34%
28%
80%
120%
But it is not just in terms of blue-collar work that these differences in labor costs can be found;
they can also be seen in white collar occupations where labor costs can be as little as one-tenth the cost
34
It is also true that cost differentials can also be found within the U.S. Thus, car manufactures may outsource
their operations from the higher-cost regions of the Northeast and Midwest to the lower-cost regions of the South.
However, these differences are often not as great as when foreign sources of labor are used. That thee desire to
reduce cost is perennially the primary reason why businesses outsource their activities, it should not be surprising
that many entities are looking to move their activities to environments where labor and other types of cost are
lower (Brown and Wilson, 2005: 47).
35
Tables 1 and 2, U.S. Department of Labor, Bureau of Labor Statistics, March 2009
(http://www.bls.gov/news.release/ichcc.toc.htm).
14
in low-wage nations such as India as in higher-wage nations such as the U.S.36 In the case of computer
programmers, while in the U.S. the average salary is $63,000, in Japan the comparable salary is $44,000,
in Indonesia this number is $12,200, in Russia it is $7,500, in the Philippines $6,500, in India $5,850, and
$4,750 in China.37 Similarly, the average salary in the U.S. of call center work, including benefits and
bonuses, is $46,000 per year compared to $6,000 in India and $7,300 in the Philippines.38 Salary
differentials even exist for high-skilled workers. For example, while the salary of semiconductor
engineers in the U.S. is $82,000, it is $60,000 in Japan, $30,000 in Taiwan, $15,000 in India, and $12,000
in China.39
Thus, in general it can be seen that outsourcing offers entities greater control over which
activities they do and do not engage in which, in turn, can free up resources that can be redirected
toward other activities; it can be used by entities to free themselves from internal limitations in terms of
capabilities and/or resources; and it can be used by entities to free themselves from the circumstances
of particular location. While these freedoms undoubtedly offer many benefits to those who outsource
their activities (e.g. the ability to capitalize upon lower labor costs, the ability to concentrate on one’s
core activities, the ability not to do things one does not wish to do, etc.) they are also precarious in the
sense that they contain certain risks and dangers, both for those who outsource their affairs and those
who take them on. Two such precarious aspects of outsourcing are highlighted below: the contracting
of responsibility and risk shifting.
Outsourcing and the Contracting of Responsibility
36
Baily and Farrell 2004: 1
Carmel, 2003: 6.
38 Weier, 2003.
39 National Academy of Engineering, 2008: 169.
37
15
As was seen above, outsourcing allows an entity to free itself of the performance of certain
activities that it does not wish to, or cannot, perform. But outsourcing allows entities to do something
else as well: to free themselves of various responsibilities that would normally be entailed if their
activities were performed in-house. In other words, outsourcing allows entities to contract (i.e. limit)
the responsibilities that they have. This can happen in a variety of ways.
One way in which this occurs is how outsourcing allows entities to claim that they are not
responsible for the actions of their contractors and/or the conditions under which their contractors
perform the outsourced activities. This claim is made despite the fact that these contractors work on
behalf of the entities doing the outsourcing and that the latter are often highly dependent on the former
for the performance of their activities (e.g. Nike is virtually completely dependent on its contractors for
the performance of its activities). The direct implication of this is that an entity is seemingly free of any
responsibility regarding their contractors and the actions they do and do not take, except perhaps for
those that violate the terms of the outsourcing arraignment (e.g. the cost of the goods/services being
outsourced).
In the business context Nike provides the classic example of how outsourcing is used to claim
that one is not responsible for the actions of its contractors: when charges came to light in the 1990’s
that many of Nike’s contractors were engaging in various human rights abuses such as not paying their
employees adequate wages, or at all; of using child labor; and/or of forcing their employees to work
extremely long hours (e.g. 60, 80, or 100 hours a week), Nike was quick to claim that these issues were
not their responsibility but instead that of their contractors. As a company manager in Jakarta put it,
“[t]hey are our subcontractors. It’s not within our scope to investigate [allegations of labor violations]”40
In fact, since Nike did not “know the first thing about manufacturing” given that they were merely
“marketers and designers” as Nike’s Vice President for Asia claimed at that time, how could they be
40
Locke, 2002: 11, originally cited by Rosenzweig 1991
16
responsible for what went on in the production facilities of others? In essence Nike was claiming that by
freeing themselves of their production functions they too were freed of any responsibility regarding
what their contractors did despite the fact that they were working on Nike’s behalf.
