Outsourcing Jobs
I think it is interesting to know the positive and negative arguments about outsourcing. On one hand, there is the current uproar about illegal immigrants swarming in to the U.S. to do the jobs that Americans don’t want to do. And on the other hand, there is the continuing outcry about jobs going overseas. This would be the outsourcing of jobs that Americans would be willing to accept if the corporations were not so adamant about improving their bottom line for their stockholders.
So, what is outsourcing and offshore outsourcing? By definition, “outsourcing (or contracting out) is often defined as the delegation of non-core operations or jobs from internal production within a business to an external entity (such as a subcontractor) that specialized in that operation. Outsourcing is a business decision that is often made to lower costs or focus on competencies” (Miller, 2010). A good example of outsourcing is janitorial services. Instead of a company training several people for the position, they can outsource these tasks to another organization that specializes in recruitment services. This way they can save the time from hiring and training, and the work output should be of the highest quality.
Offshore outsourcing is referred to as, “work done for a company by people in another country that is typically done at a much cheaper cost” (Miller, 2010). These services are outsourced elsewhere to countries other than where the goods and services are actually consumed. A good example of this would be call centers. If you were to call one of your credit card companies, you are more than likely going to speak to a representative from overseas, such as India, Central America, or maybe the Philippines.
The general assumption of the American public is that jobs, money, skills, and experience are being exported to foreign countries, and people in these foreign countries are making financial and development progress while the U.S. economy is at a decline. Consumers are used to the fact that manufactured goods are produced overseas and imported to the United States, but now these consumers must accept the fact that these services are also being outsourced. I believe that more companies are beginning to try to outsource and offshore their labor and services in hopes to lower their operating costs. The morale of U.S. workers has been destroyed and a sense of fear has been injected into many American families.
The decision to outsource is often made in the interest of lowering firm costs, redirecting or conserving energy directed at the competencies of a particular business, or to make more efficient use of worldwide labor, capital, technology and resources. I would have to say that the most important reason for a company to outsource is to reduce operating costs and increase profits.
Some economists will argue that outsourcing is good for the economy, that it is just another form of free trade, which increases wealth in the economy (Otterman, 2004). The standard case for free trade holds that countries are best off when they focus on areas in which they have a comparative advantage, which is areas that have the lowest opportunity costs of production. This allows countries to specialize accordingly to increased productivity across all countries, in return transfers into cheaper goods, and a greater variety for all consumers (Drezner(2004 & May, June). For instance, some worldwide companies such as IBM, Microsoft, Novell, Oracle, AT&T, Fujitsu, Motorola, General Motor and Sears are keeping ahead of their competition by outsourcing to some of the best software companies in India(Drezner(2004 & May, June).
Another example of a company that outsources is DuPont, who was known as one of the most innovative American companies of the 20th century. DuPont now sells only less than a third of its products in the United States. “DuPont’s workforce reflects the shift in its growth: In a presentation on emerging markets, the company said its number of employees in the U.S. shrank by 9 percent between January 2005 and October 2009. In the same period, its workforce grew 54 percent in the Asia-Pacific countries” (Gogoi, 2010).
Although reducing operating costs and increasing profits sounds great, there are some disadvantages to outsourcing as well. An example might be not allowing management to fully monitor the activities of employees, primarily due to location. They are limiting their scope of observation based on their own efforts of managers assigned in the same remote location. Assessment of potential workers are limited, because management can only conduct online interviews or provide short tests to determine the efficiency of workers (Gislason, 2009).
Another disadvantage would be language barriers. When a function that needs handling of calls is outsourced to a foreign location and the first language is different from the nation which outsources the function, this may lead to low quality call handling (APT Services, 2009). Not being able to understand the representative, because of his/her accent or word usage can also lead to aggravated customers.
By outsourcing, you would be turning over part of the operations of your business to another company; you will now be tied to the financial well-being of that company. Therefore, if the outsourcing service provider goes bankrupt or out of business, your company will then have to quickly transition to a new service provider or take the process back.
