Work relationships are always in constant evolution. Depending on the school of philosophical thought, the definition of the value of work, surplus value and worker-employer treatment has different meanings. From the total class struggle established by Marx to Kalecki's interpretation of the entrance of money into companies and the risk of capital investment.
In this quest to reduce costs and improve production, companies resort to various methods to achieve the desired objective. In this case, outsourcing is examined as a method to outsource the non-critical work of the company process. Depending on the country where the outsourcing is examined, it will have different practices and levels.
Outsourcing is defined as “The hiring or outsourcing of non-core elements to free up money, staff and time to focus resources on your own competitive advantage” (“What is outsourcing?”, S / f). Therefore, firms identify part of their process and find that this process could be executed more efficiently by another corporation than by themselves. Currently this critical process can even go to the mass production of the product itself, marketing or advertising.
Even with the recent popularization of the term, in this article we are not talking about a novel method. Outsourcing (outsourcing or outsourcing in the Latin context) has been around since the 19th century, as Pearlstein mentions (“Outsourcing: What's the true impact? Counting jobs is only part of the answer. - The Washington Post”, s / f) "The battle has been around since at least 1880 when New England's most productive textile plant moved its production to the Carolinas."
Outsourcing is an element feared by industrial workers in first-world nations, a method of response for companies to the need for flexibility, and a sign that the world is a globalized, connected place and that production will never be again. the same way in human history.
Notions of international trade
To fully understand the issue of subcontracting and because its effects have multiple consequences on the global economy, it is necessary to analyze the fundamentals of international trade. In an open economy where free trade agreements are established, the opportunities for production mobility are enormous.
During the 20th century, most countries had a policy focused on establishing tariffs on imported products in order to protect the internal market. However, treaties such as NAFTA (NAFTA - North American Free Trade Agreement) or the birth of the European Union establish conditions to create economic zones in which tariffs are reduced and even eliminated.
In a utopian world where the labor force could move freely without the existence of political barriers, people would move to places where the real wage was higher. Over time these wages would end up being standardized because there would be a perfect distribution of labor throughout the world. However, the existence of political borders and the lack of free movement generates a system where the real wage is higher in some countries than in others.
That is why there is the illegal migration of people. In the specific case of Mexico with the United States, Mexican migrants seek to offer their labor in the US economy because it has a higher value than it does in their native country. Although people cannot move freely, capital can do so, so US companies can place themselves in Mexico and take advantage of competitiveness through wages.
Do wages really reflect a country's competitiveness? Krugman (“International economy: Theory and politics - Economia_Internacional_Krugman_Obstfeld.pdf”, s / f) shows that the wages of a country are in relative function of the productivity of labor, showing that Mexico has a relatively higher productivity in comparison with your salary according to the ideal model applied.
What opportunities does this possibility of labor mobility generate in developed countries? Although productivity is one of the most desired characteristics in the workforce, it is true that for certain tasks it is not necessary to produce with high productivity because the activities are generic or the market demand does not require high production speeds.
In developed countries, there are high productivity rates, but also high wages, so companies that want to establish factories in the United States will have to pay higher wages than if they did it in a foreign country. Previously, tariffs had a great influence on imports. However, with the modern commercial opening, multiple companies have chosen to transfer their operations to other countries and subsequently import these products back to the American market.
With free trade agreements, it is less expensive to carry out production abroad. In developed countries this practice is terrible for the industrial working class, but it reduces costs and allows markets to expand globally. For underdeveloped countries this is an opportunity to receive foreign direct investment and industrial jobs.
There are multiple examples of this practice, but one of the most notable is the case of the company Apple Inc., whose address is in California, United States. The design of its products is done in the United States, but the entire assembly of the product is done abroad.
Why isn't Apple being one of the world's leading technology companies producing its gadgets in the United States? Multiple politicians like Barack Obama and even Donald Trump have mentioned in their campaigns that they would bring Apple's maquiladoras into the country. The response Steve Jobs, former Apple CEO, gave Obama was "Those jobs are not coming back" (Forum, s / f). Even with the effort of the political class in developed countries, politics is rarely in tune with the laws of the economy.
According to Chen (Forum, s / f) Apple did not install its factories in the United States because the minimum salary for a Chinese worker in 2010 was $ 2 USD. While that of an American worker was $ 34.75 USD. Apple hires a company called Foxconn to manufacture its products in China.If Apple brought its factories to the United States, it should pay $ 25 trillion in production costs, destroying its profit of only $ 14 trillion.
