Understanding Emerging Global Labor Market, Research Paper Example

Abstract

The main topics discussed in this paper are those referring to the trade relations between countries worldwide. The main emphasis is put on the description of trade issues and their current enrollment and affect in the fields of off shoring and outsourcing, WTO and trade politics, trade deficit and technology related trade. The paper does not provide specified measures to be taken to eliminate the issues. The main aim is to make the reader knowledgeable of the problem, while at the same time provide the information on how it can be solved or what inputs particular countries and governments are currently suggesting in regard to this or that issue.

Introduction

The structure of the contemporary business world can be compared to the human’s blood system. On the one hand, just like the blood system which provides the blood flow to organs, it is a massive organism which ensures the money supply from and into countries worldwide. On the other hand, however, just like with arteries and veins, if one of the supply channels is clogged or pressured by either external or internal factors, the whole system experiences the consequences.

What is meant by the above comparison is that the significance and stability of the business world today cannot be underestimated, especially taking into account the pressures of the world financial crisis. But, with and without crisis, there were and will be other factors, influencing the business transactions between countries. What we are going to look at in this paper are current trade issues that are of the North American and worldwide concern – off shoring, outsourcing, trade deficit, trade politics etc. The importance of finding mutually beneficial solutions to such issue is vital in the current situation, because of the highly dependable relations among the countries on the global scope. Just as with the financial crisis, starting in one country, it overtook the majority of the nations in a two-month period, bringing businesses’ bankruptcies and employee lay-offs.

The understanding of the current trade issues gives an opportunity to observe the main tendencies in the business world as well as to analyze the domestic and national steps that are being taken in regard to various trade agreements, restrictions, concerns and laws.

To begin with, let us take a look at the business trade tendencies which, being problematic to most countries, still have their advantages on the scale of the world economy if appropriately handled – off shoring and outsourcing.

Nowadays the term “off shoring” has taken a slightly different meaning compared to the one it had about 3-4 years ago. Previously, by off shoring people usually meant running various domestic business operations in countries abroad. Today, however, a small but significant remark is added to this definition. According to Carmel, Erran & Tjia, Paul (2005), the term “off shoring” is now being understood by its business users to mean the shifting of tasks to low-cost nations, rather than to any destination outside the country. In other words, it is a growing practice among countries with developed economies of employing people in emerging markets, where labor costs are low, to carry out service functions previously done at home (Farell, Diana, 2006). One of the main reasons of why off shoring has become a commonly acknowledged trade issue in North America nowadays is the on-going dispute among businesses of whether its benefits outweigh the problems it causes. On a large scale, off shoring presents an opportunity for multinational companies to create more value at low cost, resulting in the boost of productivity for the global economy (Farell, Diana, 2006). On the other hand, however, there is a growing fear that off shoring may drain the jobs out of the economy of domestic countries. According to Woolam, Cami (2008), recent statistics show that:

• 3.3 million jobs were sent overseas between 1995 and 2002, at an average annual rate of 220,000 jobs a year. This is a small number relative to the 153.1 million workers in the U.S. labor force in 2007. In Canada the situation is similar, with approximately 17 percent of all jobs affected by off shoring, and 8 percent at risk of being sent overseas.

But still, it is important to mention, that the jobs that are at the highest risk of being off shored are those falling into low-skill, low-wage labor category, earning annually around $40,000 and less. Again, according to Woolam, Cami (2008), that 60 percent of U.S. manufacturing jobs earn less than $40,000 helps to explain why manufacturing sector is particularly vulnerable to off shoring. The recent legislative measures taken on the account of off shoring are changes to the federal tax-code proposed by President Obama. The aim is to disallow IT vendors that run operations overseas deductions for offshore expenses, including payroll (Ribeiro, John, 2009). What is intended by the proposal is an assumption that it will be more expensive to operate offshore, encouraging vendors’ incentives to create jobs in the United States.

