As the competition in the education sector continues to grow, it is essential for institutions to seek a source of an advantage. Outsourcing reduces the costs of services and products and tends to increase the capability of an organization when it is appropriately integrated into a framework (Mazdeh & Hamedani, 2012). Outsourcing methodology is a set of clearly defined processes that aim to optimize the operations of a company or an institution by transferring tasks to a third party (Mazdeh & Hamedani, 2012). Outsourcing continues to expand every aspect of market-based social relations due to the globalization process, making it one of the most examined practices (Sperka, 2020). Moreover, outsourcing in education can boost competition, which stimulates innovation and increases the quality of teaching (Jones, 2018). This essay analyzes the role and importance of outsourcing methodology in education, its benefits and disadvantages, and efficient implementation techniques.
The importance of examination of outsourcing methodologies rises annually. With the increased privatization of educational facilities, outsourcing became more recurring and vital for this sector (Jones, 2018). To choose a suitable strategy, an educational facility must outline the reasons behind its decision to outsource any portion of its services. Wekullo (2017) states that “institutions outsource to increase efficiency, cut operating costs, reduce risk and liability, to strengthen core competencies, improve cash flow, access new ideas and reduce budgetary constraints” (p. 457). A sufficient methodology must define how outsourcing will cover any of these aspects of the operation of educational facilities.
When the search for a solution to an issue does not reveal any internal results, outsourcing is an ideal way out of this situation. For an institution, this might mean the necessity of a contract that will transfer a portion of its activities to another facility. For example, the lack of experts within an institution and the limit of resources, both technological and financial, can be efficiently negated by outsourcing (Wekullo, 2017). On a global scale, the attempt to resolve issues by promoting privatization will imply a set of policies that will encourage companies that operate in the private sector. It requires the creation of a complex structure that will guide facilities towards the shared goal of improvement (Sperka, 2020). Forming a connection between private and municipal institutions can be a crucial part of a successful outsourcing methodology (Sperka, 2020). A proper outsourcing methodology serves as a set of guidelines for organizations that define the nature of their relationships and the expected results from both private and public entities.
Outsourcing methodology must be carefully assessed prior to its implementation. When educational facilities intend to transfer a part of their operations to a private sector, they must consider how these changes will affect teachers’ work, access to professional growth, and perception of these changes of all affected parties (Holmqvist et al., 2020). All opportunities created by outsourcing must be measured by the instabilities they add, especially if a contract with a third party implies a high level of reliance (Jones, 2018). To apply outsourcing methodology, an institution must prepare its employees for this transfer, design a way to manage the efficiency of outsourced service, maintain relationships with a contractor, assess its quality and provide timely feedback (Mazdeh & Hamedani, 2012). This multi-level connection must be assessed continuously on all stages, as there are potential issues that will lead to an unsatisfactory result.
The implementation of outsourcing can pose a significant issue for educational facilities. Holmqvist et al. (2020) state that “in public debates and contemporary educational research, high levels of outsourcing of education to private providers have been considered a major societal problem” (p. 113). Private providers need to be moderated by a governmental structure that will ensure that the quality of the curriculum does not drop below municipal standards (Holmqvist et al., 2020). Bates et al. (2019) state that “for some time now, private sector organisations have themselves struggled with a loss of focus on quality as a key source of professionalism” (p. 273). This control can be achieved via government grants, regulation policies, and monitoring facilities, whose processes must remain transparent (Bates et al., 2019). These complications lead to a set of difficulties for establishing a standard of outsourcing methodologies.
In conclusion, by applying a well-designed outsourcing methodology, educational facilities can achieve a more cost-efficient and less complex teaching process. However, outsourcing can also lead to a decreased quality of services if there are issues with third-party contractors, such as the lack of control over common practices across institutional organizations across the country. Outsourcing methodology must aim to boost the professionalism of teachers and increase the diversity of teaching techniques without harming the educational process. This set of methods requires a case-to-case assessment as the relationship between private and public entities requires additional control and guidance. Although competition that stems from outsourcing does lead to an overall improvement of practices, the focus on cost-efficient methods can play a detrimental role. Governments and organizations that intend to utilize outsourcing must develop a methodology that will outline how this process will benefit all involved sides.
The term outsourcing refers to exploitation of human resources from outside an organization to handle tasks that were originally handled internally within an organization. It occurs when the management of a business results in strategic moves deemed appropriate for the optimization of business processes with the chief goal of saving and reducing costs (Abramovsky, Griffith, & Sako, 2004, p.3).
Currently, most European and American organizations are heavily outsourcing part of their business tasks to Asian countries. Despite the existence of large human resource base, the labor is cheap with an approximation of about 50% in cost of savings.
This helps in executing similar tasks with the same magnitude of quality internally within the organization in question. Call centers operations are among the tasks that have been widely outsourced. Such a move faces many moral and legal critics amid the enormous anticipated benefits to the organization.
The issues of outsourcing are sensitive, as they have the capacity to prompt for a myriad of protests, characterized by hostility in its coverage in the media. Worse, they can invite industrial actions.
If they hold the issues loosely, chances are the business seeking to outsource their services would suffer from dwindled quality for their products, make their brands weak and perhaps incite customers to hold the credibility of the organization with suspicion (Global Change, 2008, Para. 4). However, if handled well, the benefits are enormous. Outsourcing 120 call centre jobs to Asia, consequently, would mean 50% saving on cost with a further benefit of creating 120 such job opportunities in Asia.
In as much as this is crucial for protection of the remaining jobs within the home country, one anticipates moral regress from the workers’ union by ensuring competitiveness of the organization. They have argued in the recent past that the services of the outsourcing-call centre of the union in Asia have served to destroy the home country jobs immorally.
The creation of such jobs in overseas countries has a negative impact on the Asian communities since they pay remarkably little resulting to the exploitation of the poor. Although this may seem as a strong argument against outsourcing call centers to Asia, the benefits to the Asian business and economy are immeasurable.
Money limited to these nations serves as means to hike the purchasing power of the local commodities with the nations amongst the citizens. Although, the pay is little in relation to the richer nations that outsource their call center services, the cost of living in poorer nations is low. Therefore, people can afford a comfortable living standard.
Perhaps the most influential factor to put into consideration while choosing to relocate the call centre services to Asian countries such India is the legal considerations. In fact, majority of organizations considers relocation of their software and call centers from nations like the United Kingdom and the USA to India (Global Change, 2008, Para. 10). However, this move demands a fair deal of attention.
Outsourcing brings two nations together, which in more situations than not, have different legal contracting terms. As a way of example, in India, courts have endorsed the necessity for choice of appropriate laws (Abramovsky, Griffith, & Sako, 2004, p.3). Selecting choice of law in call centre outsourcing contracts consequently, demands that the selected law to have full agreement with the Indian courts.
Legal issues also arise due to the existence of nonconformity in the formulation of taxation laws between the western countries and the Asian nations. However, nations such as India have adjusted taxation laws through various acts to make them compliant with the requirements of the world trade organizations.
