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Outsourcing refers to the process by which a third party is hired to perform services meant to be conducted typically by the company. It is also defined as the business practice where an outside party is contracted to cater to some tasks instead of hiring new personnel or assigning the job to be performed to the existing staff (Kuteynikov, 2020). Cutting labor costs through privacy has been the controversial thing hindering it due to the doubt of skill copying. It can be local or international, where globalization has led to manufacturers outsourcing in developing countries because of cheap labor and low tax (Petersen et al., 2019). An example illustrating the concept is when a bank outsources the services of customers. A third party may handle the case when a customer develops an inquiry or complaint in line with online banking. By so doing, the bank has become the most effective in capital allocation, given both consumer demands and the specialty of third-party attributes. Alternatively, Ford Motor Company has its headquarters in Michigan in the U.S outsources its operations in many countries and has positive and negative consequences in the countries involved in the process.
The creation of employment is one advantage of outsourcing operations. When Ford Motor Company gets its function from China, then it creates work for China’s people. Job leads to people earning income which is used to pay taxes to one country. This, in return, leads to the economy of the country being raised. In our case, the home country, that is the U.S, benefits due to the profits realized by the contracted operation. When companies help outside party by providing jobs, people change from their traditional ways to working in the industries, making more income, which boosts the host country’s economy. The home country benefits many more and this increases the development gap between the occupied two countries.
The global industry is evolving faster and creating a need for more skills and knowledge in the market-leading to the condition of creating a contract by outsourcing a company’s help that works together with the existing team, which later makes the team acquire new skills and become more competitive. Outsourcing provides a level of continuity and prevents the risk of a substandard group of operations over a short period (Kuteynikov, 2020). Another advantage it has to the business is increased production. The tradeoff is the only challenge due to tradeoff decisions made by the management, which reduces the quality or quantity of service or product in the country.
Outsourcing increases economic efficiency; many companies outsource due to the opportunity cost of doing or producing a good or service by themselves. When highly skilled people can outsource lower-value tasks, then a profit is made by the business. The proponents of outsourcing increase economic efficiency by sharing duties to the appropriately qualified people and allowing highly skilled workers to increase their productivity, hence increasing raising economic efficiency of a country.
Lack of transparency and eroding the company’s loyalty is a result of outsourcing. When workers notice that their job can be outsourced to foreign labor which is cheaper, it creates lack of confidence between them and the employer, hence breeding discouragement. Due to advancement of outsourcing from unskilled jobs to administrative positions, managerial level employees have become not sure about the security of their jobs leading to negative effect to work satisfaction and productivity of workers. It can be disadvantageous to the small medium-enterprises that cannot cope with the competition and end up being closed down, leading to people losing jobs, hence affecting the host country’s development, implying that outsourcing has positive and negative consequences.
References
Kuteynikov, A. E. (2020). Outsourcing Welfare and Other Economic and Political Consequences of Trans-Border Migration. Mirovaia ekonomikai mezhdunarodnye otnosheniia, 64(7), 117-125.
Petersen, O. H., Andersen, L. B., Bhatti, Y., & Houlberg, K. (2021). Competition, Ownership, and the Impact of Government Outsourcing on Employees. Journal of Public Administration Research and Theory.
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