The so-called outsourcing (subcontracting) question and its regulation/A polemica sobre o conceito de terceirizacao e sua regulacao.

AutorDutra, Renata Queiroz

Introduction (1)

One of the main strategies of capitalist companies worldwide over the last four decades has been to adopt outsourcing or subcontracting - in Brazil, the terminology "terceirização" embraces both the terms outsourcing and subcontracting. This management strategy has heavily affected economies, policies, labour markets, working conditions and the lives of workers around the globe.

There are many different analytical approaches to distinguish outsourcing and subcontracting. For instance, outsourcing may be described as a long-term relationship, which usually takes place outside the companies' walls: ''strictly speaking, outsourcing is defined as developing a supply source which is located outside a plant, a factory or an office in charge of producing some final products or services" (2). In such case, the factories where smart phones are manufactured are good examples of outsourcing.

The literature commonly states that "greater product market competition has made private and public sector bodies more inclined to focus on specialized activities and externalize' non-core aspects of work and production" (3). In other words, outsourcing can be defined as "a shift of activities performed within a company to its suppliers (that) has become widespread" (4).

Meanwhile, subcontracting can be viewed in the context of arrangements to carry out specific tasks for shorter periods.

Subcontracting is an arrangement between two manufacturing units, under which one of the units (the subcontractor) provides the other (the principal), on agreed terms and conditions, with products (components or final goods) that are used or marketed by the principal under his sole responsibility. Subcontracting orders may include the processing, transformation or finishing of materials or parts by the subcontractor at the request of the contractor. Subcontracting can be domestic, when both units work in the same country otherwise it is international (5) Arrangements usually carried out in the construction sector may illustrate what subcontracting is. The UN official definition of subcontracting is:

a subcontracting relationship exists whenever a business (subcontractor) acts for the account of another (main contractor) undertaking in the process of working and making a specific product to plans and technical specifications supplied by the main contractor, who has final economic responsibility (6). Despite being two different terms to which people frequently try to give distinct meanings, outsourcing and subcontracting are essentially the same thing. The definitions and the distinctions between the words may vary, but the essence of both concepts is the same: the transference of accessory (or less important) activities from a company to another party, normally another company which has been formally established. Generally, externalization is the main content to describe both words, which is adopted by companies to focus on their core businesses.

Considering subcontracting and outsourcing as one only phenomenon has been done by other authors as well (7). It is not a coincidence that in Brazil the term "terceirização" applies both for subcontracting and outsourcing and is also predominately defined as the externalization of some part of the production process to be contracted by another stakeholder. Thus, from now on we will use these three terminologies as synonymous.

This paper's aim, though, is to show that what makes these words essentially equivalents is not what has become the common sense about outsourcing/subcontracting ("terceirização"). Our main goal is to give a coherent concept to this phenomenon. While doing this, we seek to show how the regulatory framework of outsourcing/subcontracting ("terceirização") that has been imposed worldwide demonstrates the contractions of the mainstream concept, focusing the Brazilian case.

  1. Consensus and inconsistences on the mainstream concept of outsourcing

    Advocates of outsourcing/subcontracting argue that, in the current context, companies cannot engage directly in all the steps of production like they used to do during Fordism. Nowadays they have to focus attention on their core business and on increasing their productivity, and so contract other agents (normally other companies, though the intermediary may be described in different ways) to perform the less important activities, in which these intermediaries are specialized. In other words, their arguments are based on the idea that the companies are delegating to someone else the production of accessory activities related to their business.

    Management consultants have long advised firms to focus on 'core competences' and outsource other activities (e.g. Domberger 1998). Globalization and the creation of the Single European Market may have indeed made it more profitable for firms to specialize in what they can do best (e.g. Meyer 2006) (8). Around the world, there are lots of criticisms of outsourcing/subcontracting, claiming that this phenomenon undermines working conditions, reduces salaries, increases accidents at work, etc. Countless studies carried out in many countries indicate that these allegations are true. But, even when they are engaged in serious struggles against its consequences, critics of outsourcing/subcontracting tend to use the same conceptual understanding of it as that used by those who defend this management strategy. For instance, some authors point out:

    (...) radical changes to the structure of employment in the UK, in particular in the form of a sectoral shift from traditional sectors (including manufacturing and the public sector) to business services sectors as service activities are disembedded from their original settings and transferred to companies in other parts of the economy. Later There are numerous reasons why employers choose to outsource services including the ability to focus on core functions and to access specialist services, but the desire to reduce costs is often a key consideration. This demand for lower cost services is passed on to the successful supplier who must satisfy service quality targets within the agreed contract price, whilst ensuring that their business model remains profitable. There are various strategies which suppliers use to achieve this, including: wage restraint; reducing the size of the workforce and providing the same service but with fewer employees; or employing fewer permanent employees and using agency workers instead (9). Whether the consequences for workers are regarded as good or bad, it is accepted that different companies are in charge of different links in what is commonly called a chain of production (or supply chain). "Under fragmented production, it is no longer necessary for producers to master entire production chains and to organize them within single firms" (10).

    But, empirically, outsourcing/subcontracting differs greatly from this description. Invariably, the contracting company directs the process of production and work according to its needs. There are numerous examples of this situation in companies from all around the world and all sectors.

    Lots of surveys conducted in recent decades, involving companies from many different countries, has shown that no matter how outsourcing is juridically arranged, the contracting company always manages the workforce (11).

    In outsourcing/subcontracting, the command of activities remains with the contracting company, which effectively determines when, where and how production takes place. Ways of controlling the subcontracted workforce may vary a little among contractors and economic sectors, and are heavily influenced by labour market features. Frequently the methods of control are very explicit, being carried out as traditionally employers do. It is very common, for instance, to see main companies imposing in the contracts that they can choose who are the outsourced workers. The following quote from the terms and conditions of employment of an outsourced worker in the British cleaning sector provides a good example of this situation:

    Your employment with US is subject to continued acceptance by our client who has the right to refuse your admission to the premises. If it occurs, the Company reserves the right to change your place of work, providing this within reasonable travel distance from the present place of work. In other cases, different management methods are adopted, such as pay per task, imposing deadlines, on-line monitoring, making auctions between the subcontractors, etc. But, in fact, they have the same purpose and achieve the same targets. Over recent decades technology has helped a lot to implement these less obvious ways of managing workers, although sometimes they are even more dominating than traditional management. Indeed, in many cases they are used intentionally, as firms try to avoid labor law, for instance.

    Toyota, the paradigm and precursor of the contemporary outsourcing/subcontracting process, was the owner of small subcontracted companies upon which its outsourcing/subcontracting arrangement was developed (12), and it is not the only such case in the automotive sector (13). We have personally been in a car factory where the subcontracted workers who built the vehicles were directly selected and managed by the car company, which carried out a kind of tendering processes or auctions between the intermediaries to get the cheapest workers (14).

    The garment sector is another good example which reveals what outsourcing/subcontracting really is. The main brands explicitly argue that they don't produce goods and they just buy the clothes from suppliers over which they have no control. Meanwhile, some of the largest fashion companies around the world have been caught using slave-like labor in Brazil, and in every case the State investigations have detected that production was controlled by the main contractor (15).

    The control imposed by the main contractor on the process of...

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