References
Abramovsky, L., Griffith, R., & Sako, M. (2004). Off Shoring Business Services and Its Impacts on UK Economy. London: Advanced Institute of Management Research (AIM).
Outsourcing is a process of seeking external services from another company or group other than getting the services from within the company or organization involved. It has become an important tool in shaping business especially as globalization takes place. It is growing very fast as people realize its importance.
Although outsourcing has many benefits, it also has some shortcomings and it is therefore necessary for a company to evaluate its needs and consider if it is essential to outsource its services. Purchasing on the other hand is a process by which an organization obtains goods and services in order to attain its goals.
It is a crucial element in a company and should be given due importance and ranked high in the organization structure as it is a top-management task. Communication in purchasing, both internal and external, is a very essential tool and should be taken into consideration in every stage of the purchasing process. This paper discusses the reasons and benefits of outsourcing, the drawbacks and remedies that should be taken, the process of outsourcing, the levels of outsourcing, and finally application of outsourcing in purchasing.
Reasons and Benefits of Outsourcing
The major reason why companies embrace the concept of outsourcing is to cut cost involved in the provision of a service or a product compared to when the products and services could be produced in-house. Any business aims at attaining high productivity while maintaining efficiency and cutting the operating costs.
This is so because the outsourcing company evades most processes involved in the production of a good or service for example quality ascertaining and pricing all of which incur costs. The outsourcing company is able to lower its purchasing costs of some of its inputs by taking advantage of the suppliers’ low costs.
Outsourcing also enables access to the best services and products in terms of quality since the services are usually obtained from specialized and qualified vendors, which would otherwise be too difficult and time consuming when done in-house; there is also exposure to a wide range of skills and expertise because of specialization.
The skills help the outsourcing company improve its services and overall image. Outsourcing also brings about the aspect of positive change in a company as ideas from the outsourced company are incorporated in the outsourcing company.
It is as well viewed as a way to manage risks as the risk is minimized through partnership between the outsourcing and the outsourced companies and in most cases the suppliers take the responsibility of catering for the costs incurred in the procurement process. In addition it fosters innovation since the outsourcing company is able to supplement the skills they have with the skills and knowledge acquired from the outsourced company and hence improve their ways of carrying out activities.
Outsourcing also enables a company to concentrate well on the core functions and values as it outsource other services from specialized providers enabling the company to utilize its resource on most important aspects as the others are taken care of by the outsourced company. It also creates time for leisure which is very important in balancing work and in some cases where the outsourcing is done from another country; there is the reduction or elimination of taxes as there are usually some provisions of incentives.
It generally reduces operating costs and helps a company achieve its goal even if it doesn’t have all resources required internally through combined efforts and in the long run, it enhances the company’s efficiency and capital income. It leads to competition as people are eager to learn the skills and knowledge they see with others (Barrar & Roxane 4).
Drawbacks of Outsourcing
Every aspect has its advantages and disadvantages. Some of the disadvantages of outsourcing are that there is communication breakdown between the company and the clients since they are not usually in direct contact. Communication is a very essential tool in any business as it helps the company to ascertain the satisfaction of their clients through their feedback and grievances and also assist the company to make any necessary changes as needed by the clients.
There is also the risk of sharing the control of the company with the outsourced company and the possibilities of delays in carrying out of the operations as there is no close monitoring of the suppliers. The company’s decisions are determined by the agreement between it and the suppliers and failure of one party leads to the fall down of the business.
Lack of commitment of the outsourced company is also an issue especially where the company may terminate its services before the agreed time and the outsourcing company is left with the problem of looking for another provider and time may not be there, it may also be difficult to identify a company with the same quality of products and services and this leads to breakdown of the progress of the whole process.
Security is also undermined by outsourcing as some staff members are transferred to the outsourcing company and also the fact that another party is being involved in the process since the outsourcing company does not have full control of them.
It may also cause unemployment to some people as they get displayed by the more qualified people from the outsourcing companies. To the suppliers, their work may be eliminated when their skills and knowledge are learnt by the outsourcing company’s staff and hence the services or products are produced in the same manner on an in-house basis.
On the part of the management, it is often difficult to identify the right partners or suppliers as it is usually difficult to know all their strengths and weaknesses in provision of the services. It is also a challenge to establish an effective control for the relationship between the outsourcing company and the suppliers. The outsourced activities may also affect the management of the company in a negative manner since they may not be compatible with the prevailing management style.
Remedies to the Drawbacks
To reduce the possibility and negative effects of outsourcing, there should be constant communication between the outsourcing company and the suppliers or the outsourced company so as to easily ascertain the possibility of any occurrence of a problem and to be prepared to make any adjustments.
The clients of the products and services should also be informed of the agreements involved and the specific outsourced suppliers. The ordering process should also be done in a user- friendly manner that allows compliance of the parties involved and the top management should ensure the agreed terms are followed through stipulation of rules and regulations to govern the entire purchasing process so that all parties are accountable and responsible for their deeds.
To avoid unhealthy competition and imitation of capabilities, the suppliers should ensure that their work has unique historical conditions that can not be traced today; there is a path of dependency such that inability to identify a single step leads to failure of the whole process and that there is social complexity and some difficulties in identification of the origin of the capabilities possessed by the suppliers (Brown & Scott 24).
Process of Outsourcing Purchasing
To ensure that the process of outsourcing purchasing is successful, the following steps should be adhered to; one should first evaluate the options of outsourcing.
In this, the outsourcing company should identify the additional costs associated with the personnel and operation of the process for example the maintenance of data accumulated in the outsourced company which is necessary in documenting the process of purchase and compare it with the costs that would be incurred if the services would otherwise be provided internally.
This aims at minimizing cost by looking at the cost benefit analysis. An outsourcing model should then be designed to show the targets expected the roles and responsibilities of all participants and also outline the whole purchasing process. After this, the purchasing process is now handed to the external providers or the outsourced company.
All information associated with the whole purchasing process is also handed over the contract begins. The final and most crucial process is that of monitoring the performance of the outsourcing company so as to ensure that it adhere to the specifications and terms agreed on. This helps in quick identification of problems and easy rectification incase any predicaments occur (Schuh et al 63).
In summary, the outsourcing company should select the right suppliers, ensure that the suppliers are aware of the company’s goals and objectives so that they can operate in line with them, carefully and clearly structure the contracts to avoid any misunderstandings, monitor the suppliers regularly, have a clear outsourcing vision, provide the necessary support needed by all the participants, review performance of the suppliers and constantly check on the cost benefit analysis so as to have monetary justification at all levels of the purchasing process.
Levels of Outsourcing
There are mainly three levels of outsourcing and an organization can choose any or all of them depending on the needs and expected results. They include; tactical, strategic and transformational outsourcing. Tactical outsourcing is done where there n already a problem in the business functions.