Another trade issue, which should be discussed alongside with off shoring, is outsourcing. According to McIvor, Ronan (2005), outsourcing involves sourcing the goods and services, previously produced internally within the sourcing organization, from external suppliers. In other words, it can basically mean the transfer of a chosen business function to a supplier. Thought outsourcing helps to cut the organization’s operating expenses, to increase efficiency, to lower prices for consumers and to increase investment (Burkholder, N. C., 2006), there are still a number of considerations to be involved. McIvor (2005) suggests analyzing importance of the activity to competitive advantage, capability of suppliers to provide the activity, level of risk in the supply market, potential workforce resistance and impact upon employee morale. It is evident that with the level of world’s globalization today, it is almost impossible not to outsource.  However, businesses in North America still point out that to say outsourcing is ubiquitous and inevitable is not the same as saying it is desirable and virtuous (Burkholder, N. C., 2006). Companies are concerned with the public perception of outsourcing activities, whereas nation-wide concern, just like with off shoring, is about the devastation of lives of huge number of workers. Taking all the above mentioned in consideration, specialists still agree that outsourcing benefits far extend the disadvantages. In this situation is it crucial for people to answer a simple question: “Would you prefer foreign workers coming to the country, working and spending their earnings here or domestic firms doing the work abroad using foreign workers and earning profit for company’s shareholders?” (Yoo, Cynthia, 2007).

As far as I can judge, trade deficit is one of the current trade issues nowadays, which is among the primary concerns not only in countries of the North America but all over the world as well. Trade deficit is experienced when there is a negative difference between country’s export and import monetary values. Fisher, K. L., Chou, J., Hoffmans, L. W. & Cramer, J. J. (2006) even call it bleeding money, as more money is spent on imports than is garnered from exports. The current world financial crisis has different affects on the trade deficit numbers in North America. For example, in the article “Trade Deficit Falls for Seventh Straight Month” (2009) it is noted that:

• the Commerce Department said that the American trade deficit dropped a sharp 28.3 percent to $25.97 billion, the smallest gap since November 1999. It marked the seventh consecutive month the trade deficit has declined as the severe U.S. recession has cut sharply into demand for imported products.

On the other hand, in Canada, the crisis made the trade deficit in the automotive sphere even worse. According to “Canada Incurs Record $14 Billion Automotive Trade Deficit in 2008” (2009):

• Canada’s automotive trade deficit more than doubled, to almost $14 billion – an all-time record. The 2007 deficit was $6.6 billion. Canada’s exports of finished vehicles declined dramatically (by almost one quarter) as a result of the financial crisis and resulting collapse of U.S. auto sales. Imports of auto parts (which are used in Canadian auto factories) also declined.

On the whole, the effects of trade deficit are to be determined. On the one hand, trade deficit shows the level of country’s competitiveness in the market, demonstrating whether the country’s domestic products are developed to such a level that they can be exported to other countries or the country’s overall production capacity is not developed enough (due, for example, to the lack of natural resources or international investment) so that certain products have to be imported from abroad. On the other hand, the decline in the trade deficit can be a good incentive for the country to boost domestic production in order to decrease the level of dependence from other countries (Fisher, K. L., Chou, J., Hoffmans, L. W. & Cramer, J. J., 2006).

When talking about North American trade politics, the most important item to mention is NAFTA – North American Free Trade Agreement.

In June 1990, Mexican President Carlos Salinas de Gortari and US President George H. W. Bush announced a daring initiative: the creation of a free trade area between the United States and Mexico. One year later Canada joined the project (Hufbauer, G. C., Schott, J. J., Grieco, P. L. E. & Wong, Y., 2005).