Therefore, consumer demand for cheap products and investor demand for having high profit rates are the main factors that prevent Apple from placing its factories in the United States. However, why doesn't Apple design and manage your company in China? This is because while production can be delegated to another company, creativity and business leadership skills cannot be substituted.
According to Chen (Forum, s / f), industrial jobs were replaced by the service sector whose surplus value is greater than that of the industrial sector. Therefore, the goal of the United States is to become a country dedicated to the service sector. At the beginning of the 20th century, 60% of consumer agricultural products were produced in the United States, in 2010 it was only 12%. The goal of outsourcing internationally is to focus on the most productive sector of the economy which is design and creativity.
The logic of outsourcing
With the introduction of the new millennium, companies increasingly require greater flexibility in their operations to stay current and competitive. This flexibility can be applied to production methods, to the origin of the inputs and even to the organization of the company itself. However, the greatest and least inflexible barrier is that of hired human capital.
Human capital is one of the most important elements of the company, even with the most automated production methods, it is still necessary for there to be people who carry out production, manage it, carry out specific design processes and provide the necessary creativity to the innovation. A company without human capital is a lifeless body.
The problem with human capital is that it does not behave in the legal structure as it should in the economic context. When a company is in a situation where its sales decrease, it can take actions such as reducing the purchase of inputs. This facility existing within this market does not exist in the same way in the organization of human capital.
A company cannot reduce its labor force as easily as its expenditure on inputs because people in modern times and thanks to labor laws are no longer considered a part of the inputs, but have rights and privileges within the Production system. In the specific case of Mexico, these rights and clauses within the Federal Labor Law protect the worker and establish production standards in Mexico.
Despite these laws, there are many positions within a company whose behavior is different. An example of this is the cleaning workers of a company. It is known that managing personnel is expensive and that each more individual within the company is a higher cost. Even with an efficient human resources department it is always preferable to reduce the number of operating personnel while preserving the same earnings.
In the case of this company, it has a particular objective which is to generate income based on its economic activities. However, cleaning activities are not one of the objectives because this activity can be generalized and executed by any collaborator. If the company hires cleaning staff, they increase its administration costs and it is one more item that the organization should worry about.
If these individuals dedicated to cleaning the company join the union and decide to suspend their work for their right to strike in order to improve their working conditions, the production of the company is being interrupted for an element that any collaborator could execute.
Companies find the solution by using outsourcing to avoid this kind of problem. By outsourcing hygiene services for the company to another company that is responsible for the administration of these personnel, the company can more easily pursue its objectives by reducing its personnel problems.
Therefore, outsourcing follows the logic of the “Make or buy” system. In this system, companies decide whether they should generate a product or should acquire it depending on the specialization and periodicity of their need in production. In the case of raw materials, this is defined if the product is constantly used and if the costs of producing it are less than that of acquiring it.
Subcontracting is not limited to the national territory, as explained in the previous section, multiple companies subcontract factories abroad to exclusively produce the good in question and then introduce it to the desired markets.
How does outsourcing in international conditions affect Mexico? As Mexico is a country dedicated to agriculture at the beginning of the 20th century, having a migration from the countryside to the city generated by late industrialization and a national growth based on oil and the maquiladoras, it is clear that many developed countries see Mexico as a destination. for your companies.
Brief history of work in Mexico
Within the history of Mexico; Which has been a country that at its foundation became independent from a European nation, labor relations between capital owners and peasants tended to practices that resembled conditions of slavery. These working models continue until times after the revolution.
With the introduction of late industrialization in the country, the agricultural labor force migrates to the cities in search of job opportunities without leaving behind its agrarian past. This new working class in Mexico lacks the historical past that characterizes world labor organizations which have been the backbone of political-economic systems in 19th century Europe.
The working class in Mexico forms unions and these allow it to balance the balance in worker-employer relations, however, with the creation of the so-called union charrismoThe twentieth century working class is a fragile system that does not exert real political and social pressure within the government or production systems.
As mentioned by Gómez (“Workers' Organizations in the Revolution on Podcast
MEXICO AND ITS HISTORIANS - iVoox ”, s / f)“ The workers mention in their slogans that if the wage settlement was not possible, they accepted the delivery of parcels as government compensation. These workers still had their agrarian past in mind and wanted to return to their original state. They were not industrial workers of several generations. "
Despite the fragile foundations of the labor movement, union gains are gradually escalating rights for their workers. Currently, each company with a certain number of collaborators has a union, especially public bodies, and this union annually modifies the conditions of employees, seeking their benefit based on inflation, market behavior and the growth of the company.