In a recent article from Messenger-Inquirer, it states that American jobs have been moving overseas for more than two decades. Instead of overseas making toys and clothes, they now have become more sophisticated and are producing software and semiconductors. “And now many of the products being made overseas aren’t coming back the United States. Demand has grown dramatically this year in emerging markets like India, China, and Brazil” (Gogoi, 2010).
“{“More than 1.3 million additional Western jobs will vanish by 2014 due to the accelerated movement of work to India and other offshore locations,”} says the study released November 15. Hackett doesn’t talk of this as good or bad, but as something that will be a realty and a challenge for more Western businesses. Hackett says the pace of job erosion has nearly doubled this decade” (Bonasia, 2010).
It is not merely jobs that are lost, but tax revenues as well, “…if 3.3 million white-collar jobs and $136 billion in wages move overseas by 2015 as Forrester Research predicts, that means federal, state and local tax receipts could decline as much as $34 billion” (AFL-CIO, 2011).
The unemployment rate has gone up slightly from 9.6 percent in November to 9.8 percent in December, which I believe may have something to do with outsourcing. “Even though companies are performing well, all but 4 percent of the top 500 U.S. corporations reported profits this year, and the stock market is close to its highest point since the 2008 financial meltdown. One of the problems is that educational needs are not being fulfilled, which is leading to serious consequences in our globalized world” (Gogoi, 2010).
With cost of research and development projects increasing, it is fair for top management to ask whether there is a benefit to advance outsourcing. The basic idea for some companies in the United States is not to offshore or outsource everything, but to create a sort of research and development network that might stimulate successful product introductions and still hold down costs. “At a minimum, most leading Western companies are turning towards a new model of innovation, one that employs global networks of partners. These can include U.S. chipmakers, Taiwanese engineers, Indian software developers, and Chinese factories. IBM is even offering the smarts of its famed research labs and a new global team of engineers to help customers develop future products using next-generation technologies. When the whole chain works in sync, there can be a dramatic leap in the speed and efficiency of product development” (Engardo & Einhorn, 2005).
The New York Times provided some interesting statistics: “In a survey of more than 200 multinational corporations on their research center decisions, 38 percent said that they planned to change substantially the worldwide distribution of their research and development work over the next 3 years” (Lohr, Steve, 2006).
It has now become a fact of business life that countries, especially India, that once were the targets for basic (ex. Telephone customer service) jobs are now developing a whole new management pool. “A generation of Indian workers is redefining outsourcing from call-centers and back-office work into higher-level management and strategy jobs – areas that American workers have often regarded as sage from overseas competition. As they climb higher in the corporate food chain in transitional firms. Indian workers and executives are pushing their U.S. counterparts to take them seriously, taking on greater responsibilities and subtly changing the corporate culture of both countries” (Kalita, 2006).
As Americans, should we be concerned about the economic effects of outsourcing/offshoring? Not according to D.W. Drezner, because he states that most of the numbers thrown around are vague, over-hyped estimates. “What hard data exist suggest that gross job losses due to offshore outsourcing have been minimal when compared to the size of the entire U.S. economy” (Drezner(2004 & May, June).
Not all economic professionals see outsourcing as a negative outcome. Here is one example: “The fallacy is to assume that there are only a fixed number of jobs in the economy and when a job is sent offshore, a U.S. worker is rendered permanently jobless. Over a 10 year period from 2000-2010, McKinsey expects that while two million service jobs will be lost through offshore outsourcing, 22 million new jobs will be created. Technology and medicine are expected to be major drivers for job creation” (Rhombus Technologies, n.d.).