But Nike’s actions were not uncommon in this regard. Instead they mirrored the “traditional”
response of companies facing accusations of human rights abuses by contractors; i.e. to “argue that they
cannot realistically or financially be held responsible for the labor practices of their foreign suppliers”.41
Thus, it should not be surprising that when a Disney spokesperson was asked if Disney would be willing
to accede to a call of a living wage for workers employed by a Haitian company contracting with Disney,
he said "[t]he problem is, we don't own the factories; we are dealing with a licensee." Moreover, he
added that this type of “request should not come to us," but to the licensee since it was they, not
Disney, who directly employed these workers.42
Another example of this claim that outsourcing frees a company of responsibility regarding the
actions of its contractors can be seen in the case of the toy recalls that occurred in 2007. This recall was
prompted when it was discovered that a number of toys featuring characters from the Thomas the Tank
children’s show were coated in lead paint. Though the British company HIT Entertainment owned the
rights to these characters, the production of toys based on these characters was being outsourced to
the China-based RC2 Company. When the issue of lead paint began to surface HIT’s response to the
situation was simple: it was not their responsibility. As a reporter for the New York Times noted of this
company’s reaction:
Except for a small link on the Thomas Web site to RC2’s recall announcement, HIT has otherwise
acted as if it has nothing to do with the situation. Its executives haven’t even said that they
regret having been promoting toys with lead paint in them. They haven’t said anything publicly.
41
42
Spar 1998: 7
Mokhiber 1996.
17
When I suggested to the company’s public relations agency, Bender/Helper Impact, that this
might not be the smartest approach, the agency e-mailed me a two-sentence unsigned
statement. It said that HIT appreciated the concerns of its customers and was working with RC2
on the recall, but that the recall was “clearly RC2’s responsibility”.43
Of course, such claims could not be made if these actions took place within a company’s
organizational confines. As Babb notes, “[w]hereas bureaucratic firms [i.e. ones where activities are
performed in-house] can be publically criticized and sanctioned for unethical practices, to hold them
accountable for the practices of their suppliers, sub-suppliers, and so on down the food chain is much
more difficult.”44
The claim of non-responsibility regarding the actions of contractors can also be seen in cases of
governmental outsourcing. For example, this sentiment was expressed by an officer in the Air Force
when he claimed that in the midst of allegations that one of the Air Force’s contractors was engaged in
sex trafficking, that “the Air Force is concerned with whether the contract is carried out, not with the
behavior of individual employees”. Another example of this can be seen in an incident involving
charges of human trafficking by one of the most prominent firms engaged in government contracting:
Halliburton. This case centers around claims that Halliburton’s subcontractor, the Jordanian-based
Daoud and Partners, lured a number of Nepalese men into working for them by promising these men
jobs in hotel and restaurant kitchens in Amman Jordan. This was not to be the case and instead these
workers had their passports confiscated and were going to be taken into Iraq to work at a U.S. air base.
On the way to the base one of the vehicles containing the workers was stopped by insurgents and 12
43
44
Leonhardt, 2007.
Babb, 2005: 215.
18
men in the car were kidnapped and subsequently executed.45 When this occurred, both Halliburton and
the U.S. Army claimed they had no responsibility regarding this situation.
At the time [of this incident],Halliburton said it was not responsible for the recruitment or hiring
practices of its subcontractors, [while] the U.S. Army, which oversees the privatization contract,
said questions about alleged misconduct "by subcontractor firms should be addressed to those
firms, as these are not Army issues."46
Similarly, when allegations of prisoner abuse and torture in Abu Ghraib were first raised, Donald
Rumsfeld, then Sectary of Defense, wrote to a member of Congress that any disciplining of the
contractors involved in these charges was “the contractor’s responsibility”, not that of the United States
Government.47
A different manifestation of this can be seen in how the casualty statistics of the war efforts in
Iraq and Afghanistan commonly exclude figures on how many private contractors have been injured or
killed.48 On the one hand this is official recognition that, as private contractors, these persons stand in a
different category from that of military and other government personnel. On the other hand, the
government often recognizes the integral role these contractors play in the conduct of these wars. This
can be seen in how, beginning in 2006, the Department of Defense began to include contractors as part
of its “Total Force” of operations and noting the role contractors play in constituting “its warfighting
capability and capacity.”49 Whether the sacrifices made by contractors should be treated in an
equivalent manner to that of military personnel and other government officials is not a question to be
decided here. Nevertheless, that the sacrifices of contractors are not recorded in the same manner as
45
Mount, 2008.
Simpson, 2005.
47 Brinkley, 2004.
48 Debusmann, 2009.
49 Department of Defense, 2006: 75.
46
19
that of members of military highlights how the state does not claim the same types of responsibility for
the former as opposed to latter despite these two parties often performing functionally equivalent
activities. A reflection of this difference can be seen in how “there is little talk of the need to bury
contractors at Arlington National Cemetery or to insert them into the politically costly structures of
honor and recognition” normally reserved for military personnel.50 In other words, by treating these
contractors as entities outside of the State’s realm of responsibility their loss of life goes unrecorded and
unaccounted for in the official annals of sacrifice.