The perspectives for all each of the three countries were different. USA was interested in capitalizing on a growing export market to the south, repairing relations with Mexico as well as deepening of democratic processes in Mexico regarding migration pressures. Mexico desperately needed rapid economic growth to provide new opportunities for youth, whereas Canada’s main aim was to extract new commercial concessions from the United States (Hufbauer, G. C., Schott, J. J., Grieco, P. L. E. & Wong, Y., 2005). Since that time, NAFTA has come up with numerous agreements and acts in various fields of cooperation from agriculture and environment to legislation and law-enforcement. Nowadays, NAFTA still plays an important role in the relations between the three countries, ensuring negotiation and mutual support. With the new American President being elected, Barack Obama stressed in his campaign the issue of strengthening the pact’s labor and environmental provisions. However, the top U.S. trade officials say it isn’t necessary to renegotiate the North American Free Trade Agreement (Trade Officials Say no Need to Redo Nafta, 2009).

Talking about NAFTA, I cannot but mention another major organization, which has a much greater influence of the world trade today. It is WTO – World Trade Organization. Being founded in 1995, WTO can be marked as a turning point in the development of the international economic relations. Following a long period of lesser significances and effectiveness of the international trade system, WTO can be also considered today the most relevant regulatory body in global economic relation (Stoll, P. T., Schorkopf, F. & Steinmann, A., 2006).  As its fundamental principle WTO sees the support of the world trade market with adequate rules, regulations and restrictions, which allow the WTO members to conduct fair and mutually beneficial trade. When thinking of the current trade issues in regard to WTO, apart from the world financial crisis, one particular is worth mentioning – genetically modified organisms (GMOs). According to “Genetically Modified Organisms”:

GMOs are created by transferring genetic material from one organism to another. Although the transfer of genetic material has long occurred through selective breeding and other techniques, new technologies permit more controlled transfers, and transfers of genes from completely unrelated species. Though citizens and governments in different countries all want to ensure that these GMOs do not pose a threat to human health or the environment, they still do not agree on the best way to protect against these potential threats.

And it is here that the current trade issue arises. Countries all over the world have different regulations regarding the testing and approval procedures necessary to place GMOs and their products on the market. As a result they disagree about labelling and identification requirements. The consequence of such disputes is banned imports and sales of GMOs and their products altogether. On the other hand, however, in some countries a large part of the production of some crops,\ is from genetically modified seeds, and is mixed with non-modified varieties during storage, transport and processing. These countries argue it would be unnecessary and very costly to keep GMOs separate, and consider that labelling requirements or import bans are unnecessary trade barriers (Genetically Modified Organisms, 2009). Members of the WTO realize the importance of the current issue and are in the process of coming up with acts and suggestions, which will both correspond to the domestic market and enable favorable exports to other countries.

Finally, another current issue, associated with the trade world, which I find worth mentioning in this paper is from the field of technology. Nowadays traditional approaches to analyzing competition and developing policies are almost inadequate to cope with a new issue for international competition in which technology is a driving and increasingly global factor. As Moore, G. E & Harris, M. C. (1992) point out:

Today governments of advanced industrial nations are competing to attract high-technology industries, trying to create comparative advantage, in an era in which the economic dimensions of national strength appear more salient than a decade ago. The old policy frameworks appear inadequate to deal with this new reality. Hence the need to reexamine old assumptions, to search for new approaches

What is intended by the above statement is that countries all over the world should be equally exposed to the ability to share and gain technological advances. The main aim is to avoid oligopolistic intentions from a group of developed countries to dominate the world of high-technology and help underdeveloped countries to get an access to the last technological tendencies. As one of the possible solutions to the problem, World Wide Web Consortium jointly with Ministry of Science and Technology of the Government of Mozambique, UNDP, the Web Foundation, Nokia, Bharti Telesoft, Opera Software, UNESCO, Microsoft Research, and MIT Legatum Center for Development and Entrepreneurship (Boyera, S. & Sadowsky, G., 2009) organized a workshop concerning the issue of how numerous services available on mobile phones could help people in underserved regions. What the participants came up with is the conclusion that concerted effort is needed among all the stakeholders (including practitioners, academics, regulators, governments, and the mobile industry) to build a shared view of the future of the mobile platform as a tool to bridge the digital divide (Boyera, S. & Sadowsky, G., 2009).

