Foreign Outsourcing by Businesses: Canada Must Steer Clear of Protectionist Measures

Montreal, July 7, 2005 – Despite the short-term difficulties faced by workers who lose their jobs, the Canadian government should reject the example set by the United States government and should steer clear of protectionist measures intended to block the outsourcing of certain business activities to foreign countries.

“Protectionist measures may be all the more harmful in that Canada is among the world’s most highly regarded places for outsourcing, by American companies in particular,” says an Economic Note published today by the Montreal Economic Institute. The Offshore Location Attractiveness index, established by a major U.S. consulting firm, ranks Canada first among industrialized countries.

Economist Yanick Labrie, the author of the Note, recommends relying instead on better training for Canadian workers to help them gain access to jobs with higher added value.

A static economic vision

The notion that foreign outsourcing leads to fewer jobs is based on a static vision of the labour market, ignoring the fact that an expanding economy is constantly producing new opportunities in terms both of products and of jobs.

“Even if greater openness to trade results in certain companies or industries going into decline if they cannot remain competitive, the number of jobs available over time tends to grow with productivity increases and the economic growth they generate,” Labrie notes.

Beneficial for business and for consumers

The Institute’s document points out that a company’s decision to outsource activities abroad depends on the principle of specialization of tasks. Since companies cannot excel in every phase of production, assigning certain duties to specialized suppliers lets them focus their efforts on developing areas of activity where they are relatively more efficient.

Consumers benefit from this by gaining access to lower-priced products. The author cites the examples of micro-computers and mobile phones, whose components could be produced abroad at lower cost in the 1990s.

Titled Should we be protected against foreign outsourcing?, this Economic Note is available on the MEI Website.

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Information and interview requests: Patrick Leblanc, Director of Communications, Montreal Economic Institute, Tel.: (514) 273-0969 / E-mail: pleblanc@iedm.org