Outsourcing’s Negative Effects

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Table of Contents

Introduction
Offshore outsourcing: A brief overview
Abolishment of offshore outsourcing: justification
Discussion
Conclusion
Works Cited

Introduction

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.

Hasan Omar. How Outsourcing Affects The U.S. Economy! (September 16, 2008). Web. <https://www.dirjournal.com/blogs/how-outsourcing-affects-the-us-economy/>

Katsioloudes, Marios and Spyros, Hadjidakis. International business: a global perspective. New York: Butterworth-Heinemann, 2007. Print.

Swoyer, Stephen. 2004 Enterprise Systems Outsourcing. (September 14, 2004). Web.

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