Summary

Referring back to the analogy of the human blood system as in introduction, one can not but agree that the overall stability and functioning of the business world today relies mostly on the proper maintenance of all of its parts. World trade is a subject that is constantly in need of close supervision and affective as well as constructive reconstruction and advancement.

In regard to such concerns as off shoring and outsourcing one can point out one major assumption. As long as the world globalization process stays tuned, there is no way that the businesses will escape the above-mentioned practices. Seeing the potential profits and benefits, companies will be searching for new ways to lower production and maintenance costs. However, with the accomplishment of those objectives, it is vital for the businesses to put domestic employees’ concerns among the top priorities. The incentive here is that any business, established in particular country, should not only benefit the owner and shareholders, but the country all well. By paying taxes and providing domestic work places, businesses are adding up to the country’s economic development in a way of increasing budget and keeping unemployment rates low.

Well-incorporated trade politics nowadays can be regarded as a firm foundation for the partnership relations development among countries. For that reason, basically, such structures as NAFTA and WTO were established. Understanding the importance of open trade markets and creation of favorable conditions for conducting business transactions plays a vital role in developing ethical principles of business decisions, promoting business cooperation as well as ensuring mutual co-existence with other fields of human activity.

References

Boyera, S. & Sadowsky, G. (2009). Workshop Executive Summary April 1-2 2009, Maputo, Mozambique. Retrieved June 8, 2009 from http://www.w3.org/2008/10/MW4D _ WS/exec_summary.html.

Burkholder, N. C. (2006). Outsourcing: the Definitive View, Applications and Implications. John Wiley and Sons.

Canada Incurs Record $14 Billion Automotive Trade Deficit in 2008. (2009, February 16). Retrieved June 7, 2009 from http://www.caw.ca/en/5507.htm

Carmel, Erran & Tjia, Paul. (2005). Offshoring Information Technology: Sourcing and Outsourcing to a Global Workforce.

Farell, Diana. (2006). Offshoring: Understanding Emerging Global Labor Market. Harvard Business Press.

Fisher, K. L., Chou, J., Hoffmans, L. W. & Cramer, J. J. (2006). The Only Three Questions that Count: Investing by Knowing what Others Don’t. John Wiley and Sons.

Genetically Modified Organisms. (2009). Retrieved June 8, 2009 from http://www.wto.org/e nglish/tratop_e/sps_e/sps_agreement_cbt_e/c8s1p1_e.htm.

Hocking, Brian & McGuire, Steven. (2004). Trade Politics. Routledge.

Hufbauer, G. C., Schott, J. J., Grieco, P. L. E. & Wong, Y. (2005). NAFTA Revisited: Achievements and Challenges. Peterson Institute.

McIvor, Ronan. (2005). The Outsourcing Process: Strategies for Evaluation and Management. Cambridge University Press.

Moore, G. E & Harris, M. C. (1992). Linking Trade and Technology Policies. USA: National Academy of Engineering.

Ribeiro, John. (2009). Experts: Tax Changes Won’t Curb Offshoring. Computerworld, Retrieved June 7, 2009, from Business Source Complete database.

Stoll, P. T., Schorkopf, F. & Steinmann, A. (2006). WTO: World Economic Order, World Trade Law. Martinus Nijhoff Publishers.

Trade Deficit Falls for Seventh Straight Month. (2009, April 9). Retrieved June 7, 2009 from http://www.cnbc.com/id/30134019

Trade Officials Say No Need to Redo Nafta (2009, April 11). Wall Street Journal. A26

Woolam, Cami. (2008). The Political Economy of Service Offshoring in North America. Retrieved on June 7, 2009 from http://www.wilsoncenter.org/index.cfm?topi c_ id = 1420&categoryid=D7F83D30-D026-F8317C3F92B67772ACFA&fuseaction=topics .events_item_topics&event_id=393680.

Yoo, Cynthia. (2007). Outsourcing North America? Retrieved June 7, 2009 from http://theth underbird.ca/2007/10/25/outsourcing-north-america/