Federal labor law in Mexico and Outsourcing
As mentioned above, outsourcing is not a new topic in business practices. However, in Mexico before 2012, there were no specific regulations in the Federal Labor Law and therefore many formal companies used the outsourcing system as a method to avoid paying social security to workers.
What is not outsourcing? Many companies in Mexico enter into false outsourcing contracts or subcontract companies that do not carry out the registration of their employees in the manner specified by federal law. For the employment relationship to be considered legal, it must comply with the following points:
Article 15-A (“Federal Labor Law - LeyFedTrabajo.pdf”, s / f) of the Federal Labor Law mentions that:
- It may not cover all the activities, the same or similar in their entirety, that are carried out in the workplace. It must be justified by its specialized nature. You will not be able to understand the same or similar tasks as those performed by the rest of the workers in the contractor's service.
The law, by defining subcontracting and the conditions under which it must be practiced within the country, protects already hired workers by preventing companies from changing the entire workforce. By having to justify the specialized nature, it defines that it will not be able to contract any type of services and that it will not be able to reduce its production costs as it cannot change part of the workforce for subcontracted workers.
Another important point in the 2012 reform is the following:
Before the 2012 reform, many companies hire staff within the Outsourcing system as a way to avoid paying social security. Because the subcontracting contract can be made with both companies and individuals, they avoid paying benefits. With the reform it is illegal to hire outsourcing companies that do not have proof of payment of benefits.
Therefore, at least within the Federal Labor Law, the worker is protected and companies are prevented from falling into bad practices such as non-payment of benefits. Even so, there are many cases within the country in which employees are hired without them being assured of payment of benefits.
Outsourcing within the country, which is carried out between Mexican companies, does not broadly affect gross domestic product. However, with the reform, an increase in the amount of formal employment in the country could be expected due to the new employment regulations.
Mexico, subcontracting and international trade
Does Mexico benefit from the current situation of international trade? This question is much more complex than it sounds and its answers lie beyond any short-term indicator. Although many companies internationally establish their factories in Mexico thanks to their level of competitiveness, the answer depends on what kind of country we long to be in the future.
In the first instance, many maquiladoras are established within the national territory because despite the low productivity of factories and labor, the salary is competitive compared to the rest of the world and especially with the United States. These maquiladoras, factories and workshops generate jobs and direct investment in the Mexican territory, but at the end of the day, where is the surplus value going?
In the case discussed earlier in the company Apple shows this point of view. Although the jobs generated in China would be well received by the American population, the truth is that the Apple company located in the United States is the one that obtains most of the profit. The company as such is not concerned with production processes and can engage in product design, marketing, and business leadership activities.
Chen gives the following reflection on the subject: (Forum, s / f)
We do not want the IPhone to be made in America. We are fortunate that China is struggling to work really hard to arm them for us. I would prefer that my children would design the IPhone instead of them. For our young generation, 400,000 workers in lines and rows arming phones is a scene that they could only accept in a scene from a Charles Dickens novel. The day America starts putting together the iPhone will be the day China designs these great products. That will be the day that our brightest and youngest people are migrating to China.
This reflection from the point of view of a US citizen reveals that his main concern is that his country ceases to be a place where creativity and design take place and is only dedicated to the manufacture of products. The economic hegemony of the world is currently disputed between the United States and China, in the long term China will become the largest economic power in the world. However, Chinese worker conditions have improved in recent decades to the extent that the Mexican salary is lower than the Chinese salary.
As Kynge mentions (“Mexico snatches the manufacturing crown from China - Grupo Milenio”, s / f) “An unskilled worker in a Mexican automobile plant can expect to earn an annual salary of $ 3,465 (53,486 pesos) in 2014, lower than the average of 5 thousand 726 dollars (88,388 pesos) a year in China ”. At this point, Mexican auto companies have a significant salary advantage.
Is this what we want in the long term? While most of a product's income ends up in the hands of the designers and managers of the good, the assembly does not keep much of the profit. Mexico currently tends to be a maquiladora country whose attraction, far from being technology, is cheap labor.
Mexico benefits from subcontracting conditions at an international level, which increases its gross domestic product and decreases its unemployment. However, the design of high-tech products and the management of Mexican companies is lacking and does not show any future development.
Conclusions: A more competitive economy
Within the national territory, subcontracting in a legal way allows companies to reduce their costs and concerns of non-vital work for the company. However, in defense of workers' rights it does not allow the flexibility desired by many organizations.
It is necessary to protect the worker from the perverse practices of some companies. Within the country, misapplied subcontracting is used in order to avoid paying benefits. Companies now have an obligation to make sure that the secondary company provides social security to its workers.
