Question

A local textile company has made the decision to move manufacturing offshore. In the selected country, Vietnam, laws protecting the environment are more lenient and goods can be produced more cheaply because the wage rates are lower, and regulatory / environmental costs are less.

What do you think of this practice as a consumer? What do you think of this practice as a business person? Should the US government intervene to assist in preventing such actions?

Briefly list any other pros and cons associated with this move.

Answer 1

As a consumer, the practice has both benefits and issues. The benefits are purely in economic terms- I get a cheaper product of same quality. The issues are that the process of manufacturing is more exploitative of both people and the environment now.

As a business person too, I see both benefits and issues. Once again the benefits are purely monetary, at least in the short run, as I get higher profit margins. But in the long run, this idea has a few risks. These are-

• Consumer preferences- Consumers today are getting more socially responsible and aware. They might boycott the products if they feel that environment is being harmed or if people are being exploited.
• Political environment- A conservative government might not like the loss of jobs in the home country and create tariffs for products.
• As an employer also I have a stake in the well being of my employees as in the long run their productivity might be better in good working conditions and wages.

I am personally a believer in free markets so while I dont think that US government should try and stop offshoring itself, since the practice creates more economic surplus for the world as a whole, I do think that they should take measures to stop environmental harm and labor exploitation. These measures may include-

• Working with Vietnam's government to ensure that wages are on par with US in PPP terms. Should also ensure that working conditions are comparable too.
• If any US company is found to be breaking foreign laws then there should be heavy penalties. This is because even if there are laws regarding wages and working conditions in Vietnam, a lot of time corruption means that the situation will be even worse than what minimum the law requires.