It is aimed at eliminating the problem which could be a financial crisis or even a production problem. When a company is unable to produce quality and adequate products and services, it may opt to outsource purchasing to counter the problem. Tactical outsourcing enhances better products and services for low costs and fewer resources. It offers immediate but short term solutions. Care should be taken in establishing the contract and identifying the best suppliers.
Strategic outsourcing is triggered by the desire of companies and organizations to involve themselves in more strategic functions of the business leaving the basic functions to the outsourced suppliers. For example a company may opt to purchase some items from external vendors as it produces those products it consider most important. Strategic outsourcing aims at establishing long-term value as opposed to the tactical outsourcing aimed at providing immediate but short term solution.
It involves high class and qualified suppliers that are maintained for a long time due to the mutual benefits associated with the relationship. The other level of outsourcing is the transformational outsourcing which combines tactical and strategic outsourcing and aims at creating value through reduction of costs and improved flexibility.
It brings about long term improvements of the business in terms of productivity in all managerial levels leading to high outputs and well established relationships with executive partners (Brown & Scott 21).
Outsourcing and Purchasing
The main aim of outsourcing in the purchasing process is to ensure that clients are satisfied in the products and services provided by the outsourcing company. Outsourcing helps add value to the items involved in purchasing by eliminating some costs such as processing and labor cost that would be incurred if the items or services were to be produced in-house. Its is as well a means through which an organization increases its productivity, efficiency and effectiveness through sharing of responsibilities.
Various processes involved in purchasing can be outsourced for example; purchase request, selection of bidders, bidding process, technical evaluation, commercial evaluation, negotiation, post-award administration and closing of the order.
In purchase request, the company deals with issues like determining the items and products needed by different departments in the organization to deliver their services effectively. In selection of bidders, the company should identify the suppliers that can best cater for the needs of the company, the suppliers qualifications are analyzed in relation to the products and services they offer, after which the bidding process is done.
Technical and commercial evaluation is done where the organization checks on whether the selected suppliers meet the expected standards and quality, based on their proposals, to decide on whether they qualify to be given the work of supplying the goods and services.
Additional changes to the specifications may be included here. Negotiation is the other step where the company starts negotiation with the suppliers selected, after evaluation of cost estimates and specification, on the terms and conditions that will be related to the contract.
Post –award administration include making of minor changes to the agreement incase there is a necessity that have been identified in the course of the process. All changes however minimal should be documented for reference and audit purposes. There should be mutual agreement between the parties so that the necessary action may be taken incase of any breach of the contract. The process is now carried out in accordance to the contract for example delivery and payments procedures are carried out as stipulated by the contract.
The importance of outsourcing the purchasing process is that all the responsibilities involved in purchasing procedures are undertaken by an external body relieving the company of the hustles involved and saving on time and other important resources like personnel.
Conclusion
Outsourcing is an important tool in business due to the various benefits that outweigh the drawbacks associated with it. It is however important to carry out a cost benefit analysis before any outsourcing activity so as to know whether the outsourcing will be beneficial to the company as compared to when the products and services would be produced on an in-house basis.
Works Cited
Barrar, Peter., & Roxane Gervais. Global Outsourcing Strategies: An International Reference on Effective Outsourcing Relationships. London: Gower Publishing, Ltd., 2006.
Brown, Douglas., & Scott Wilson. The Black Book of Outsourcing: How to Manage the Changes, Challenges, and Opportunities. New Jersey: John Wiley and Sons, 2005.
Schuh, Christian et al. The Purchasing Chessboard: 64 Methods to Reduce Cost and Increase Value with Suppliers. New York: Springer Publishers, 2008.
Outsourcing has remained a hot topic in US economy chiefly due to the persistent high unemployment rate and poor state of economy. Pundits have thus waged debates on the merits and demerits of outsourcing often rancorously.
Proponents of outsourcing point at the reduced costs of production and possibilities of added returns to the economy while opponents decry the loss of American jobs to far off countries as their families continue to languish in poverty. Outsourcing has been commended for being rewarding, competent, industrious and tactical. However it has been described as immoral, cruel; abuse of the needy, while devastating societies and economies alike.
Benefits of Outsourcing
Despite official statistics indicating greater benefits of outsourcing and globalization, Mandel (n.p.) argues that outsourcing of the manufacturing jobs to such destination like India and China is more harmful to the US economy than any possible benefits derived from it.
According to Mandel, outsourcing also means that typical American wage bill registers minimal growth due to the pressure for jobs and threat of off shore shift for the production units.
Thorough investigations by the BusinessWeek magazine outlines how the Bureau of Labor Statistics (BLS) has being quoting erroneous economic statistics on yields from the manufacturing zones actually conducted outside the country as if emanating from the US, hence giving flawed GDP figures.
The BusinessWeek‘s study of the import price statistics disclose off shoring to low-priced nations is in reality generating “phantom GDP” accounts – approximated at $66 billion thus negating any real domestic outputs as confirmed by the Bureau of Economic Analysis (BEA) charged with assembling the statistics (Mandel n.p.)
According to Chapman, the loss to the US economy due to outsourcing is reflected in the approximately “$2.2 trillion in untaxed profits” by the corporations that translates to about “$800 billion in lost tax” (n. p.). In 2006, the corporations were permitted to inject the funds back to the US at a rate of 5-1/4 percent duty which Chapman argues could lead to a loss of $1 trillion in levies to the public as opposed to the standard rate of 35 percent if applied again.
The existing statutes and taxation policies branded “territorial taxation” only allows international corporations to be just taxed in the country of operation thus leaving windows of opportunity for firms to register in tax havens like the Cayman Islands, devoid of any corporate levies. Chapman thus argues that this inopportune policy only encourages large corporations to seek off shore destinations to the detriment of American jobs.
Politics in the Debate
While US unemployment figures maintain an all time high, Wolverson and Gardner quoting Congressional Research Service statistics describes how employment by US firms in China has grown by a staggering 153 percent from 2003 to 2008. Nonetheless the authors still assert that despite the disparate foreign investments by US firms, the revenue growth results in increased growth domestically as the funds are reinvested in the country.
Thus Wolverson and Gardner maintain that the proposals for corrective levies on US multinationals are political since the linkage concerning tax guidelines and employment is rather shaky. The heavy tax rates (39 percent) within the US have also being linked to the impetus for corporations shifting operations offshore when compared with other OECD countries’ average of 27 percent or with the negligible levies applied in Ireland.
Corporations thus result to tax-evasion tactics by registering their businesses in “tax havens” where corporate taxes are non-existent while others apply “tax deferrals” measures whereby US corporations are allowed to delay payments to domestic firms as they retain earnings under foreign registered affiliates.
The trend in outsourcing and offshoring are irreversible thus the sooner the American public comes to terms with corporations seeking to keep afloat by sourcing cheaper labor the better. Conventional business models are simply unworkable in contemporary globalised market economies.
Citing the case of Japan which faced the same dilemma in the 1990s when it manufacturing sector collapsed due to elevated cost of production and had to relocate these units to China, Dwivedi argues that for American firms to remain competitive and relevant in the current mode, outsourcing is inevitable.