But what about the employee that has worked on a production line for 25 years and then loses his job to someone overseas. He probably doesn’t have the education, and the people and computer skills to find another job. The laid off American worker that lost his/her job to outsourcing, loses his seniority and therefore, benefits such as pensions and health insurance, because health insurance in the United States is typically tied to and offered by one’s employer, job loss results an eventual loss of health insurance. For the nation as a whole, and particularly for major metropolitan regions where the cost of health care is among the highest in the nation, the absence health insurance alternatives represents a ticking time bomb that requires attention. Benefits are often a target of people wanting a good, secure job with future benefits. One often hears that the low pay scale overseas is not merely because the standard of living is lower, but that workers there do not receive health benefits or pensions, or such other perks, like maternity leave. Even though as research has proved that it no longer is merely low-level jobs going overseas, still workers in Asia and Latin America are seen as somewhat beneath Americans. This is unfair, but it is a gripe that so many laid-off workers have against outsourcing.
I believe that outsourcing has transformed the ways in which nations interact. Corporations have seemed to have split their operations internationally in order to concentrate only on their main competencies. I also think that there is still a lot that we do not know about outsourcing, largely because the available data does not provide enough information to fully understand its magnitude, the reason behind it, and the actual effects it has on the economy.
There are pros and cons in outsourcing and offshore outsourcing for many Americans now and in the future. I think there is a big difference between what is good for American companies versus what is good for the American economy. There are growth areas for workers who are currently being displaced due to outsourcing. For some, it may mean that they have to relocate from a metropolitan area to a smaller city or town. Or maybe even being reeducated (with government assistance) to change career paths. Either way, relocation or reeducation and the growth of domestic industries and workplaces, both for managers as well as blue=collar workers, may not be something you had hoped for, but could be reality.

References
AFL-CIO (2011, January). An Economy That Works for All. Retrieved January 5, 2011, from http://www.aflcio.org/issues/jobseconomy/exportingamerica/outsourcing_problems.cfm
APT Services (2009, February 11). Outsourcing Pros and Cons. Retrieved December 27, 2010, from http://www.prlog.org/10181084-outsourcing-pros-and-cons.pdf
Bonasia, J. (2010, December 2). Outsourcing for Good or Ill, Comes of Age. Retrieved from http://www.investors.com/NewsAndAnalysis/Article/555510/201012021712/Offshoring-For-Good-Or-Ill-Comes-Of-Age-.aspx
Drezner, D. W. (2004, May/June). Foreign Affairs. Retrieved December 27, 2010, from http://www.foreignaffairs.com/articles/59889/daniesl-w-drezner/the-outsourcing-bogeyman
Engardo, P., & Einhorn, B. (2005, March 21). Outsourcing Innovation. Retrieved from http://www.businessweek.com/magazine/content/05_12/b3925601.htm
Gislason, J. (2009, April 6). Pros and Cons of Outsourcing. Retrieved December 27, 2010, from http://www.site-reference.com/articles/General/Pros-and-Cons-of-Outsourcing.html
Gogoi, P. (2010, December 29). U.S. Companies Hiring, but Most the Jobs are in Foreign Countries. Messenger-Inquirer, pp.A1-A2.
Kalita, S. M. (2006, January 11). India's New Faces of Outsourcing. Retrieved December 27, 2010, from http://www.washingtonpost.com/wp-dyn/content/article/2006/01/10AR2006011001687.html
Lohr, Steve (2006, February 16). Outsourcing Is Climbing Skills Ladder. Retrieved December 27, 2010, from http://www.nytimes.com/2006/02/16/business/16outsource.html
Miller, N. (2010, December 31). Associated Content. Retrieved December 27, 2010, from http://www.associatedcontent.com/article/6049768/outsource_to_quicken_results.html
Otterman, S. (2004, February 20). TRADE: Outsourcing Jobs. Retrieved December 27, 2010, from http://www.cfr.org/publication/7749/trade.html
Rhombus Technologies, Inc. (n.d.). Why Outsource? Retrieved December 27, 2010, from http://www.rhombustechnologies.com/main.asp?page=whyoutsource