Few people comprehend just how comprehensively outsourcing is used nowadays. Firms of all sorts use outsourcing every day to enhance the products and services they offer customers. They utilize outsourcing to free capital and brainpower for investment in research and development, leading to new products and new services.
“The primary direct effects of offshore outsourcing on HR and Labour Relations are related to managing transition costs because of personnel changes, managing layoffs, and downsizing issues, and the costs and dynamics of actually managing an offshore contract.” (Braun Consulting News, 2004)
Even though more than 95 percent of organizations say that outsourcing is an important part of their overall business strategy. Outsourcing is critical to the growth and success of the United States and other Western economies. Harvard Business Review registers it as one of the most important new management ideas and practices of the century. Noted scholar and business visionary, James Brian Quinn of Dartmouth College, has described outsourcing as “one of the greatest organizational and industry structure moves of the century.” (Quinn, 1994)
The cost savings to companies by outsourcing jobs overseas is far less than the cost to American workers in lost jobs, lost benefits, and lost self-respect. Several largest organizations of the United States are also the world’s top providers of outsourcing services. Organizations like ARAMARK, Delphi, EDS, General Electric, IBM, IKON, Unisys, UPS, Xerox, and many others have millions of human resources in their outsourcing businesses. As management expert Peter Drucker articulates, “If you ask me what is the fastest growing industry in the United States— it’s outsourcing.” (Bahli, 2003, p-214)
It’s hard to think our jobs are moving to other countries and there is nothing we can do. While outsourcing is a big profit for business owners, American workers and their families are the ones who suffer. The most common definition of outsourcing includes turning over a firm or business operations, network operations, software development, and maintenance or other IT functions to a provider for a specified time, or generally a few years; sometimes profit can become a major factor, and outsourcing becomes permanent. Outsourcing can be between two or more companies in the United States, or it can be between the United States and other countries. Another term we use is off-shoring; in the U.S., we use this term to specifically refer to outsourcing to other countries (Ramanugan and Sandhya, 2003).
It’s not very promising, but here’s the scoop. A lot of high-paying jobs are going overseas. It’s as simple and as appalling as that. (Challenger, 2004, p.2) stated an “estimate of 5,880,000 American jobs in the service sector would be moved offshore by 2005” and recently “adjusted that figure to 830,000 by 2015,” so just imagine how many American families will be out of a job. Need a second to absorb that? It’s startling, I know.
But the horrifying truth is sooner than you think, not a single automobile, airplane, or ship will be assembled or manufactured in the land of the free, home of the brave. It won’t be long thereafter that all manufacturers wanting to stay competitive will seek and find a way to bring their business to the millions of workers overseas. After all, they are willing to work for a pittance without the contrivance or interference of nasty unions, health benefits, 401k’s, and the multitude of perks American workers have worked so hard to achieve. But do companies care? No, they don’t. The only concern they have is to gain more and more profit.
Challenger (2004, p.2) stated, “companies that send jobs overseas will tell you that it is saving them money” he also stated, “companies that do not outsource will tell you they are being undersold and undercut by those that do and are at risk of going out of business. This, of course, is bad news for the economy”. So think about it, if companies are saying they have to outsource, we are in big trouble. The truth is. If your job can be performed as well, elsewhere, you are in grave danger of losing your job. If you’re a nurse, physician, medical technician, physical therapist, even a nurse aide, you are safe, at least for the time being, but you never know; with technology, you have to expect the unexpected.
At the same time, as outsourcing enhances the performance of areas of the business that do not present an inimitable competitive differentiation, it also frees needed capital and resources for investment in those areas that do. It reduces both direct costs and opportunity costs. The areas of the business’s operation that provide its unique competitive differentiation— the areas where none of its competitors nor the external marketplace of providers can deliver superior results— are its core competencies.
Outsourcing is nothing more and nothing less than a management tool. It is used to move an organization away from the traditional vertically integrated, self-sufficient structure, one that is increasingly ineffective in today’s hyper-competitive, performance-driven environment. (Madigan, 2003) Through outsourcing, the organization moves toward a business structure where it’s able to make more focused investments in the areas that provide its unique competitive advantage.
Along the way, the organization creates interdependent relationships with specialized service providers for many of its critical activities that must be performed extremely well, but where the organization gains little competitive advantage by doing the work itself. This not only enhances the business of the company but also creates exciting new business opportunities for other organizations to become providers of outsourcing services.
The basic motive for outsourcing is to condense costs. On the other hand, the organization prefers to spend these savings, whether they are passed along to its clients, reinvested into other areas of its operations, or returned to its proprietors and shareholders. The necessitate for every organization to repeatedly drive down its costs is steady. Although savings is an important reason for outsourcing, it is only the primary reason for half the executives who use it— meaning that for the other half, something other than cost savings is the primary driver. (Aeppel, 2004)
The second most significant of these is the ability to focus more company resources on the core parts of operations— actions that provide a unique competitive advantage. For larger firms that have built up extensive internal operations, getting back to the core of their businesses can yield real profits.
The outsourcing of jobs to foreign countries should be stopped since as more and more Americans are losing jobs, they have to step up to the plate and educate themselves in the technologies that they were told would assure them security. Sadly, corporate America lied, not only to American workers losing their coveted jobs but unprecedented moves they are asking to train their replacements.
The consequences are mortifying; we are then out of a job after completing four years of college, and no jobs are available to pay back school loans. There is no doubt that American workers and their families are the ones suffering from globalization and the outsourcing of jobs overseas, but there is nothing we can do. Hopefully, the thousands of jobs that are supposed to be available through outsourcing will surface; until then, we may endure some hard time or just start doing jobs that can’t be outsourced.
References
Aeppel, Timothy. 2004. “Off-shore Face-Off.” Wall Street Journal.
Quinn B. James and Frederick G. Hilmer, (1994), “Strategic Outsourcing,” Sloan Management Review, pp. 43– 55.
Bahli, B., & Rivard, S. (2003). The information technology outsourcing risk: A transaction cost and agency theory-based perspective. Journal of Information Technology, 18, 211– 221.
Challenger, A. J (2004). Outsourcing And the Economy: Vital Speeches of the Day, Vol. 70, Iss.20; pg.634, 4 pgs.
Rumanaujan, S., & Sandhya, J. (2006). A Legal Perspective on Outsourcing and off shoring, Journal of American Academy of Business, Vol.8 Issue 2, p51-58, 8p.
Madigan, Kathleen and Michael J. Mandel. 2003. “Commentary: Outsourcing Jobs: Is it bad?” Business Week Online. Web.
Braun Consulting News, News on Personnel, Labor Relations and Benefits, Vol. 7, No. 5, 2004. Web.
Bryjak J. George, Outsourcing the American Dream. Web.