Another way in which outsourcing can be used to contract (i.e. limit) responsibility is by allowing
entities to disembed activities from their existing organizational confines and to reembed them in
environments where various forms of responsibility (e.g. legal, political, social) are different (and in
general lower) and/or non-existent. In the economic sphere this can be seen in the outsourcing of
activities to firms located in export process zones (EPZ’s).51 The International Labor Organization (ILO)52
defines EPZ’s as “industrial zones with special incentives set up to attract foreign investors, in which
imported materials undergo some degree of processing before being exported again.” Milberg and
Amengula offer a similar definition of EPZ’s, though, they also highlight how in these zones firms are
given “special concessions on taxes, tariffs and regulations.”53 Indeed, a central reason for why these
zones are so attractive to businesses is because of the concessions that are made to them in terms of
such things as taxes, tariffs, and, in particular, environmental and labor regulations (e.g. exemptions
from minimum wage laws54 and more “flexible” hiring and firing practices55). In fact, “low or missing
social standards and environmental safeguards as well as the basic disregard of basic labor rights are
50
Taussig-Rubbo, 2009: 111.
Tonkiss, 2006: 20.
52 ILO, 1998: 3.
53 Milberg and Amengula, 2008: 1.
54 Klein, 2002.
55 Perman et al., 2004: 7.
51
20
used as a completive advantage in order to attract (mostly foreign) investors” (emphasis added). 56
Thus, Milberg and Amengula note how one of the “less transparent” features of EPZ’s that is used to
attract business is their “relaxed regulatory environment, including with respect to the enforcement of
labour rights and standards (notably the right to unionize), foreign ownership regulations and on the
leasing or purchasing of land”57. This is similar to the findings of the International Confederation of Free
Trade Unions (ICFTU) which concluded that “labour standards are lower and employment rights weaker
in EPZs” because of exemptions from labor law regulations, the non-enforcement of labor laws, and the
fact that unions are often denied entry into EPZ’s.58 And while it is true that “[s]ome export processing
zones are well-managed industrial zones where responsible firms offer good working conditions and
higher wages than elsewhere in the economy”59, and that “the limited availability of detailed data”
makes “an all embracing” picture of the working conditions at EPZ’s difficult, the general picture of
EPZ’s seems to be one where “unacceptable working conditions” and a general disregard of national
laws (e.g. in terms of labor and environmental standards) are present.60
Klein provides a good overview of EPZ’s and the working conditions found in them:
[r]egardless of where the EPZs are located, the workers' stories [of them] have a certain
mesmerizing sameness: the workday is long - fourteen hours in Sri Lanka, twelve hours in
Indonesia, sixteen in Southern China, twelve in the Philippines. The vast majority of the workers
are women, always young, always working for contractors or subcontractors from Korea, Taiwan
or Hong Kong. The contractors are usually filling orders for companies based in the U.S., Britain,
Japan, Germany or Canada. The management is military-style, the supervisors often abusive, the
wages below subsistence and the work low-skill and tedious. As an economic model, today's
56
Zink, 2009: 19.
Milberg and Amengula, 2008: 1.
58 Perman et al., 2004: 7.
59 Perman et al., 2004: 7.
60 Zink, 2009: 19.
57
21
export processing zones have more in common with fast-food franchises than sustainable
developments, so removed are they from the countries that host them. These pockets of pure
industry hide behind a cloak of transience: the contracts come and go with little notice; the
workers are predominantly migrants, far from home and with little connection to the city or
province where zones are located; the work itself-is short-term, often not renewed.61
Other examples of degraded working conditions in EPZ’s include excessive working hours (e.g. 15 hour
days in peak times), overtime that is forced and/or not fully compensated for, weak or unenforced
health and safety regulations (e.g. companies allowing workers few, if any, bathroom breaks while
working, or companies locking their employees in the building for fear of theft, gender discrimination by
paying women less than men and terminating them for becoming pregnant, and restrictions on, and
repression of, unions).62 These conditions are the direct result of these places being free of many rules
and regulations that companies would otherwise be responsible for if they were not located in such an
environment.63
Though not an exact parallel, a similar situation of moving outsourced activities to places where
various forms of responsibility are less, if not non-existent, can be seen in cases of private contractors
performing military functions. This is because until recently when these activities were moved from the
context of the military with its relatively clear lines of responsibility and accountability and into the
hands of private contractors, they entered what was more or less a vacuum of responsibility as most of
61
Klein, 2002: 205.
Perman et al, 2004: 9-13.
63 It is worth noting that while it was initially thought that EPZ’s could be used as a gateway to economic development by luring
companies to a specific location with a number of economic incentives (e.g. a tax holiday for a certain number of years), what
has allowed EPZ’s to be as popular as they are today is also what has made this development more illusory than real: with the
ability to disembed their activities from their organizational confines and to remebed them in other places, companies are free
to move their operations from that place once these incentives expire and/or any of the other conditions that made the EPZ
initially attractive (e.g. the fact that it was free of unions) change and into another. Thus, “[b]y its very nature, EPZ investment
is precarious, and likely to leave the country at a moment’s notice if more favorable conditions for production, including lower
wage[s], are on offer elsewhere.”
