Gain the Competitive Edge

	Gain the Competitive Edge...
	Outsourcing - A Historical View

January, 2006 Useful links: Wikipedia article on comparative advantage Some more examples of comparative advantage Fair Trade Federation		You might think of outsourcing and offshoring as recent phenomena but they're not. In the early 1800's Portugal produced cloth and wine more cheaply than did England. Fearful of losing these industries to Portugal, England began exploring the idea of trade protection in order to preserve the local industry. Around 1817, David Ricardo, a British economist, developed a concept referred to as the Principle of Comparative Advantage. This principle states that if Country A makes a product more cheaply than Country B, then Country B is better off trading something they efficiently make and should avoid making Country A's product themselves. When we apply this concept to current times, we call this process outsourcing. Ricardo's theory continues to say that even if one country is better at producing both products, as in the case of Portuguese cloth and wine, two countries can both benefit from trade. This idea is better explained with an example. Today the Principle of Comparative Advantage is beneficial when certain conditions are met. Transportation costs, for instance, must be a small part of the overall costs and information needs to flow quickly enough so that market forces are in play. The internet has certainly fulfilled the second condition and a nearshore, offshore facility can help with the first. All in all some interesting implications for modern outsourcing.








		Fair Trade

		Human factors are rarely considered in pure economic theories. In our world of exporting jobs to countries where labor is cheap, there are a number of moral issues. On the one hand, we worry about losing American jobs, about our neighbor being out of work...on the other, we are concerned with the exploitation of foreign workers. In my first-hand experience in Mexico, China and several Caribbean countries, I have talked with and questioned workers about their jobs and working conditions and in my experiences, all view their jobs as opportunity rather than exploitation. Wages will eventually rise in developing countries and standards of living, when measured against a US standard of living, will too increase. At that point in time, all global citizens will be worried about rising prices at Wal-Mart! "Fair Trade" is a concept that's emerged primarily in reference to standards in wages, opportunities and working conditions for farmers in developing countries. In my opinion, concepts promoted by Fair Trade groups should also apply to manufacturing. Paladin embraces the following: - Fair local wages - Equal opportunities - Environmental responsibility - Co-creation of long-term trade relationships - High standards for employee health and safety - Financial, technical and educational assistance to workers


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