Effects of Outsourcing
Effects of Outsourcing- The Positive and Negative
Today, outsourcing has become a hot topic for debate. Whether or not to outsource is one of the hardest business decisions a company has to make. In the past 10 years over 800,000 white-collar jobs have moved from the U.S to countries such as India, Asia, and China. More and more companies are realizing the advantages that come with outsourcing and many see the switch necessary to remain relevant. As with all business decision, outsourcing isn’t without consequences. As the number of domestic jobs being shipped offshore increases so too does the rate of unemployment American workers. This paper will analyze the positive and negative effects of outsourcing and how outsourcing affects the economy as a whole.
One of the biggest reasons companies choose to outsource internal business functions is due to cost savings. Business is and has always been about optimizing value for less. One of the best ways to save money is to outsource some of the tasks required in your business to individuals from other countries. Initially the tasks being outsourced by companies were simple in nature. Jobs such as technical support, customer relations, and administrative functions were among the first to be sent overseas. More recently, the number of high functioning and skilled work being outsourced is more prevalent. In Outsourcing America, Ron Hira states that “Highly skilled, educated labor is far cheaper in many developing countries than it is in the United States. The savings in labor costs can be as high as a factor of 90 percent, though when one counts the additional burdens of management and coordination across thousands of miles, the net advantage is probably closer to 30 percent. For example, outsourcers charge $30 an hour for the services of a programmer in India, whereas they charge $120 for a programmer in the Midwest.” (Hira 67) While cheap labor can look attractive at first glance, companies must be wary of various
Today, outsourcing has become a hot topic for debate. Whether or not to outsource is one of the hardest business decisions a company has to make. In the past 10 years over 800,000 white-collar jobs have moved from the U.S to countries such as India, Asia, and China. More and more companies are realizing the advantages that come with outsourcing and many see the switch necessary to remain relevant. As with all business decision, outsourcing isn’t without consequences. As the number of domestic jobs being shipped offshore increases so too does the rate of unemployment American workers. This paper will analyze the positive and negative effects of outsourcing and how outsourcing affects the economy as a whole.
One of the biggest reasons companies choose to outsource internal business functions is due to cost savings. Business is and has always been about optimizing value for less. One of the best ways to save money is to outsource some of the tasks required in your business to individuals from other countries. Initially the tasks being outsourced by companies were simple in nature. Jobs such as technical support, customer relations, and administrative functions were among the first to be sent overseas. More recently, the number of high functioning and skilled work being outsourced is more prevalent. In Outsourcing America, Ron Hira states that “Highly skilled, educated labor is far cheaper in many developing countries than it is in the United States. The savings in labor costs can be as high as a factor of 90 percent, though when one counts the additional burdens of management and coordination across thousands of miles, the net advantage is probably closer to 30 percent. For example, outsourcers charge $30 an hour for the services of a programmer in India, whereas they charge $120 for a programmer in the Midwest.” (Hira 67) While cheap labor can look attractive at first glance, companies must be wary of various
References: Mankiw, N. Gregory and Phillip Swagel. 2006. The politics and economics of offshore outsourcing. AEI Working Paper Series