62
22
the traditional means of ensuring accountability in the military are absent in cases of private
contracting. As Minow describes this,
[m]ilitary training, unit discipline, the Uniform Code of Military Justice, and international legal
standards governing war and armed conflicts ensure accountability for the military, but not for
private corporations and their employees engaged in military work. Serious questions have
been raised about whether Congress can use its oversight of the military on private contractors.
And difficult issues about what sources of law even applies to private contractors have rendered
ambiguous the relevant enforcement mechanisms, potentially jeopardizing the success of
military missions as well as domestic, military, and international norms”64
As a result of this there have been numerous cases where contractors, despite appearing to
engage highly illegal, if not appalling, acts, were not held accountable for their actions because of the
void of responsibility regarding their actions at the time. Two examples of this surfaced in 2000 when
separate allegations were put forward charging that workers from DynCorp Inc. were engaged in
prostitution and/or sexual trafficking. One case involved contractors at Camp Comanche in Bosnia, the
other forced prostitution in the Balkans. In terms of the former, despite one person admitting to
‘purchasing’ a prostitute (purportedly to free her from her situation) and an Uzi machine gun in an
apparent ‘package deal’, he, nor anyone else who was found to have engaged in wrongdoing (7 men in
total) faced any criminal charges as a result.65 In part this was because at this time U.S. law did not
apply to contractors working in a foreign country for “common crimes” while it was also unclear if
64
65
Minow, 2009: 118.
Capps, 2002a; 2002b.
23
Bosnian law applied to the contractors.66 As a result of this there was a de facto form of impunity for
these men: despite what they did they seemingly could not be held responsible for it in any official
context with the exception of losing their jobs.
In the latter case the situation was much the same, though in some senses clearer; since these
contractors, while being employed by DynCorp, were working under the auspices of United Nations as
part the International Police Task Force they could not be held accountable to Bosnian law as mandated
by the agreement between the U.N. and Bosnia-Herzegovina. Also, since the "[t]he U.S. government has
absolutely no criminal jurisdiction to prosecute civilian police officers who serve with U.N. missions
abroad," this means that contractors were subject neither to the laws of their home or host country.67
As a result, they too faced a virtual form of impunity as any recognizable mechanism of responsibility
was absent. In response to these situations the Military Extraterritorial Jurisdiction Act [MEJA] of 2000
was passed. In theory this act would make those American contractors working for the Department of
Defense accountable to U.S. law for their actions.68 Nevertheless, despite the passage of MEJA
questions of responsibility still linger.69
A more general example of this situation can be seen in the case of contractors operating in Iraq
after the passage of “Order 17” by Paul Bremer, the then head of the Coalition Provisional Authority. By
declaring that “[c]ontractors shall be immune from Iraqi legal process with respect to acts performed by
them pursuant to the terms and conditions of a Contract or any sub-contract thereto”, this order freed
contractors from any legal responsibility for their actions vis-à-vis Iraqi law. At the same time, since
many of the contracts were given out through the Department of State, as opposed to the Department
of Defense, there remain questions as to whether MEJA applies to these situations despite the fact that
66
Apparently it was, however, because Bosnian officials did not think this was the case and that they did not have the authority
to arrest and prosecute contractors they did not pursue the matter (Capps, 2002b).
67 This quotation comes from Martina Vandenberg, a women's rights researcher for Human Rights Watch (cited in Capps,
2002b).
68 McCarron, 2008: 39.
69 Minow, 2009: 119.
24
in 2005 MEJA was expanded to include persons contracted by “any other Federal agency, or any
provisional authority, to the extent such employment relates to supporting the mission of the
Department of Defense overseas”. Thus, while five former employees of Blackwater have been charged
with manslaughter in connection with the shooting deaths of 17 Iraqi civilians in 2007 under MEJA, they
are claiming that because Blackwater’s contract was issued from the Department of State the MEJA
statute is not applicable to them and therefore they cannot be charged with any crime.70 Overall
situation is one where while “[c]ontractors are not longer immune from Iraqi law, as they were in the
first years of the war,… avenues of legal redress remain winding.”71
Another way in which outsourcing can lead to the contracting of responsibility is through the
failure to monitoring one’s contractors. In fact, it is arguable that the one distinct form of responsibly
that outsourcing relationships produce is that of overseeing the activities of one’s contractors (if, for
nothing else, out of self interest). This point is stressed in many works on outsourcing in the business
context. For example, Kakebadse and Kakebadse warn that while “[o]rganizations may outsource
infrastructure and services [they] should not allow themselves to outsource responsibility and
accountability. If vigilance is not maintained, a strategy of driving costs down for an increased level of
service may backfire as the supplier may not be able, or may not wish, to give the required level of
attention to the host.”72 This is similar to Buffington who cautions that “the client company doing the
outsourcing requires more, not less, responsibility over the third party” and that while outsourcing may
lead to situations where the client has less “control responsibility” over the performance of the activity,
this does not mean they are free of “leadership responsibility”; if anything, this latter form of
responsibility is greater!73 However, since many businesses and government agencies are engaged in
70
McCarron, 2008: 39.
