What is outsourcing? When a multinational company subcontracts services and shifts resources to another company outside its boundaries, it is considered outsourcing. Increasingly, in today’s business environment, outsourcing is in the spotlight and heavily debated. Some say it’s desirable, and others feel that it’s undesirable. There are tens of thousands of articles on this topic, and many personal stories have been written. Yet, Congress and state governments have tried to stop it or gain political points by saying they are against it. “Yet much of this discussion is beside the point.
Offshoring is here to stay (as long as the cost savings are for real), and there’s little point in hand-wringing over whether it should or shouldn’t take place.” (Reingold, 2004) Successful businesses make a profit, and labor cost is a significant factor in outsourcing. It is the most obvious, and the reason outsourcing is here to stay. It is also the main reason governments in the U.S., both at the national and state levels, have sought to regulate. “The momentum against the export of white-collar U.S. jobs has been building for months. Congress in early June began considering bills to close an immigration-law loophole where foreigners can service U.S. clients using guest worker visas.
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Representative Nancy L. Johnson (R-Conn.) has asked that large insurance companies disclose how much of their IT work is being done by foreign workers in the U.S. At the state level, legislatures in Maryland, Washington, Connecticut, Missouri, and New Jersey are considering laws banning outsourcing of government tech-services contracts to low-wage developing countries. Even if they don’t pass, though, they might make a U.S. company think twice before outsourcing more work to India and elsewhere.” (Manjeet Kripalani and Bruce Einhorn in Bangalore, 2003)
Expertise and experience is another factor in the decision to outsource. When a multinational company is looking for specific skill sets, production methods and trained staff, it chooses to outsource to companies who can take on the responsibility. And it works both ways. “As they expand into the higher-end tech-consulting business, India’s top three IT companies, Wipro, Tata Consultancy Services, and Infosys, are hiring more U.S.-based marketing and consulting executives.” (S Baker, 2004)
There are also disadvantages to outsourcing. When a company chooses to outsource, it cuts its local labor force for that area or decreases it. In every case, many unions argue that outsourcing puts many employees out of jobs and impacts the local economy. Unemployment rises and causes the use of government programs which affects the rest of the economy. The employees feel the most significant impact; many have worked for many years for the company, and now they do not have a job. Their pensions are ruined, and in many cases, the employee’s age keeps them from being hired anywhere else.
Another disadvantage is the decline of wage rates. The competition for jobs increases and local employers can drop the wages due to supply and demand. This can also affect the local and national economies due to the declination of consumer spending, fewer taxes paid, and more government programs being taken advantage of. It is important to remember that as the global economy continues to grow and integrate further, outsourcing is a reality of business that is here to stay.
The most significant negative impact of this will continue to be on human capital. Continued education of the workforce and skill development is the key to success as America competes for the best paying jobs in the world. Outsourcing has many advantages and disadvantages, as discussed, and it will continue to be a topic that will be debated far into the future.
- Bruce Einhorn in Guangzhou, w. M. (2003, August 11). MOVE OVER, INDIA, China is rising fast as a services outsourcing hub. Business Week (Issue 3845), p. 42.
- Manjeet Kripalani and Bruce Einhorn in Bangalore, w. P. (2003, June). A TEMPEST OVER OUTSOURCING American legislators is accusing India of stealing tech jobs. Business Week, pp. 20-21.
- Reingold, J. (2004, April). Into Thin Air, Fast Company. Boston (Issue 81), pp. 76-83.
- S Baker, M. K. (2004, March 1). Software: Will outsourcing hurt America’s supremacy?
- Business Week, pp. 84-93.