International Outsourcing in the Netherlands

An important aspect of globalisation is the strong growth of international trade. What is striking is that the trade in final products is more and more dominated by the trade in parts and components. Because of new production techniques, better means of transportation, and the worldwide breakdown of tariff and non-tariff barriers, industrial firms are increasingly able to outsource part of their production process to cheaper producers or locations in foreign countries. Although this internationalisation of the production process is a universal phenomenon, it seems particularly relevant for the Netherlands. This country is not only one of the world’s most open economies, but is also too small to reap all the scale economies of keeping the entire production chain within the domestic borders. It suggests that the presence and consequences of international outsourcing are especially apparent in the Netherlands. Since outsourcing of production (whether it is international or not) decreases average production costs, in a competitive environment, it leads to lower consumer prices and, therefore, increases economic welfare. Nevertheless, the international debate on outsourcing focuses on its possible negative side-effects. It is argued that outsourcing decreases national employment and particularly harms the labour market position of unskilled workers in Western countries. International outsourcing may also reduce industrial production, and thereby undo the positive externalities that result from a vital industrial sector. In this chapter, we try to quantify the amount of internationally outsourced production by the Dutch industry. Since there are several measurement problems, we apply more than one method and use different statistical data bases. Our focus is on the period 1987–2003.