The customary advantage of American firms attracting the best workers from all over the globe has now been eroded as corporations seemingly relocate to tap the creative minds at their source as exemplified by IT firms settling in India and the Philippines. Dwivedi has developed a framework that he alleges can assist firms apprise their options vis-à-vis the need for offshore or outsourcing prior to relocating business units (figure: 1).
Figure 1
Mann (282) has additionally outlined some advantages inherent in outsourcing particularly in the macroeconomic sphere. Giving the examples of IT hardware innovation which has seen components outlay reduced tremendously; she argues this has been made possible by the infusion of fresh ideas from the offshore centers.
The division of the business units to enable corporations capitalizes on the diverse cheaper production centers have enabled production expenses to greatly reduce in what Mann calls “the fragmentation of production and international division of labor” (299). Businesses also gain with higher skills for employees and new models injected as lowered expenses bring better yield while taping into the overseas markets also opens fresh markets for US firms (Mann 309).
Drezner alleges that most opponents of offshore outsourcing initiatives by US firms are typically playing politics and literally ignore the underlying factors forcing corporations to seek external expansion.
This debate often heats up throughout the presidential elections year as politicians seek political capital from low employment alleging the trend in offshore relocations as the cause of declining levels of new jobs. A statement by Gregory Mankiw, the leader of President Bush’s Council of Economic Advisers that “outsourcing is just a new way of doing international trade” incensed a House Small Business Committee hearing in October 2004 (Drezner n.p.).
Advantages through Globalization
Nevertheless, Drezner asserts that though some multinational corporations’ maybe taking advantage of globalization to enhance their profits by outsourcing, the expansion of the internet has made US workers lose their long held advantage of gaining well paying jobs in the face of globalised competition that lead corporations seek the best skilled employees globally.
Drezner thus maintains that protectionism will be catastrophic with insignificant expansion, inferior returns and less work for American employees’ ensuing, concluding that “offshore outsourcing is not the bogeyman that critics say it is” (n.p).
Kirkegaard (9) has supported the argument that US job losses due to outsourcing are largely exaggerated. Citing labor statistics, he asserts that job turnover rates have been consistent every quarter with forecasted losses of 3.3 million job losses in 15 years as not very alarming as job creation is also in tandem with the trend or sometimes higher (figure: 2). Kirkegaard (17) cites the over 70, 000 programmers while 115,000 better salaried software engineering jobs were created since 1999.
Figure 2
Similarly Kirkegaard (17) argues that job losses may be prevalent in some states while gains are recorded elsewhere as job patterns change as evidenced in the production job losses in Michigan paralleled by gains in Colorado. Nevertheless many jobs have been lost in the manufacturing sector apart from the noted white collar job losses while even esteemed managerial positions have been affected (see Figure:3). The author however notes that the lower end jobs lost could have been eventually wiped out by technological advances.
Figure 3
Bhagwati et al (11) have argued that numbers of outsourced US jobs are too negligible to elicit the kind of debate prevalent. Similarly, the authors claim that allegations of high value job losses are improbable given that the better skills acquired outweigh the losses. Most Americans (69 percent) however blame the trend of offshore outsourcing as the main factor to reduced employment with an Associated Press-Ipsos poll in May 2004.
The authors however insist that “outsourcing is a relatively small phenomenon in the U.S. labor market” which is far offset by the relative gains in equivalent business in is thus a phenomenon of international trade that will eventually be evened out as the long term benefits seep in Bhagwati et al (35).
Mankiw & Swagel (1056) examining the impact of the political impact upon the release of the Economic Report of the President (ERP) in 2004 support the assertion that the economic impact of outsourcing on US economy and labor markets is insignificant. The authors maintain that the recession experienced and job losses between 2001 and 2004 cannot be solely attributed to the offshore outsourcing phenomenon.
On the contrary, the authors maintain that outsourcing by the corporations imply that enhanced offshore jobs abroad by the U.S. transnational partner firms can be linked to additional jobs for the domestic labor markets. But for most multinationals, as one the authors (Mankiw) asserted before a Congressional House Committee in Feb. 2004, “when a good or service is produced more cheaply abroad, it makes more sense to import it than make or provide it domestically” (Wolverson and Gardner).
Nelson (2) underlines the attacks on outsourcing are some of the fallacies advanced by critics of globalization who find the idea of offshore jobs as the most visible adverse effect of globalization. Although critics offer minimal empirical studies to back their arguments, Nelson asserts the political implication of job losses in the domestic front render the detractors’ credence together with the anti-immigrants decry the offshore relocations by the conglomerates.
More recently, Trade & Global Market an economic think-tank organization maintained that there are more gains from outsourcing than losses to the US economy. Citing Federal statistics, they state that outsourcing actually generate $50 billion to the economy net earnings from the offshore firms as a quarter of the labor market is concentrated in the two most controversial segments (see Figure: 4).
Figure 4
Thus outsourcing has direct implications on domestic economy and international trade as returns from enhanced trade relations translates to extra markets for US goods and products according to the Thomas Donohue, US Director General of Commerce (“U.S. and Global Trade”).
Outsourcing has nonetheless been linked to various adverse effects on the populace as the US unemployment rates continue to soar. Jobless citizens are a strain on the public with many more people forced to seek Social Security and Medicare benefits while the consumption rates continue to deep even further.
State and Federal governments also lose out on possible revenue from taxation (Mandel). Outsourcing also leads to loss of skills as less Americans are needed to undertake some jobs like in IT and engineering while much of the infrastructure that goes in hand with the production process is neglected or altogether not developed.
Although service jobs are mostly for unspecialized skills, the loss in the labor sector is detrimental to the economy as the workers therein absorb outputs from the manufacturing segment. Likewise, the service sector provides most of the labor market with almost 80 percent hence losses to the sector mean a heavier impact on the economy (Chapman n.p.).
Drezner thus admits that outsourcing though largely beneficial to the industry players, is in fact harmful to the labor market and populace as high unemployment leads to less people able to purchase housing and other amenities. Similarly there have been suggestions that most companies in their haste to seek offshore domestications often neglect to seek more viable US domestic locations in diverse states that can similarly offer subsidized labor market and can safe on relocation costs among other expenses.
Conclusion
Although the incidence of high taxation levels in the US economy have been cited as reasons for firms seeking offshore locations and outsourcing, some economic analysts have refuted this claims as evidence indicate that US multinational corporations actually pay less duties unlike the erstwhile quoted OECD countries.
Some of the real reasons maybe the desire to reduce production expenses occasioned by high labor wages and the tightening of accounting reports in the aftermath of the Sarbanes-Oxley after corporate scandals (Beale). Thus sustaining American businesses against globalization effects is more paramount in the long term than upholding US labor markets which can have damaging impact on the US economy as protectionism is impractical in the contemporary digital internet age.
Works Cited
Beale, Linda. “Corporate Taxes from the AEI perspective–the AEI report gets an F.” Angry Bear, 20 Feb. 2011, angrybearblog.com/2011/02/corporate-taxes-from-aei-perspective.html..