From theory to practice there are multiple variables, but what is established in the Federal Labor Law is a necessary foundation for these relationships to improve the company without affecting workers who work in the alternative system. It must be sought that these laws are complied with in order to preserve order and social peace.
At the international level, outsourcing of production in underdeveloped countries has caused an interesting change in the labor structure. Within those countries, the labor force has been concentrated in the tertiary sector and left out the secondary sector. These countries seek to obtain their development based on creativity and design instead of dedicating themselves to production.
The world changes radically decade by decade. Economic and technological revolutions force companies and countries to be in constant transformation. Competition leads to greater efficiency in invested capital. In all this, where is the dignity of the worker? What kind of life do we want to lead as a species?
The market, in which consumer preferences are demonstrated, shows that we want cheap products. But at what cost? With the development of hyper-competition, more and more functions are delegated to the working class without it having a greater number of benefits. Could it be that the laws of the economy in the capitalist system see the human being as another input?
Bibliography and sources
- International economy: Theory and politicsEconomia_Internacional_Krugman_Obstfeld.pdf. (s / f). Retrieved from http://webdelprofesor.ula.ve/economia/oscared/materias/E_E_Mundial/Economia_I nternacional_Krugman_Obstfeld.pdfForum, FL (s / f). The Real Reason the US Doesn't Make iPhones: We Wouldn't Want To. Retrieved on February 2, 2016, from http://www.forbes.com/sites/forbesleadershipforum/2012/01/25/the-real-reason-theu-s-doesnt-make-iphones-we-wouldnt -want-to / Federal Labor Law - leyFedTrabajo.pdf. (s / f). Recovered from https://www.personal.unam.mx/dgpe/docs/leyFedTrabajo.pdfMexico snatches the crown of manufacturing from China - Grupo Milenio. (s / f). Retrieved on February 3, 2016, from http://www.milenio.com/financial_times/ftmercados-Mexico-arrebata-coronamanufactura-China_0_505749643.htmlOrganizations workers in the Revolution in Podcast MEXICO AND ITS HISTORIATORS - iVoox. (s / f). Retrieved on February 1, 2016, from http://www.ivoox.com/organizaciones-obreras-revolucion-audiosmp3_rf_4457005_1.htmlOutsourcing: What's the true impact? Counting jobs is only part of the answer. - The Washington Post. (s / f). Retrieved on February 2, 2016, from https://www.washingtonpost.com/business/economy/outsourcings-net-effect-on-usjobs-still-an-open-ended-question/2012/07/01 /gJQAs1szGW_story.htmlWhat is outsourcing? definition and meaning. (s / f). Retrieved on February 2, 2016, from http://www.businessdictionary.com/definition/outsourcing.htmlcom / organizations-workers-revolution-audiosmp3_rf_4457005_1.htmlOutsourcing: What's the true impact? Counting jobs is only part of the answer. - The Washington Post. (s / f). Retrieved on February 2, 2016, from https://www.washingtonpost.com/business/economy/outsourcings-net-effect-on-usjobs-still-an-open-ended-question/2012/07/01 /gJQAs1szGW_story.htmlWhat is outsourcing? definition and meaning. (s / f). Retrieved on February 2, 2016, from http://www.businessdictionary.com/definition/outsourcing.htmlcom / organizations-workers-revolution-audiosmp3_rf_4457005_1.htmlOutsourcing: What's the true impact? Counting jobs is only part of the answer. - The Washington Post. (s / f). Retrieved on February 2, 2016, from https://www.washingtonpost.com/business/economy/outsourcings-net-effect-on-usjobs-still-an-open-ended-question/2012/07/01 /gJQAs1szGW_story.htmlWhat is outsourcing? definition and meaning. (s / f). Retrieved on February 2, 2016, from http://www.businessdictionary.com/definition/outsourcing.htmlcom / business / economy / outsourcings-net-effect-on-usjobs-still-an-open-ended-question / 2012/07/01 / gJQAs1szGW_story.htmlWhat is outsourcing? definition and meaning. (s / f). Retrieved on February 2, 2016, from http://www.businessdictionary.com/definition/outsourcing.htmlcom / business / economy / outsourcings-net-effect-on-usjobs-still-an-open-ended-question / 2012/07/01 / gJQAs1szGW_story.htmlWhat is outsourcing? definition and meaning. (s / f). Retrieved on February 2, 2016, from
In Mexico, union charrismo is the name given to the phenomenon of the alliance between union leaders, the government apparatus and the employers' apparatus to seek the benefit of the company instead of looking after the interests of the workers.
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