Guns and Butter Blog

"Outsourcing" is a controversial topic in the United States. Some Americans think that outsourcing means loss of valuable jobs to foreigners. Others think that outsourcing improves the ability of American firms to compete globally and thus preserves high-end jobs for Americans.

The former seem to think that outsourcing merely determines the size of the profits. Yes to outsourcing and you get American unemployment but fat profits for capitalists. No to outsourcing and you get jobs for Americans and simply smaller profits for the fat cats.

The latter, on the other hand, consider outsourcing as a competitive tool without which the firms involved may become uncompetitive and fail in the end, meaning loss of many more jobs, including high-paying, high-tech ones that are stateside.

This, by the way, is not a problem that is unique to the United States alone. Of all places, South Korea is experiencing similar pressures, particularly from China. As this New York Times article points out, South Korea is now the largest shipbuilder in the world, replacing Japan, but China is catching up -- fast.

Only in 2004, when South Korea exported ships with a value of $15.09 billion, did it definitively wrest from Japan the status of the world's leading shipbuilding nation.

But the South Koreans are already looking over their shoulder at China, which has embarked on a path toward becoming the largest shipbuilder by 2015. Chinese competition, which has unnerved American manufacturers, is also putting much of Asia on edge as China rapidly narrows the technological gap with higher-wage Asian neighbors.

So what's the Korean response? Cry foul about "cheap Chinese labor"? Erect protectionist measures?

No. Apparently you build a Lexus:

"When you are being chased, you have to do something that the chaser cannot do," Han Dae Yoon, chief marketing officer of Hyundai's shipbuilding unit, said of China's ambitions...

"The South Koreans are always working to keep three, four, five steps ahead of the Chinese and Japanese," said Peter E. Bartholomew, managing director with Industrial Research and Consulting. Speaking by telephone from Seoul, the capital, where he has watched the nation's shipbuilding industry for 30 years, he added, "Now the South Koreans are moving more toward the Lexus end in order to have an edge over the Chinese."

And you outsource. That's right -- outsource:

With more than three years of work already booked, it is letting Chinese yards win contracts for low-end jobs like simple tankers and bulk carriers. Hyundai has three joint ventures in China, and it already farms out some of it slow-technology shipbuilding work to these companies.

In other words, you do what you can to out-compete. Develop better technologies (what are more expensively trained scientists and workers for?) and "farm out," i.e. outsource, work that can be done less expensively to others. Maybe even work with -- and co-opt -- your potential rival.

Koreans seem to understand this better because their national economy has been very trade-dependent. They know something about cutthroat global competition and what must be done to survive and prosper. They are by no means immune to protectionist tendencies, of course, particularly where domestic political influence is involved (for example, the Korean agricultural market is politically "sensitive" and thus heavily protected).

We Americans, too, are now living in this globally competitive age. The days of a lazy high school kid who spent all his time going out and listening to music, expecting and getting a high-paying factory job are over. We need to become a nation of people who train for and do "Lexus end" work. We can no longer cry foul because some hungry Third World kid who had less to eat, had no telephone service let alone Internet access, studies engineering and takes a data-entry job from us. As the Hyundai marketing officer put "When you are being chased, you have to do something that the chaser cannot do."

You adapt and you survive and even prosper. If you insist on doing the work the same way and expect to get paid the same amount you did in the past even though now others are capable of doing the same work for less money is sheer insanity.