Bhagwati, Jagdish et al. “The Muddles over Outsourcing.” The Journal of Economic Perspectives, no. Fall, 2004, 1-42.
Chapman, Bob. “Outsourcing and Offshoring in the Global Economy: US Corporations Moving to Offshore Tax Havens.” International Forecaster, 21 Sept. 2011, www.globalresearch.ca/outsourcing-and-offshoring-in-the-global-economy-us-corporations-moving-to-offshore-tax-havens/26708..
Drezner, Daniel W. The Outsourcing Bogeyman. Foreign Affairs, no. May/June, 2004, www.foreignaffairs.com/articles/united-states/2004-05-01/outsourcing-bogeyman..
Dwivedi, Jay. Impact of Offshoring on American Economy. 2008, Iiproceed.com. .
Kirkegaard, Jacob F. Outsourcing—Stains on the White Collar? Institute for International Economics, 2004.
Mandel, Michael. “The Real Cost Of Offshoring.” Bloomberg. 2007..
Mankiw, Gregory N. and Phillip Swagel. “The politics and economics of offshore outsourcing.” Journal of Monetary Economics, vol. 53, no. 5, 2006, pp. 1027-1056.
Mann, Catherine L. Offshore Outsourcing and the Globalization of US Services: Why Now, How Important, and What Policy Implications. Policy Brief PBO 3-11, Institute for International Economics, 2005.
Nelson, Doug. “Outsourcing and the Political Economy of Globalization: A Discussion Note.” The Political Economy of Globalization: How Firms, Workers, and Policymakers Are Responding to Global Economic Integration. Center for Globalization and Governance, 2005. pp. 2-7.
U.S. and Global Trade Benefit From Outsourcing. PR-GB.com. 2010, app.officebeacon.com/ecomm/US-And-Global-Trade-Benefit-From-Outsourcing%5B1%5D.pdf..
Wolverson, Roya and Eric Gardner. “Outsourcing Jobs and Taxes.” The Council on Foreign Relations. 11 Feb. 2011, www.cfr.org/backgrounder/outsourcing-jobs-and-taxes..
Throughout their lifetime, business entities are considerably pressured to raise their performance levels and productivity. This is evident in today’s businesses which are characterized by aggression and excessive competition. These situations forces businesses to exhibit innovation and improve their performance in a bid to ensure their survival in an unforgiving business environment.
To this effect, many businesses have shifted to offshore outsourcing in a bid to lower costs and consequently, improve their chances of survival in an unforgiving business environment. While there is documented proof on how offshore outsourcing has benefited businesses and participating countries economically, heating debates have recently emerged citing this practice as a threat to various economies.
As such, despite its benefits, offshore outsourcing should be abolished if the US economy is to survive and maintain its global position. In this regard, this paper shall set out to explore the reasons as to why this practice should be abolished in the United States. This shall be achieved by highlighting the effects offshore outsourcing has on human resource, customer satisfaction, management of business activities and risk management.
Offshore outsourcing: A brief overview
Applegate et al define outsourcing as a business strategy through which a business entity hires an external organization (located in another country) to perform specific tasks on its behalf (8). It is a business strategy that has gained momentum in the last decade mainly due to its effectiveness in cost reduction and access to special technical and application skills.
However despite the benefits that have been documented regarding offshore outsourcing, there exist various negative social, technological, economical and legal implications resulting from this strategy.
Abolishment of offshore outsourcing: justification
Managerial issues
Key among the major disadvantages of outsourcing is dependency on other organizations for the success of a business. Once an organization outsources some of its activities to another company, it losses all its managerial control regarding those activities. In addition, Katsioloudes and Hadjidakis argue that it is more difficult to manage outside suppliers than it is to manage one’s own employees due to differences in thought processes (42).
As such, outsourcing has led to a situation whereby buyers suffer immense losses due to disparity in performance and lack of a shared vision between the buyer and the seller of outsourced services. This in turn affects the productivity of the outsourcing organization. It is with this fact in mind that outsourcing should be abolished.
Human resource issues
Arguably, offshore outsourcing has led to a significant increase in the unemployment rates I America. Proponents of this practice argue that the profits gained from outsourcing can be used to better the economy and provide more jobs due to an increase in market share. However, recent statistics indicate that more than one in every three employees who have lost their jobs to outsourcing remains unemployed, or finds low paying jobs.
This not only hurts the employees but also the economy by reducing the income tax levels. In a recent study, the results indicated that more than 400,000 jobs had already been outsourced in America. Future predictions showed that the figure would increase to 3.3 million jobs by 2015 (Hasan 1). That means an average of 600,000 jobs each year would be snatched off the American labor force. This will invariably have negative implications on the creation of national wealth as well as economic development within the United State.
Increased government spending
The government revenue comes mainly from income and sales taxes. Outsourcing has reduced the level of these payments due to its negative impact on employment. As such, the government has in the recent past experienced increased spending partly due to an increase in outgoing payments for unemployment benefits. In addition, a decrease in employment opportunities means less tax revenues for the government. This in turn affects our government’s ability to efficiently fund our educational, health and social security systems.
Compromise to intellectual property and trade secrets
In most cases, outsourcing companies often have to share their technology and technical know-how to the overseas workers. Such provisions come at a great cost because the parent companies lose their competitive edge once the outsourcing contract comes to an end. This is mainly attributed to the fact that most overseas companies have been able to assimilate the technology and strategies used by Americans companies.
According to Swoyer, 20 to 35 percent of all outsourced projects are never revived after their completion (27). As such, the overseas companies are left with valuable skills which may be used at a later time to service other clients. This has led to a sad state whereby overseas companies are constantly out-competing the US companies even in the local markets. This affects US’s market share on the global scene, thereby reducing the rate of its economic growth.
Cultural and lingual erosion
One of the distinguishing features of different groups is their communication system, culture and language. In most cases, the cultural practices adopted by a group of people determine their attitude towards timeliness. Katsioloudes and Hadjidakis state that while some cultures believe in time keeping, others have a relative view towards the same (41).
For example, cultural practices adopted by US and Germany perceive time as a tangible asset whereas in Latin America and Asia, the attitude towards time is more relaxed (Katsioloudes and Hadjidakis 41). Such attitudes may result in parent companies incurring losses from low sales as well as damage to their credibility and reputation.
A good example regarding this cultural and lingual barrier is the dell corporation. The company had to cut short its contract due to an increase in complaints from its clients. The customers stated that most of the services offered were not as efficient and timely as they would have hoped for.
In such cases, US corporations often have unresolved issues regarding the concepts of time and quality of service around the world due to cultural differences. This not only affects the business but also the level of future earnings because an unsatisfied client is not likely to solicit services from the same company again in future.
Discussion
While many would argue that outsourcing presents American firms with an opportunity to lower costs, prices, increase market share and tap specialized talents, outsourcing is slowly becoming a risky practice in regard to maintaining or improving the American economy.