The Economist, 2009.
72 Kakebadse and Kakebadse, 2006: 57.
73 Buffington, 2007: 27.
71
25
situations where the monitoring of contractors is weak and/or nonexistent, 74 when outsourcing occurs
this form of responsibility is largely, if not completely, absent. As a result of this opens the door to
abuses by contractors, be it in terms of the activities they are supposed to perform (e.g. they do not
provide what they are supposed to), or in terms of their actions vis-à-vis labor. This can again be seen
in numerous cases.
One example of this can be seen in the toy recalls that occurred in 2007. Though the policy of
toy makers such as Mattel was that lead-based paint not be used on their toys because of the wellknown health concerns,75 insufficient monitoring of the toy company’s contractors and the contractors’
subcontractors played a crucial role in allowing toys coated with this type of paint to reach store
shelves. As one commentator put it at the time, in general “[a]s many more companies outsource their
production base to China, their poor oversight there is exposing American consumers to greater safety
risks…”.76 In response to this situation Mattel in particular pledged to increase the amount of
monitoring and testing it undertakes to ensure that something like this is not repeated,77 a move that
echoed the recommendations of those in the industry.78 But one particularly ironic aspect of this
situation is that Mattel, unlike many other toy companies, keeps a significant portion (about 65%) of its
manufacturing in-house, while the rest that is outsourced was to “be kept in tightly controlled [i.e.
closely monitored] factories”.79 That this situation could happen to a company like Mattel with
relatively high standards of monitoring its contractors speaks to the potential abuses resulting from
unmonitored outsourcing relationships.
More generally, in response to revelations in the 1990s that their contractors were engaged in
sweatshop practices many transnational corporations (e.g. Nike, Gap, Phillips-Van Heusen, Adidas, and
74
In the business sector, see O’Rouke 2003 and Wells, 2007; in the governmental sector see Warner, 2003: 36-7.
Barboza and Story, 2007.
76 Kavilanz, 2007.
77 Eckert, cited in Lyles 2008: 465.
78 For example, Sean McGowan, an analyst with Wedbush Morgan Securities, said that “[a]fter this latest episode, I think the
toy industry will have to implement a level of oversight that’s never been seen before” (cited in Kavilanz, 2007).
79 Barboza and Story, 2007.
75
26
Liz Claiborne) agreed to develop standards of corporate social responsibility (CSR) mostly pertaining to
labor and environmental issues. In essence, these companies agree to have the factories they outsource
their production to be monitored and audited to ensure that these standards are being upheld. But
notwithstanding the “evidence of improved code compliance among some first-tier suppliers, especially
in respect to child labour, forced labour and health and safety…there is considerable evidence that code
compliance remains weak and monitoring largely ineffective.”80 This is because at best only a fraction of
suppliers are monitored81; production is often and easily shifted from one factory to another thereby
making monitoring difficult82; many outsourcing arrangements involve layers of subcontractors so that
only a fraction of the supply chain is being looked at (and potentially obscuring the areas where the
worst abuses occur)83; monitoring is largely confined to very visible brand name retailers who make up
only a small section of their industries84; and there is no real “teeth” to these standards as they are
voluntary agreements that are largely unenforceable. In short, though some progress has been made as
name brand companies increasingly recognize they share at least some responsibility for the conditions
under which their contractors operate and have established standards which their contractors must
meet, given the myriad of weaknesses in the mechanisms involved in monitoring and enforcing the
compliance of these standards has left contractors free to decide if and/or how they will follow these
standards.
Similar situations can be seen in the area of government outsourcing. For example, despite a
“general policy of not contracting for intelligence functions and services” at Abu Ghraib some
interrogations of prisoners was performed by private contractors.85 And though it was realized that if
such sensitive functions were to be outsourced there was a need for the Army to “maintain close
80
Wells, 2007: 65; see also Vogel, 2008: 274.
For example, in 2008 the Fair Labor Association, one of the leading non-profit multi-stakeholder non-governmental
organizations, auditied only 120 of the 4, 532 factories in its association. (Fair Labor Association, 2009: 7).
82 O’Rourke, 2003.
83 O’Rourke, 2003.
84 Bernstein, 2005.
85 Jones, 2004: 49.
81
27
control” over the operation, this was not the case.86 Thus, “[p]roper oversight did not occur at Abu
Ghraib due to a lack of training and inadequate contract management and monitoring. Failure to assign
an adequate number of [contracting office representatives]to the area of contract performance puts the
Army at risk of being unable to control poor performance or become aware of possible misconduct by
contractor personnel. This lack of monitoring was a contributing factor to the problems that were
experienced with the performance of the contractors at Abu Ghraib” (emphasis added).87
One response to this situation has been to contract out the monitoring of contractor
performance (i.e. the outsourcing of the monitoring of outsourcing) both in the operations of DOD88 and
the Federal government89 more generally. One can wonder if this a legitimate means of gaining control
over this problem or something more akin to putting out a fire by pouring gasoline on it.
