Timmy Throntveit
Organizational Theory
September 21, 2014
Research Paper: Outsourcing

Outsourcing is the practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally (Investopedia). Why do many organizations outsource their business overseas to countries like China or India? Outsourcing is an effective cost-saving technique when used properly. Outsourcing is sometimes more affordable to purchase a good from companies with comparative advantages than it is to produce their products internally. China and India are the fastest growing economies around. The most obvious reason is the reduced costs. Wages for skilled workers are lower in developing countries such as China or India.
The outsourcing of American jobs has become one of the biggest topics in the United States. The country's working class faces pressures which they have not experienced since the Great Depression of the 1930s (Magdoff, Foster). Outsourcing continues to have several different opinions from many individuals. On one side of the topic, many are in support due to the low cost for companies. The main reason is outsourcing boosts the United States economy. On the opposing side, many are opposed to outsourcing because of the reduction of jobs in the United States and a variety of other factors. The focus on outsourcing has led to many companies being shipped to foreign countries like China and India.
With the rise of technologies that make life much simpler for all of us, the human race has developed along with it a growing list of demands. As a result, organizations are addressed to solve these demands. This frame of thought is also applicable to outsourcing organizations as well. We need to realize that most of us do not have the time to do everything ourselves, and some may seek help even if help may be offshore. In order to meet the demand for quality work, outsourcing organizations are formed. What kind of organizational structure is most effective for outsourcing companies? In order to answer this question, we need to look at the three basic organizational systems: The rational, natural, and the open organizational system (Chopra, 2010).
The Rational System: A rational organization system is oriented to the pursuit of relatively specific goals and exhibiting high formalized social structures. Although there is no organization that is completely rational in the real world, business owners can effectively apply rational in some situations. If the business owner can clearly identify what they hope to accomplish with a certain course of action, what alternative choices there are, and what the outcomes are, they can rely on the formal structure of the company to carry out the order/s. Within the context of outsourcing companies, it is effective to some extent, as this fosters a sense of responsibility and discipline within the organization. This means stricter deadlines, more emphasized standard of work, and a more systemized operation of tasks. While this may be the ideal structure for outsourcing, factors such as job satisfaction starts to happen, and using the rational system becomes an obstacle (Chopra, 2010).
The Natural System: Organizations are collectivities whose participants are pursuing multiple interests, but also recognize the value of the organization as an important resource. In natural systems, employees understand the formal rules, roles, and goals of the organization. The natural system is in many ways opposite of the rational system in that it focuses on the activities that may affect the organization negatively. Sometimes under this system, there is no clear hierarchy of authority, but the tasks are still divided and distributed among people who specialize in other fields. For outsourcing, this means that workers are satisfied with their jobs. While being highly rational in outsourcing may be ideal for some, the natural system may be more viable for those who want to work on a more personal basis (Chopra, 2010).
The Open System: Organizations are recognized as having elements of the natural and rational approach, but also as being only semi-contained. In an open system, companies depend on the employees, supplies, consumers and even the competition for research and development. Because the business does not have control of all environmental forces, it relies on predictions to cope with the unexpected input (Chopra, 2010). This organizational structure is best suited to utilize outsourced companies. The operations in an open system are project-based. This means that there is an increased flexibility in assigning work to the employees best suited to the particular task. Each task has different demands in itself, and the quality of work and output rate can differ from each other, which entails a lot more flexibility from workers.
Today, many companies have turned to outsourcing in order to improve their current situation. Outsourcing is to be considered the latest trend in the modern economy all over the world. Outsourcing has both positive and negative sides to the organization. However, many say that the reasons to outsource outweigh the negative things it may bring. Many entrepreneurs often wonder what the reasons for outsourcing are and why they should risk their success of their organization over this method. The next couple paragraphs will be discussing the reasons why organizations outsource their companies.
Outsourcing is a business strategy that moves some of an organization’s functions, processes, activities and decision responsibility from within the organization to outside providers. This is done through negotiating contract agreements with a vendor who takes on the responsibility for the production process, people management, quality, customer service, etc. Why do organizations outsource? Outsourcing makes it possible for organizations to focus on their core business in order to create a competitive competition by decreasing their operational costs.
Outsourcing can be either a permanent or temporary arrangement to bridge the gap in staffing, learning better quality techniques or improvement of faulty product design. When looking for outsourcing opportunities, the organization should be aware of the potential areas in order to determine if part or all of that function should be outsourced (Advantages and Disadvantages). Outsourcing is a somewhat controversial topic, with strong supporters on one side of the argument and opponents on the other. The main concern is that many jobs that could be kept in the United States are given to other people in other countries instead. So, in order to determine whether outsourcing is a good step for your organization, make sure the organization is familiar with the pros and cons associated with outsourcing the work to other individuals in other countries (Outsourcing Statistics).
Despite the fact that outsourcing production offers cost advantages to a multinational company in the form of availability of potential low costs, it is still being criticized in the United States. The controversy is that many people see outsourcing as dangerous to the American economy and have expressed concern about the number of jobs being occupied by non-American workers on other countries. However, on the other side of outsourcing, others view outsourcing as a form of trade and strongly believe that trade benefits society. Both sides of the debate have valid point, but approach the topic from different perspectives.