Not only will outsourcing increase the level of unemployment, but it will also reduce the disposable income of the masses, all the while affecting American corporation’s ability to compete effectively in the global market. As such, the government should put in place policies that safeguard its citizenry against such job losses.
Conclusion
Evidently, outsourcing is a business strategy that is gaining momentum in corporate America. Despite its benefits, this trend is proving to be an unmanned ticking time bomb. Its long-term effects on our economy may lead to civil and social unrest due to an increase in poverty level and lack of adequate employment opportunities.
Throughout this paper, an elaborate discussion highlighting the negative effects of outsourcing has been presented. Recommendations on how the associated risks can be averted have also been outlined. While outsourcing may seem as a good business strategy, business leaders should tread carefully since the long-term risks far outweighs the short term benefits accrued from this practice.
Works Cited
Applegate, Lynda et al. Corporate Information Strategy and Management (6th Edition). New York: McGraw-Hill Irwin, 2003. Print.
The India’s economic liberalization policies have created a competitive economic environment for growth and trade over the years. Basically, the India’s economic growth has been possible as a result of the expansionary policies geared towards sustainable trade in a friendly market. This analytical treatise attempts to explicitly review the importance of international economics, the principle of comparative advantage, and modern trade theory from the article, “India, known for outsourcing, expands in industry”.
International economics, comparative advantage, and modern trade theory
The article shows that a good economic policy model should have five key attributes to spur growth and attract economic boom. Same as the situation in India, it should have a good management system for its public and debts finances. The second aspect considers arrangements that ensure stability in monetary policies. Thirdly, a government has to create incentives that help in modeling domestic and international economic development goals.
Fourthly, the economic system shouldensure that there is creation of an independent system of operation. This helps in setting and dealing with the economic policies that create desirable trade conditions in the economy. The last aspect under consideration is the development of a well established security market by the government to ensure sustainability of its economic development policies, targeting the global market (Giridharadas, 2006).
The increase in demand from the domestic consumers as well as the international consumers may catalyze any growth in trade. International demand is stimulated by improved terms of trade between the home country and other countries. Moreover, a rise in factor productivity may ensure that the trade is sustainable, as is the case in India (Giridharadas, 2006).
As stated in the modern trade theory, the current modernization strategies by the developing India and the rapid growth of capital have contributed to the mobilization of capital from the domestic and foreign sources. On the other hand, the comparative advantage holds in the current economic climate of India.
In fact, under comparative advantage, trade has become advantageous between India and other parts of the world due to incentives such as tax holidays, cheap labor, and support given to investors (Giridharadas, 2006). Besides, the comparative advantage has inspired differences in price and skills mix that can be attributed to the current affordable cost of doing business in India.
Comparative advantage and increased domestic employment
Reflectively, production factors remain different in countries. These factors of production are the basis of trade between countries. For instance, India has plenty of labor while the United States has plenty of capital.
Through trading on these grounds, India and America may narrow their differences in wage. India may provide cheap labor in exchange for capital investment in different sectors. As a result of capital investment from foreign countries in India, the domestic employment rate will increase as companies will employ more local workers (Giridharadas, 2006).
Basis of comparative advantage in the US
The US has a massive capital accumulation which is a vital factor of production. For instance, the composition of the United States’ resources explains its imports and exports composition, especially to other parts of the world.
Specifically, under individual sector scrutiny, it is apparent that trade has become more of a partnership function than mere exchange of goods and services (Giridharadas, 2006). These partnerships also deal with social aspects of trade. Apparently, the famous AGOA trade pact between America and its partners has been very helpful to the parties due to the benefits of comparative advantage on trade.
Conclusion
From the above reflection, it is apparent that international economics come into play in the global trade arena. The aspects of comparative advantage and modern trade have placed India in a strategic global trade position.
Outsourcing U.S. workers means that full-time workers are obtained from less developed countries where the wages are lower, and labor laws are tighter. It is facilitated by the availability of the internet that makes it easy to assemble and manage remote teams of workers.
The increasing economic pressure in the globe facilitated by the developing world as a competitor has forced all firms to rely on contracts. Many small and midsized businesses need to develop technology in the new global market to be effective in outsourcing.
Findings
Detriments of outsourcing to the U.S. workers
Having people from foreign countries, work for U.S firms affects the economy of the U.S. negatively by leaving a large number of Americans jobless. The availability of cheap labor in other countries is permanent, and the American workers could lose jobs forever since outsourcing does not leave enough jobs for the Americans.
Outsourcing reduces spending and tax revenues since Americans in poverty find it difficult to get a job although they are willing to do the jobs. Outsourcing relies much on service jobs, which do not disburse as much as manufacturing jobs thus reducing the national wealth.
Benefits of outsourcing to the U.S. workers
Outsourcing maintains the country’s economic status: America exports products to the rest of the world more than any other nation by taking advantage of the emerging markets of India and China. The country takes advantage of the global world we currently live in to become rich. It is crucial to selling products to new world markets due to the product brand.
If the country fails to involve itself in outsourcing, it may end up losing both the foreign and domestic market. Irrespective of the country’s decision to stop outsourcing, other first world nations such as EU members and Japan will continue networking.
Outsourcing reduces American companies’ efficiency and competitiveness due to a shortage of supply of skilled workers. The cheap labor got from outsourced workers reduces the costs of production, which consequently reduces the costs of US consumers. Outsourcing in the U.S. benefits HP and IBM.
It also helps improve and maintain the global economic status of the country. In case it stops to outsource, other countries will. The countries economy relies on outsourcing and the more it gets involved globally, the more successful it becomes. Hence, the U.S. should not discourage the practice of outsourcing.
Outsourcing creates jobs: The cost savings and use of offshore resources reduce inflation and interest rates while increasing productivity. It helps to get high-quality services at a cost-effective price. It causes an increase in business profits, productivity, level of quality, and business value and performance.
It helps American firms obtain skilled and qualified workers that help them increase the concentration of the employees and the organization on the core business by outsourcing all the non- core functions. Outsourcing helps firms increase delivery of services and products to customers hence improving the relationship of the business and the customers.
Outsourcing makes use of time zones advantages reducing time wastage. It helps businesses to achieve overall efficiency by assigning some functions to the partner. By availing a competitive edge to firms, it helps countries increase their economic growths, jobs, and wages.
Outsourcing benefits workers from health insurance: Outsourcing involves a variety of medical insurance plans, retirement/pre-tax plans, flexible spending accounts, employee assistance programs, credit unions, and financial services.
This helps to create a flexible work environment by improving employee satisfaction and reducing attrition and unscheduled absences. Due to the availability of these benefits, outsourced employees are motivated to provide quality products and services to the firm.
Discussion
Outsourcing remunerates the U.S. shareholders by reducing the costs of production and American consumers by reducing the costs of their needs, wants, and affects American workers by leaving them jobless. It positively affects the economies of developing countries and increases trade for U.S. products.