As can be seen from the above, outsourcing allows entities to contract or limit their
responsibilities in a number of ways. As will be seen below, a somewhat similar situation can be found
in terms of risk.
Risk Shifts
Another possibility that outsourcing affords entities is the ability to free themselves of certain
forms of risk.90 This occurs not so much through the elimination of these risks as their transfer,
intentional or not, to others. Two distinct patterns of this tend can be seen as a result of outsourcing:
risks being moved to suppliers and to workers. These shifts in risk can occur in a number of different
ways for each of these two groups.
86
Jones, 2004: 50.
Jones, 2004: 52.
88 Government Accountability Office, 2006 (GAO-06-838R): 9.
89 Shane and Nixon, 2007.
90 This, of course, does not mean that there are not risks involved in outsourcing itself, nor that not outsourcing is a risk free
activity. The point here is to simply note how outsourcing changes existing patterns of risk.
87
28
In terms of suppliers, an interesting example can be seen in terms of ownership. To own
something is to make a commitment to it since it entails many costs, requirements, and responsibilities
(e.g. the costs of land, the need to upkeep equipment, etc.). Today’s economic environment is,
however, one characterized by high levels of dynamism and change, and one where“[b]eing stuck with
outdated plants, obsolete equipment, and antiquated business systems and processes is a prescription
for failure”.91 Thus, given the commitments that ownership entails and the dynamism of the economic
system the result is a situation where ownership itself is an increasingly risky activity. That is, it is a
gamble to make a significant commitment to something that could be rendered obsolete as a result of
technological and economic developments. An example of this risk of ownership can be seen in the case
of General Motors and how it was slow to shift from drum to disc brakes; GM was slow to make this
move in large part because it had developed and owned the capacity to produce the former. However,
given that there was a preference in the marketplace for the latter companies that outsourced their
brake production and thus had no significant stake in which style they used (e.g. they did not own
specific technologies nor physical facilities for break production) made this switch quickly with the
consequence that they were able to get cars with disc breaks to market faster than GM and were
rewarded with higher sales as a result.92
This example not only highlights the risks involved in ownership in today’s dynamic economic
environment, it also shows how outsourcing allows entities to free themselves of this risk. This is
because outsourcing allows entities to have their activities performed but without the risks involved in
owning the means required to have these activities performed (e.g. the factories, buildings, equipment,
etc. needed for this). Instead, both the ownership and the potential risks involved in it can be pushed
onto one’s suppliers as they, and not the company doing the outsourcing, must take on this risk and the
responsibilities ownership entails. A recent example from the automobile industry highlights this
91
92
Rifkin, 2000: 46.
Chesbrough and Teece 1996: 67
29
situation well. Though outsourcing to some degree is ubiquitous in the auto industry, Porsche is
distinctive in that outsources the complete production of two of its car models – the Cayman and the
Boxster – to Valmet, a Finnish company. This is so much so that in 2006 Valmet produced approximately
30,000 cars for Porsche, or about one-third of its entire output.93 But with sagging sales as a result of
the current economic downturn Porsche is pulling its Boxster production back in-house from Valmet so
that it can keep its own plant running at capacity and thereby evade “the industry’s hoary problem of
covering the fixed costs of factories and labor”.94 The result is a situation where “Valmet, rather than
Porsche, is bearing much of the burden of the global auto industry’s distress”,95 since it, and not
Porsche, is seeing its production orders being lost and its factories operating at less than full-capacity.
Of course, if Porsche had owned both of these facilities it would have to bear the costs of an underutilized facility itself. However, since it had expanded its production capabilities through outsourcing as
opposed to doing so with internal resources it was Valmet, and not Procshe, that experienced the brunt
of this economic downturn.96
Another way in which this risk shifting occurs is when entities utilize outsourcing to have risky or
dangerous activities conducted by others as opposed to utilizing their own internal resources for this.
That is, instead of performing risky activities themselves, entities can have others perform them and let
their suppliers face any potential risks involved in this. A vivid example of this comes from the
outsourcing of military affairs. Though potentially negative situations and/or mistakes are always
possible in military engagements, the government can shield itself from the risks of these incidents and
can claim non-involvement in such situations if it outsources these activities to others outside its
93
Dougherty, 2009.
Dougherty, 2009.
95 Dougherty, 2009.
96
Supporters of outsourcing in the business context realized this potential benefit of outsourcing early on. For example, in an
article published in 1994 Quinn and Hilmer note how outsourcing can allow an entity to “lower its long term capital
investments” and “also force many types of risks and unwanted management problems onto suppliers” (Quinn and Hilmer,
1994: 52). They then go on to list examples of companies (e.g. Apple, Nike, Gallo, and Argyle Diamonds) that have outsourced
aspects of their production process in order to push the risks and responsibilities of owning the means of production onto their
suppliers (e.g. how Gallo outsources grape production to suppliers so that they, and not Gallo, would have to bear the costs of
any problems associated with the grape crop) (ibid.).
