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Corporations exist to make profits. One way of increasing profits is by reducing operating costs. Corporations in America have focused on reducing costs by way of offshore outsourcing. Offshore outsourcing involves hiring of companies and individuals outside America to complete tasks set by American corporations with the aim of cutting down on such costs like hourly wages, paid leave and holiday allowances.
Offshore outsourcing has proved to be an effective way of cutting down on operating costs. However, offshore outsourcing has attracted proponents and opponents in equal measure. This essay seeks to explain the concept of offshore sourcing, reasons advanced to oppose offshore outsourcing and reasons for offshore outsourcing. A personal opinion will complete this essay.
Offshore outsourcing refers to the process of hiring companies or employees to execute a company’s roles overseas (Wise Geek). For instance, a manufacturing company based in the United States of America may use employees outside America to handle issues relating to customer relations and technical assistance.
Data entry is the most popular job outsourced overseas. The internet plays a critical role in the whole process of offshore outsourcing because it allows companies to hire freelance individuals all over the world (Wise Geek). Such overseas companies and individuals charge lower rates than employees in the mother country of outsourcing company do.
There are two broad categories of offshore outsourcing. The first category, Information Technology Outsourcing (ITO) refers to outsourcing of a corporation’s information technology related jobs like software development, ecommerce, networking, as well as web development and hosting (Rose India Technologies PVT. Ltd).
The second category, Business Process Outsourcing (BPO), involves outsourcing of services related to customer services, financial accounting practices, logistics, assets management, security as well as procurement (Rose India Technologies PVT. Ltd). Other sectors like human resources, insurance, manufacturing are emerging as popular fields of offshore outsourcing. There are various reasons advanced for offshore outsourcing.
Reasons for Offshore Outsourcing
Corporations opt for offshore outsourcing because it is cheaper. Most developing countries have high unemployment rates among skilled labor force. Such individuals work for overseas company and charge lower rates than citizens in the parent company’ country (Outsourcing Offshore).
In addition, such outsourced employees do not require such benefits like holidays, paid leave, travel allowances among others. This saves cost for an outsourcing corporation. In 2003, the average cost of Indian and Chinese software developers was over ten times cheaper than the average wage of American software developers (Outsourcing Offshore).
Corporations incur huge costs related to employees who work in a country where a corporation operates. Such costs include tedious paper work relating to employees, reporting to government as well as paying for statutory and retirement benefits of such employees. It is cheaper when corporations hire overseas firms to handle issues relating to employee benefits (Outsourcing Offshore). On the same issue of cost, corporations that opt for offshore outsourcing find it easy to downsize the number of employees and streamline operations.
Offshore outsourcing provides flexible labor force. Such employees usually work for long hours as well as off-hours. Employees working in the home country take weekends off and that is when offshore outsourcing fits in to compliment for lost hours resulting from such offs. As such, labor force is available at any given time and as required (Outsourcing Offshore).
Smaller companies benefit from offshore outsourcing especially when they need to hire an employee when a new task comes up. In the home country, existing labor practices like advertising for a vacancy, interviews and signing of contracts must guide the process of hiring in-house staff.
Offshore outsourcing is quick and avails an employee on time (Anderson). Outsourcing enables corporations tap into qualified individuals within the shortest time possible. This arises from the fact that outsourcing companies are experts in the field of hiring and have ideas on how to recruit immediately. As much as corporations try to do in-house training, they usually lack required expertise (Anderson).
Corporations that engage outsourcing companies hire employees on short-term contracts regardless of the level of expertise. Some levels of expertise in the home country require long-term hiring for such individuals. As such, hiring such employees on short-term costs a corporation extra money (Outsourcing Offshore).
Corporations spread risk through offshore outsourcing. In events where employees go on strike, operations in a hiring company remain on course since employees working outside a country continue working normally. In addition, reputational issues affecting a corporation at home rarely get to overseas employees (Anderson).
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Offshore outsourcing enables corporations focus on their core competencies and thus enhances competitive advantage for such corporations. For instance, a financial institution may decide to focus on deposits and credits and outsource issues relating to procurement and customer relations from an overseas firm (Anderson). Offshore outsourcing has its demerits too.
Reasons against Offshore Outsourcing
Unforeseen political crisis in foreign countries can lead to unprecedented disruptions to a corporation’s operations. In such times, government of the day may ban the activities of all foreign corporations and that would include those outsourced in such a country. It has happened in Cuba and South Africa and can happen in any foreign country (Outsourcing Offshore). This leads to financial losses to a corporation.
Foreign workers usually suffer verbal abuse through customers who exhibit racist tendencies. This happens especially where a corporation hires call center services from a foreign country and such employees communicate in accents that customers find offending (Outsourcing Offshore).
An outsourced company may decide to direct all foreign employees to a new entrant to the market requiring the same type of employees. This leaves a corporation in a difficult situation since operations in foreign countries discontinue without notice (Anderson). In addition, services and products in foreign countries may suffer boycott especially if a hiring corporation laid down workers to hire outside firms.
It is risky for a corporation to outsource since the process involves sharing of critical information of a corporation with a third party (Outsourcing Offshore). In addition, a hiring corporation finds it difficult to enforce contracts and issues such a breach of contracts in foreign countries (Outsourcing Offshore).
There are various advantages as well as disadvantages accruing from offshore outsourcing. The advantages to corporations are way above the number of disadvantages. Advantages range from drop in cost of doing business, flexibility of workforce, spreading of risks as well as easy hiring of employees.
With this in mind, the United States government should regulate offshore outsourcing and seek to work with foreign countries to come up with enforceable regulations pertaining to offshore outsourcing. With regulations in place, corporations will maximize profits and this will grant the government more revenues.
Anderson, Arnold. Outsourcing. 2013. Web.
Outsourcing Offshore. What is Offshore Outsourcing and what’s the idea behind it? 2013. Web.
Rose India Technologies PVT. Ltd. Types of Outsourcing,Types of Outsourced Services,Offshore Outsourcing and Its Type. 2013. Web.
Wise Geek. What is Offshore Outsourcing? 2013. Web.