It gives the ability to the less developed countries to pay back their debts to the U.S. It is difficult to eliminate outsourcing given the current trend in globalization. The rate of employment is decreasing although the number of unemployed is not decreasing. Skilled workers find themselves seeking self-employment.
Conclusion
Corporations employ outsourcing largely used as a means of cutting costs by replacing highly paid workers in one country with lower- paid workers who perform equivalent jobs from other countries. The availability of low-wage, educated, and skilled workers in countries such as India, China, and Russia provides a key motivation for U.S. corporations to outsource jobs.
It leads to the replacement of large numbers of blue-collar manufacturing jobs, white collar and IT technology jobs with outsourced workers hence increased unemployment. Outsourcing leads to loss of worker control since it is difficult to manage outside service providers. Also, it is a threat to security and confidentiality, quality problems, and bad publicity of company and consumer information.
Recommendation
U.S. workers’ unions should oppose the outsourcing of workers in the US. Shifting of production and jobs to foreign location causes problems to many workers due to the conflicting needs of companies, national economies, and individuals. U.S. corporations should try their best to balance outsourcing workers to prevent future economic problems to workers in their own country and ensure good public relations.
Outsourcing in the United States has generated both negative and positive feedbacks. However, scholars and non-scholars talk about subcontracting jobs as causing loss of jobs for the Americans without looking at how it benefits the U.S. economy. In fact, literature shows that outsourcing benefits both the U.S. and foreign economies that are involved in the process.
The benefits are not just through boosting the U.S economy, but also foreign countries’ economies (Coontz 1). Thus, given the benefits of outsourcing, any country should embrace the activity as it generates positive effects to societal entrepreneurs.
Outsourcing can be defined as the arrangement made by a company, which seeks the assistance of another company that has the necessary skills it lacks to provide services it requires. The trend is becoming common especially in the manufacturing industry.
Companies often use outsourcing to reduce costs via transferring some of the workloads to the outside suppliers. In most cases, outsourcing is a very cost-effective initiative if it is used correctly (Bartlett 1). Thus, outsourcing is always a way of reducing the operational costs or redesigning a company to maximize on the profits.
Most savings that occur through overseas states are enhanced by the United States’ economies that subcontract jobs to these alien corporations. Having companies in other countries create trust among the investors. In fact, perceptive investors can see their money put to work and ensure that countries maintain peace for the investments to thrive.
These reserves aid in the development of the nations’ markets via offering employments for the jobless thus raising the lifetime standards. Therefore, subcontracting jobs allows the state to purchase more exports from the U.S. hence increasing the U.S. revenues (Coontz 2).
The economies of different countries have been built based on outsourcing. A case illustration is Singapore that takes part in subcontracting its services to overseas states. In fact, the current economy depends on global marketing in all parts of the world.
The United States greatly depends on the importations and subcontracting of jobs to other states implying that it is included in the international marketplace. The U.S cannot rely on sales from the U.S only. Thus, to be on the competitive edge with other countries, it has to be a part of the global market through outsourcing (Correnti 3).
The United States can obtain merchandises from the overseas nations inexpensively due to subcontracting since such commodities do not necessarily have to be imported. Since foreign labor is often less costly, there will be an increase in the company’s profits making the goods cheaper for the U.S consumers who buy the commodities for personal use. As a result, subcontracting jobs benefit most producers from the U.S that produce exports given that their products have ready markets (Bartlett 1).
The United States currency is utilized as a global exchange denomination in almost half of the world. The U.S being a large country makes its dollar or currency largely acceptable. In turn, this gives the country’s banks an advantage when it comes to investing. For instance, the U.S banks can help the foreign countries’ investors with financial aid making the United States the financial superpower and a well-respected country (Correnti 5).
Outsourcing provides the best talent for the job required. The situation creates a competitive advantage for the company outsourcing since it encourages innovations and development of great ideas. The company only outsources work to countries where the necessary skills required are found thus benefiting the society (Coontz 1).
In conclusion, nations often profit from unrestricted commerce whether it involves services or properties. Subcontracting concerns the exchange of services athwart global boundaries. If a country is good at one skill compared to the other state, then they are allowed to trade their services.
For a country to develop economically, it should be able to outsource services otherwise it will be excluded from the global market and lose its market share (Correnti 4). Therefore, given that outsourcing has varied benefits, it should be accepted in any country with little government involvement and adjustments to the policies at hand.
Works Cited
Bartlett, Bruce 2004, “How Outsourcing Creates Jobs for Americans.” The National Center for Policy Analysis Journal. Web.
Coontz, George. “Opinion: The Benefits and Costs of Outsourcing Jobs.” The Place Park Place Economist, 12.1(2004): 1-3. Print.
Correnti, Madison 2014, Outsourcing Overseas and its Effects on the U.S Economy. Web.
Bhagwati, Jagdish et al. “The Muddles over Outsourcing.” The Journal of Economic Perspectives, no. Fall, 2004, 1-42.
Bhagwati, Panagariya, and Srinivasan argue that the often claimed job losses in the US as result of outsourcing are negligible arguing that long term gains were inevitable despite the continued high unemployment rates persisting.
Chapman, Bob. “Outsourcing and Offshoring in the Global Economy: US Corporations Moving to Offshore Tax Havens.” International Forecaster, 21 Sept. 2011.
“The Truth Is Offshore” is an article by Bob Chapman who decries the incidence of the tax regime in the US that allows firms to defer remitting taxes and thus able to hide their revenues in the so-called tax havens offshore. Chapman thus opposes outsourcing as leading to loss of thousands of jobs and “territorial taxation” that enable US firms avoid taxation leading to tax losses of billions to the country.
Drezner, Daniel W. The Outsourcing Bogeyman. Foreign Affairs, no. May/June, 2004, .
Daniel W. Drezner is an Assistant Professor of Political Science at the University of Chicago and the author of “The Sanctions Paradox.” In this article, Drezner alleges that politics have crowed the debate on outsourcing as debate on the merits and demerits of job losses lender the debate acrimonious. He argues protectionism could only be harmful to the US economy and that statistics depicted by proponents of outsourcing as erroneous.
Dwivedi, Jay. Impact of Offshoring on American Economy. 2008.
Dwivedi supporting the need to outsource alleges the trend is irreversible in view of the globalization trend. Contemporary business necessitates businesses to be more competitive to remain relevant. He then cites the example set by Japan during the 1990s as illustrative of economies readjusting to remain relevant.
Kirkegaard, Jacob F. Outsourcing—Stains on the White Collar? Institute for International Economics, 2004.
Kirkegaard has also supported outsourcing and asserts that projected job losses are moderate and are outweighed by the gains in jobs created. He consequently gives statistical evidence in the IT sector to prove this. Kirkegaard also argues though job losses may severe in some states, they are recouped in jobs created in others and similarly gives an example of Michigan and Colorado.
Mandel, Michael. “The Real Cost Of Offshoring.” Bloomberg. 2007.