94
30
organizational orbit, despite the fact that these private military contractors are working on the behalf of
the U.S. government. Pelton looks at this situation through the prism of fault:
It is clear that beyond convenience and cost savings, relying on private contractors also makes it
possible to outsource fault. Abuses are not unusual in the in the military or private sector, but
the consequences are quite different. Where trigger-happy soldiers may spark an international
incident and shame a nation, a contractor would simply be fired and his employer criticized. In
cases where employees or contracting companies are found to have been involved in
questionable activities, they simply lose their contract.97
In this regard, outsourcing offers the government a “firewall” against the risks of “unfortunate”
incidents since the blame for them can be directed at the contractor, not the state.
But outsourcing has allowed for a number of risks to be shifted in the direction of employees as
well. The processes by which this occurs center largely around how the ability to disembed work from
one organizational environment and to reembed it in another acts to undermine many of the securities
of labor that characterized, in Bauman’s terms, “heavier” forms of capitalism - i.e. ones where goods,
materials, information, facilities, and indeed organizations did not flow through time and space as easily
as they do now.98 In situations of heavy capitalism both labor and capital were relatively immobile
which fostered situations of mutual dependence and engagement. And while such forms of
engagement were not without strife and conflict, they nevertheless did foster an on-going relationship
with one another, one where mutual concessions were made.99 However, as capitalism has become
“lighter” as a result of outsourcing and other processes, capital is increasingly free to move and can
97
Pelton, 2007: 108.
Bauman, 2000.
99 Bauman, 2000.
98
31
rapidly shift its operations to new geographical and organizational environments while labor remains
relatively immobile both geographically and organizationally. This asymmetry in mobility in turn
undermines labor’s power and security in number of ways.
First and foremost this comes about through the process of outsourcing itself: outsourcing
creates new possibilities of job loss for workers simply because it opens the performance of activities to
sources outside of a particular organizational environment, and with these sources comes new
opportunities to move the actual performance of activities which, if acted upon, would entail job losses
for workers. Thus, in this sense outsourcing poses a new risk to employment as one could lose one’s job
to outsourcing, a risk that was not as prevelent when work was heavier and could not easily move
organizationally or geographically. Though there are no exact numbers on the jobs that have been lost
as a result of outsourcing, and while most of these estimates focus on how many American jobs have
been “lost” as a result of offshore-outsourcing, the individual-level consequences that come with job
loss 100 are largely the same whether one loses one’s job to a domestic or international source.
One effect of this, and thus one of the ways in which labor is left in a more vulnerable position
as a result of outsourcing, is how if workers make demands that capital finds excessive it can seek to
relocate its operations to places where such demands are not being expressed. In other words, when
capital was not as free to move as it is today, this immobility provided a sheltering force for workers
who could engage it and make demands upon it. Now, as a result of outsourcing capital can move its
operations if and when it feels the demands of workers are too high. A classic example of this can again
be seen with Nike:
In 1989 more than half of Nike's sneakers were made in South Korea, which was then ruled by
an authoritarian government. As South Korea became a democracy and workers gained wage
100
Uchitelle, 2006.
32
increases and union rights, Nike shifted production to Indonesia and China. Barely 2% of Nike's
sneakers are now made in South Korea. In 1996, when Indonesia was ruled by the Suharto and
the only legal union was run by the government, 38% of Nike's sneakers were Indonesian-made.
Since then Suharto has fallen, Indonesia has taken its first faltering steps toward democracy and
workers have been able to form their own unions. In the process Indonesia's share of Nike's
sport shoe production has fallen to 30% and may fall further.... The decision by Nike and other
companies to reduce their investment in Indonesia has put pressure on the Indonesian
government to weaken the legal protection of workers' union rights in order to prevent further
capital flight. Business interests have run a concerted campaign seeking to persuade the
Indonesian government to curtail workers' right to strike in order to prevent the departure of
more foreign investors. 101
However, even if entities do not actually outsource jobs the simple threat of this can act to
undermine the power and security that workers have. For example, with the entry of India and China
into the world market, countries that were once low-cost destinations for companies looking to offshore
and/or outsource their manufacturing activities have now become higher-cost destinations with the
result that:
[w]ith the new supply of low-wage labor [from India and China], firms that traditionally
produced manufacturing goods in these [now higher-cost] countries can move or threaten to
move facilities to lower-wage settings if workers in existing facilities do not grant concessions in
wages or work conditions favorable to the firm. In 2004, for example, some employers in
Central America told workers that they had to work extra hours without any increase in earnings
101
Connor 2003.
33
to keep business from moving to China. With wages in Central America three to four times that
those in China, the threat was a valid one.
102
In this case companies were able to extract unpaid work from workers simply by threatening to
outsource their operations. In other cases, the threat of moving was used to undermine unionization
drives and contract negotiations.103 Both cases highlight how the threat of capital moving its operations
leaves workers in a more vulnerable position and can be seen as examples of what Epstein refers to as
the “threat effects” associated with the increased capital mobility. In short, with outsourcing and relatd
processes capital can use the threat of its movement to undermine workers and to curtail any demands
they have.
