Offshoring from a Societal Viewpoint and Its Impact on Canada

Globalisation is a growing phenomenon that is the result of various developments in the global environment, each of which merits an individual analysis of its social impacts. For the purpose of this analysis, the focus will be placed upon arguably its most controversial aspect, offshore outsourcing. Offshore outsourcing, or offshoring, is becoming an increasingly common business practice as a result of a combination of the recent technological advancements in the areas of transportation and communication, and the increased competitiveness of the business world. From the perspective of firms, tapping into cheap labor from less developed countries is a very logical business decision to reduce costs and maximize profits. This has not only motivated businesses to engage in offshoring, it has sometimes been critical to their survival in fiercely competitive environments. Before making judgments regarding the righteousness of offshoring from different perspectives, its impact on stakeholders must first be evaluated.

Stakeholders and why it is an issue

The very existence of offshoring is in and of itself evidence that, at least in most cases, it is advantageous for firms to engage in offshoring. However, as is the case with most business activities, its externalities can affect various stakeholder groups in both positive and negative ways. In society’s view, stakeholders to consider are Canadian workers, Canadian consumers, competitors, shareholders and executives, citizens of other countries, and future generations.

A primary stakeholder, and perhaps the most vocal of all stakeholder groups, is the Canadian labor force. Offshoring affects Canadian workers in two major ways. First, when businesses decide to offshore certain functions, jo...

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...ther through income tax or GST, as they are all ultimate benefactors of socially optimal policy. Thus, the tax would be reinvested in benefiting Canadians.

A perfect government would restrict offshoring in a socially optimal way. However, the fact that the government’s clear-cut motive is to act in the best interest of its citizens is a questionable assumption. It is reasonable to think that their offshoring policy decisions could be slightly swayed by a motivation to remain in power. They may, for example, change their policies to be more restrictive of offshoring to alleviate pressure from workers who publicly announce their discontentment with the fact that their job was lost due to offshoring. To base policy decision solely on the basis of complaints and without properly founded economic reasoning is inherently flawed, and deviates from what is socially optimal.