BusinessWeek is an authoritative business journal run by Bloomberg that writes on topical business issues. Michael Mandel in this investigative article by the periodical alleges that US Bureau of Labor Statistics (BLS) has being quoting erroneous economic statistics on the economy mostly based on outsourced and offshore business. The article also thus reveals the inherent danger of outsourcing as more jobs are lost to offshore locations without any tangible benefits to the economy.
Mankiw, Gregory N. and Phillip Swagel. “The politics and economics of offshore outsourcing.” Journal of Monetary Economics, vol. 53, no. 5, 2006, pp. 1027-1056.
Mankiw and Swagel have also cited political interpretation as the reason why critics are against outsourcing. The authors argue that outsourcing can lead to more jobs domestically as profits are channeled back. Job losses according to the authors are also due to other militating factors like global recession.
Mann, Catherine L. Offshore Outsourcing and the Globalization of US Services: Why Now, How Important, and What Policy Implications. Policy Brief PBO 3-11, Institute for International Economics, 2005.
Mann is a renowned economics professor has also supported outsourcing outlining how it has generated more innovation while reducing production expenses. She cites the growth in IT as some of the benefits derived from outsourcing as the best brains are sourced globally.
Nelson, Doug. “Outsourcing and the Political Economy of Globalization: A Discussion Note.” The Political Economy of Globalization: How Firms, Workers, and Policymakers Are Responding to Global Economic Integration. Center for Globalization and Governance, 2005. pp. 2-7.
Doug Nelson has linked the critics of outsourcing to the misconceptions advanced by the proponents of globalization. He subsequently argues that statistics indicate that outsourcing has more advantages than disadvantages to the economy hence should be sustained
U.S. and Global Trade Benefit From Outsourcing. PR-GB.com. 2010.
The Trade & Global Market organization have argued in this article that outsourcing inevitably improves trade relations and is thus beneficial to the economy
Wolverson, Roya and Eric Gardner. “Outsourcing Jobs and Taxes.” The Council on Foreign Relations. 11 Feb. 2011.
Wolverson and Gardner supporting outsourcing argue that despite job losses domestically, there tangible gains as the funds gained overseas are reinvested back domestically. Moreover they decry the high rate of taxation in the US as pushing firms out of the country.
Works Cited
Bhagwati, Jagdish et al. “The Muddles over Outsourcing.” The Journal of Economic Perspectives, no. Fall, 2004, 1-42.
Chapman, Bob. “Outsourcing and Offshoring in the Global Economy: US Corporations Moving to Offshore Tax Havens.” International Forecaster, 21 Sept. 2011, www.globalresearch.ca/outsourcing-and-offshoring-in-the-global-economy-us-corporations-moving-to-offshore-tax-havens/26708..
Drezner, Daniel W. The Outsourcing Bogeyman. Foreign Affairs, no. May/June, 2004, www.foreignaffairs.com/articles/united-states/2004-05-01/outsourcing-bogeyman..
Dwivedi, Jay. Impact of Offshoring on American Economy. 2008, Iiproceed.com. .
Kirkegaard, Jacob F. Outsourcing—Stains on the White Collar? Institute for International Economics, 2004.
Mandel, Michael. “The Real Cost Of Offshoring.” Bloomberg. 2007..
Mankiw, Gregory N. and Phillip Swagel. “The politics and economics of offshore outsourcing.” Journal of Monetary Economics, vol. 53, no. 5, 2006, pp. 1027-1056.
Mann, Catherine L. Offshore Outsourcing and the Globalization of US Services: Why Now, How Important, and What Policy Implications. Policy Brief PBO 3-11, Institute for International Economics, 2005.
Nelson, Doug. “Outsourcing and the Political Economy of Globalization: A Discussion Note.” The Political Economy of Globalization: How Firms, Workers, and Policymakers Are Responding to Global Economic Integration. Center for Globalization and Governance, 2005. pp. 2-7.
U.S. and Global Trade Benefit From Outsourcing. PR-GB.com. 2010, app.officebeacon.com/ecomm/US-And-Global-Trade-Benefit-From-Outsourcing%5B1%5D.pdf..
Wolverson, Roya and Eric Gardner. “Outsourcing Jobs and Taxes.” The Council on Foreign Relations. 11 Feb. 2011, www.cfr.org/backgrounder/outsourcing-jobs-and-taxes..
Through the process of globalization markets around the world are experiencing a greater degree of interconnectivity resulting in a far more efficient process of global capital flows and resource allocation. In other words resources from one area in the world can now be allocated to another area in the world in a faster, cheaper and more efficient way.
This is an important factor to take into consideration due to the fact that as the “green movement” progresses within the U.S. and new forms of legislation are enacted to force companies to comply with stricter environmental standards this creates a distinctly “unfriendly” business environment for companies to continue operations in.
Why do Companies Outsource?
When factoring in the high cost of American labor, high local and government taxes as well as higher utility cost expenditure as compared to that in other countries it becomes obvious as to why companies are outsourcing their business processing and manufacturing sectors to locations such as China, the Philippines and India.
In such locations not only is the minimum wage lower but utility expenditure is cheaper, local environmental laws are more lax and companies are able to be more flexible in terms of how they want their operations to grow and develop.
Implications
Unfortunately the long term implications of the outsourcing movement is a decrease in the American manufacturing sector as more and more jobs go to foreign countries.
Also it must be noted that there are environmental implications that should be taken into consideration since the reason why the “green movement” has become so prevalent in the U.S. is related to the fact that it is often the case that unregulated and unrestricted manufacturing processes often result in adverse impacts on the local environment.
As noted in the case of China and India where a majority of outsourced manufacturing has been going, it was seen that between the 1990s to the present the level of toxic chemicals in the air and water has increased exponentially due to the rather lax environmental standards for the disposal of industrial waste during the manufacturing process.
Corporate Social Responsibility
What must be understood is that while companies are not directly liable for activities before particular laws have been enacted against them all companies should at least follow a certain degree of corporate social responsibility (CSR) during normal business processes.
CSR is a way in which a company limits its actions in order to comply with certain ethical standards and principles, the goal of which is a positive impact on the local community and environment (KRENG & MAY-YAO, 2011).
The reason behind this is connected to the way in which a company is perceived by consumers which results in either a positive or negative company image which will impact consumer patronage of a company’s products and services.
Thus, it can be seen that in cases where there is a necessity to perform a certain degree of “due diligence” in cases where a company has to fix a problem when certain laws prohibit particular actions then under CSR a company must do so in order to maintain a positive public image.
Conclusion
As such, in the case of damage control in the case presented what will be done is for the company to immediately take responsibility and fix the problem under the tenets of CSR however based on the possibility of future problems such as this surfacing in the future it would be recommended that the company’s manufacturing facilities be transferred to locations abroad where environmental regulation laws are less strict so as to prevent future regulation problems from occurring.
Reference
Kreng, V. B., & May-Yao, H. (2011). Corporate Social Responsibility: Consumer Behavior, Corporate Strategy, And Public Policy. Social Behavior & Personality: An International Journal, 39(4), 529-541.
