Locating labor-intensive work in foreign countries, sometimes called outsourcing, allows companies to save money by using cheaper foreign labor. However, this practice raises serious legal and ethical questions for real-world businesses, because the standards of living and working overseas may conflict with the expectations in the domestic market of how a business should operate.


When a company outsources manufacturing, they open a plant or factory in a company with cheaper labor costs than the domestic workers would demand. For example, it is cheaper for Nike to pay workers in Vietnam or Bangladesh to assemble shoes than workers in the United States. The company can either run the outsourced manufacturing directly or import from a foreign country that does the manufacturing.

Ethical Issues

One big ethical issue surrounding outsourcing is that the pay of outsourced workers tends to be much lower than the same job would pay in the domestic country. Outsourcing also moves factories from the United States to other countries, depriving some Americans of jobs they would otherwise have. Furthermore, doing business in a foreign country with different ethical standards may conflict with a company's ethical guidelines. For example, a company may be expected to bribe officials to get necessary permits, or to pay taxes to a corrupt government. Outsourcing makes third parties harder to hold accountable, leading to corruption risk at the local level. A company considering outsourcing must decide whether to risk the potential for contract violations and whether they are willing to engage in corrupt practices overseas.

Two different sets of laws govern outsourced manufacturing-- those of the foreign country and those of the domestic country. Multiple problems can arise from an outsourcing contract, including liability for defects, disputes over the contract and confidentiality. Some of these, such as liability exclusions, have standard legal contract language covering them. In many cases, however, the resolution of a dispute depends on the specifics of the situation. U.S. laws about workplace conditions, like minimum wage laws, generally do not apply to outsourced workplaces. However, the Department of Justice has the power under the Foreign Corruption Practices Act to bring charges against company officials if they make use of bribery or corruption in a foreign country.


Sometimes, legal and ethical issues force companies to alter their outsourcing policy. For example, Nike has faced strong protests for its use of outsourcing from groups like Team Sweat, and the company began to institute rules about wages, work week limits, age minimums, and other restrictions about the conditions in its factories. Apple faced protests at its supplier Foxconn's plants when workers went on strike and threatened to commit suicide over their working conditions. An engineering firm named Kellogg, Brown, and Root was fined $402 million in 2009 for bribing Nigerian officials.