Advantages of Outsourcing
Foremost, outsourcing jobs has several advantages such as cost, quality, efficiency, improved economy, and the access to specialized skills. The biggest reason companies outsource is the advantage of saving money. Many companies that outsource are able to cut considerable costs and expenses by allowing other countries to perform work for significantly less money. India has become one of the most prominent countries for outsourcing American companies. The same work done in the United States can be accomplished in another country for a much lower cost. Organizations that have reduced their cost are ultimately benefitted, which in return makes them more competitive in today’s marketplace.
When it comes to conducting ad running a business smoothly, efficiency is key. This means that your company is able to produce many products in the shortest amount of time while being able to maintain the highest quality for the consumer. Outsourcing enables organizations to become more efficient by giving work that cannot be accomplished within in a reasonable amount of time to those who are specialized in that particular field (Outsourcing Statistics).
Supporters of outsourcing also claim that it benefits and improves the economy, both in the United States as well as abroad. Countries whose economies were struggling previously are now able to succeed in the marketplace because companies who outsourced their needs to them. Businesses are able to decrease their costs through outsourcing, they are then able to transfer those savings to the consumer, who enjoy paying less for the product, which leads to a higher standard of living (Outsourcing Statistics).
Outsourcing jobs also increases the speed and quality of delivery for outsourced activities. Outsourcing focuses on creating a balance between cost savings and proving customer satisfaction with quality products and services. A company has a better chance of being established in the market for a longer time (Gibson). Another reason companies outsource jobs is because of the expertise and skilled services a business may reap. In the world of globalization, American companies are pursuing strategies to become more competitive. The key objectives of these strategies are reducing costs by becoming more cost efficient, maintaining a competitive edge, and enhancing profit.

Disadvantages of Outsourcing
Even though businesses that outsource work will defend their choice, there are strong opponents to it who would prefer that American companies would stay here, and hire more employees to help create more jobs. The debate over outsourcing has been morphing, and today there are growing numbers of people who think that what started as a sensible, globalized extension of sending some work outside a firm to specialized companies may in fact be creating long-term structural unemployment in the United States.
Companies that use outsourcing claim that the advantages outweigh the disadvantages. They insist that the benefits that make outsourcing preferable to the centralization of business within the United States. By outsourcing, it allows a company to lower their overhead costs due to the overhead costs being cheaper. This allows that this is then passed on to the consumer, who enjoys lower prices. The United States national economy benefits as consumers are stimulated to participate in the economy by increasing their purchases; however, this benefit is offset by negative economic variables. Outsourcing benefits other countries’ as well, and it is not uncommon to see proponents of outsourcing lauding the fact that this practice results in productive employment for people living in economically and professionally depressed areas (Outsourcing American Jobs).
One of the biggest oppositions of outsourcing is the fact that it removes jobs from the American people, which increase the unemployment rate here in the United States. The biggest negative of outsourcing is the loss of American jobs. Every year, the United States loses 230,000 jobs due to outsourcing. Many argue we are losing too many jobs at such an astonishing rate, and not creating enough.
Outsourcing is viewed as unpatriotic by many Americans. Jobs are being taken away and practically handed them over to the less fortunate countries, and contributing to other countries’ economies while ruining our economy. Outsourcing weakens the American economy as it contributes to trade deficit and the loss of American consumers who buys these products and services. This is because employees displaced by foreigners and left unemployed or in lower paid jobs have a reduced presence in the consumer market.
Within the last couple decades, the American labor market has been altered due to an increase in outsourcing. Although, offshoring has become the latest phenomenon there are many advantages and disadvantages to offshoring. The advantages are cost, quality and the access to specialized skills. However, on the opposing side offshoring is taking the American jobs and causing our economy to suffer. Overall the United States needs to stop outsourcing to provide more jobs to Americans in order to keep a healthy economy.

In conclusion, the impact of outsourcing in many different parts of the world today is huge. In this case, the effect of outsourcing to the American economy and the World’s economy are both negative and positive depending on people’s views. There is truth that outsourcing American jobs to third world countries is a big concern for Americans and the U.S. government. Globalization affects every business, whether small or big around the world. Therefore, outsourcing can be either positive or negative for every large or small business around the world (The Impact). Outsourcing is a serious threat to the American worker, and action is needed to prevent the United States from outsourcing jobs overseas.

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