A related phenomenon is how outsourcing is leading to an increased sense of economic
insecurity in workers, or the psychological perception of possible economic misfortune.104 This sense of
insecurity has been increasing for some time,105 and though there are many things that can induce this
state of mind (e.g. a global economic downturn), outsourcing plays a significant role in this process. For
example, a recent report from the Federal Bank of Saint Louis finds that workers in occupations and
industries susceptible to outsourcing were approximately 30 percent more likely to believe that they
would suffer a costly job loss (i.e. that they were fairly or very likely to lose their job in the next year and
that it would be difficult to find another job with similar pay and benefits) than those in industries where
outsourcing is less of a threat.106 This reflects a more general negative perception of outsourcing in
terms of how it affects work. For example, 75 percent of those polled in the 2006 congressional
elections felt that “outsourcing work overseas hurts American workers”.107 Not surprisingly, given the
102
Freeman, 2007: 30.
Bronfenbrenner, 2000.
104 Hacker, 2006: 20.
105 Hacker, 2006: 19.
106 Anderson and Gascon, 2007.
107 Anderson and Gascon, 2007: 1.
103
34
prevalence of outsourcing in the US economy and this country’s relative lack of social protection
mechanisms (e.g. universal health care), perceptions of income insecurity are particularly high in the
United States,108 and as more and more jobs become vulnerable to outsourcing, it is likely that this
perception will continue to increase.
But perceptions of income insecurity are not only significant in terms of the psychological states
it induces, but also because past research has found that perceptions of economic insecurity undermine
workers’ bargaining powers. In situations where workers feel insecure in terms of their employment
status demanding more from employers is seen as too risky an endeavor since it could lead to job
loss.109 Thus, the insecurity that outsourcing fuels acts to dampen the demands that workers place upon
capital thereby leaving them in a more economically vulnerable position.
Another way in which outsourcing is undermining the security of labor and therefore making it a
more precarious endeavor is by freeing companies to move their jobs to environments that have less
economic securities built into them. In many ways this is the flipside to how entities are moving the
performance of their activities to environments where various forms of responsibility are lower as many
of the responsibilities that employers are trying to free themselves of are actually the bases of security
for workers (e.g. union representation). Thus, when work is moved to environments where these
securities are diminished, if not altogether absent, workers are left in a much more insecure, and thus
riskier, situation.
Export Processing Zones represent the pinnacle of this development as these are places were
few, if any, labor securities exist. So too with the Nike example cited above; as worker security
increased in one environment production was moved to where this was lower. But these are not the
only examples of this occurring. Quinlan and Mayhew, for example, cite numerous cases where workers
in outsourcing relationships face higher levels of occupational health and safety risks than workers who
108
109
Milberg and Winkler, 2009.
Aaronson and Sullivan, 1998.
35
work within a company’s organizational boundaries. For example, they cite a study by Salminen et al.
that finds that the risk of serious and fatal work-based injuries was one and a half times higher for
contractors as opposed to regular workers.110 Quinlan and Mayhew argue that this increase in risk is the
result of three factors: first, the competitive pressures of contracts that can encourage subcontractors
to pursue savings by underbidding on contracts, using cheaper or ill-maintained equipment, cutting
staffing and qualification levels, rushing production or working long hours, and to evade safety and
other legal requirements; second, how the nature of outsourcing leads to a more fractured and complex
work processes as well as a potentially diluted chain of responsibility in addition to organizational
disorganization (e.g. communication problems); and lastly how the regulations and compliance
programs that conventionally focused on permanent employees in larger workplaces have largely failed
to address contractors. In these cases it is the nature of outsourcing relationships that is acting to
expose the employees of contractors to higher levels of risk.
Conclusion
This paper has argued that outsourcing is a form of organizational disembedding that entails
lifting the performance of activities out of one organizational environment and their reembedding in
another. This, in turn, offers entities a set of freedoms – i.e. possibilities of action and non-action - that
would not be possible in the absence of this practice. Though, I have attempted to chart what exactly
these freedoms are, I have also tried to indicate that entailed in them are both opportunities and risks.
That is, though outsourcing unquestionably has many benefits for those who engage in it, it is also the
case that precarious consequences that can result from this process and that these cannot, and indeed
should not, be overlooked. In particular I highlighted how the freedoms that outsourcing affords also
110
Salminen et al (1993:352).
36
allow entities to contract (limit) their responsibilities and to shift certain risks onto others, specifically
suppliers and workers. In terms of the labor process, this means that workers increasingly find
themselves in situations that are free of many of the securities they once could take for granted as
employers can both free themselves of certain responsibilities they have regarding employees while also
putting them in a riskier, and thus more insecure, position.
Though it is perhaps not easy to be critical of something held so dearly as the idea of freedom,
perhaps it is time to ask at what price do the freedoms that outsourcing affords come, and are they
worth it?
37
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