Causes of outsourcing
Outsourcing is significant in many industries’ supply and cost management strategy. In outsourcing, an industry relies on the services of another business or someone else who is not its employee. A company may decide to outsource due to excessive cost of running an industry. A company that needs to restructure its budget may also decide to go for outsourcing (Matejun, 2012). An industry may also outsource due to its willingness to establish key performance, which is realized without a vision in the development of its structures.
Lack of technical and modern technology in manufacturing may force a firm to outsource services from businesses, which have the required skills and technologies (Matejun, 2012). An industry outsources services if it lacks resources, or needs to share uncertain risks with the outsourced firms. It may lack enough funds to develop key structures for its activities (Matejun, 2012).
Effects of outsourcing
Outsourcing leads to reduced levels of cost of production and improvement to infrastructures within the industry. Outsourcing of services also improves the company’s economic results hence increases its financial outcome. Solution to business causes of outsourcing makes an industry to focus on its activities and improve on the position of the business competitiveness in the market (Carbough, 2012).
Argument against Outsourcing to Domestic Industry
The positive effects described above may be short-lived as negative impacts of outsourcing to a domestic industry become apparent over a period. These consequences include increase in the rate of wages to the domestic industry (Wamboye, 2008). This is due to the increased competition over labor to the countries to which labor is outsourced. The increased wage rate consequently increases the cost of production. The industry must also pay for the cost of vendor relationship with the firm it is outsourcing. Furthermore, there are scales of economies, which are disadvantageous to small companies (Wamboye, 2008).
Current Relationship with Developed Countries
Developed countries in the last twenty years increased their investments in countries with low economies. This move increases the rate of employment and assists in the establishment of infrastructures in the developing countries. However, developed countries have strategically outsourced from developing countries. For instance, developed countries would outsource products, which leave behind harmful worthless byproducts (Carbaugh, 2013).
For example, the US has used Chinese abundant scientific research resources in the development of renewable energy. This is a good idea; however, the cost of emission associated with the establishment proves to be a liability to China and other developing countries. The production of most of the outsourced products leads to toxic runoffs as the byproducts, which are harmful to environment. Management of the toxic runoffs is a challenge to developing countries which do not yet have rightful systems to dispose the byproducts. Apart from environmental issues, developing countries also find it difficult from safeguarding public health from these toxic byproducts (Carbaugh, 2013).
Furthermore, finished products are hardly consumed by the manufacturing communities. The employees of the companies do not get in touch with these products unless within the premises of the manufacturing firm. The employees who are the native to the manufacturing firms are left with pollutants that at the end affect their lives. Although, outsourcing increases the rate of employment in the manufacturing companies, the long-term impacts of environmental degradation outweighs the wages earned from the jobs created (Carbaugh, 2013).
References
Carbaugh, R. (2013). International Economics (14th ed.). Mason: South-Western Learning.
Matejun, M. (2012). Causes and Effects of Using Outsourcing in Revenue Chamber in Lodz. Lodz: Technical University of Lodz Press.
Wamboye, E. (2008). Industry Effects of Offshore Outsourcing on Prices. Ann Arbor: ProQuest.