The Red Bull Formula

The Red Bull team (Austria) is on track to achieve another Formula 1 championship, far surpassing the Ferrari (Italy) and Mercedes (Germany) teams. How is it possible for an energy drink brand to accomplish such a feat? A significant part of the answer lies in the “core” of the business and outsourcing (or specialization of work). Unfortunately, these two concepts are being demonized by the Ministry of Labor and Employment Promotion (MTPE) and the Congressional Labor Commission.

It’s hard to think of an activity more “core” to the Formula 1 business than building and driving the supercars, right? Well, while the Italians and Germans handle the design and production of their engines, the Austrians buy their engines from Honda (Japan). In general, Red Bull has outsourced the primary component of its business to leverage the expertise of the best specialists. The same essentially happens when a mining company subcontracts or outsources to top specialists in tailings maintenance or explosives.

Under Supreme Decree No. 001-2022-TR, which restricts labor outsourcing, Formula 1 could not develop in Peru—at least not as we know it. For example, Red Bull would have to create a division of engineers responsible for designing and producing power units that allow a car to accelerate from 0 to 100 km/h in 2.5 seconds. This would be absurd for the Austrian team in terms of efficiency and would bankrupt Haas, one of the smallest teams in Formula 1. Alternatively, Red Bull could hire away Honda’s engineers—who work with various racing teams worldwide—to work exclusively for the Austrian team, negatively affecting other teams even in different divisions. Again, ridiculous. In any case, the negative impact on Red Bull’s productivity and the racing team ecosystem would be profound. Such are the absurd effects that restrictions on labor outsourcing can have.

It would be wise to understand that the “core” of businesses and ventures cannot be regulated by decree.

A key aspect of Formula 1’s operation is the efficient monitoring and oversight by stewards, which ensure fair competition conditions before, during, and after each race. For example, these ‘referees’ have 120 cameras at each circuit, so improper conduct can be penalized almost in real-time. Unfortunately, the oversight of labor policy in Peru is very weak, reactive, and unintelligent. Considering that the MTPE’s main argument for restricting outsourcing is the abuse against some workers, the authorities would do well to prioritize protecting good employment by identifying and sanctioning offending companies, which are mainly found in the informal sector. Legislating over what is already legislated will not prevent abuse.

Having Formula 1 champions for the last 20 years in Ferrari, Mercedes, and Red Bull shows there is no single recipe for defining a business, bringing it forward, and making it successful. In the same vein, it would be wise to understand that the “core” of businesses and ventures cannot be regulated by decree. A basic principle of modern economics is that society will be better off if those most capable of performing a task are allowed to do it: Red Bull understood this perfectly, and the results are there to see. Peru, on the other hand, risks finishing last in its own race.