This research paper is aimed at exploring the process of outsourcing and the effects that it has on the US economy. Every phenomenon has its advantages and disadvantages. Our main task is to weigh the pros and cons of this process and analyze the influence it has on the financial state of the companies themselves. It is also necessary for us to determine the long-term effects of outsourcing.
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The very term “outsourcing” has become an inseparable part of the business lexicon since the early eighties. This phenomenon is closely connected with the process of globalization, which has affected nearly every aspect of our lives. First, it is of crucial importance for us to give a clear and concise definition of this term. Overall, outsourcing is a subcontracting of product manufacturing to some third party (Kern, 202). There can be various reasons for doing it. The main purpose of outsourcing is to save costs and expenses a company may sustain in connection with the production process. Moreover, by means of outsourcing a company may improve the quality of the product for instance if the third party specializes in some particular aspect of manufacturing.
It is of the utmost importance for us to give at least the most general survey of outsourcing, especially within the context of globalization. First, it should be mentioned that this process began in the early sixties. Overall, it was characterized by the transfer of industry from the so-called “first world” to developing countries. This process significantly intensified especially due to the development of high technologies in general and the World Wide Web in particular, because the transportation costs were decreased (Hoogvelt,98).
At first glance, there seems to be practically a question about the effectiveness of this process, but as it has already been mentioned before outsourcing should be viewed within the context of globalization. It is also worth mentioning that there is a certain type of outsourcing, which is usually called off-shoring. The main peculiarity of this process is that the business process is relocated from one country to another. The question arises what are the reasons for doing it. First and foremost, the company, which relocates its manufacturing process to some developing country gains access less expensive workforce, like for instance in China and India. In other words, we can say that off-shoring provides better prize quality and cost-benefit ratio.
On the one hand, it is worth mentioning that such an economic phenomenon as off-shoring has given a considerable boost to the developing and probably to third-world countries because it provides a great number of job sites in these countries. Nevertheless, there is always the reverse side of the coin: the number of the so-called sweatshops, workshops where employees usually work long hours and under very poor conditions.
It is worth mentioning that as soon as life and work conditions in these countries improve and higher taxes are imposed on these companies as happened in Japan or South Korea, their factories are usually removed to even less developed countries (Harmon, 115. Then it becomes clear that the off-shoring is not aimed at helping third-world countries, on the contrary, they are just useful recourses for large corporations.
Thus, it comes as no surprise that outsourcing has always been a subject of heated debate. First, it was heavily criticized by the Democratic Party. According to John Kerry, the main purpose of the companies that relocate their manufacturing process is to evade taxes, which are much higher in the United States than in Chine.
It is widely believed by many economists that the government should impose higher taxes on the companies, which offshore domestic jobs overseas. Thus, it is quite possible for us to arrive at the conclusion that to a certain degree the outsourcing or off-shoring has a detrimental effect on the US economy.
This is only one aspect of this problem. It should be taken into account that the quality of the products may significantly worsen because an outsourcer cannot always find a suitable substitution for a qualified worker, it goes without saying that it has a negative impact on the quality of the production. Secondly, the companies cannot keep the manufacturing process entirely under control. Thirdly, customers cannot always receive appropriate technical support, mostly due to the language barrier, which cannot always be surmounted. For example, native speakers sometimes find it very difficult to understand foreign accents. It is worth mentioning, that that the tête-a-tête can often be much more beneficial than the phone conversation (Vagandia, 66).
Moreover, off-shoring implies not only the transfer of the manufacturing process but also the transfer of knowledge, which is certainly of paramount importance. There is some risk of intellectual leakage. For example, at the end of the twelfth century, some major American automakers attempted to use Chinese resources, to be more exact less expensive workforce and lower taxes. Their main purpose was to produce spare parts for their vehicles, but with time passing.
Nevertheless, in 2006 Chinese manufacturers managed to produce their own automobiles and it is quite possible for us to say that they began to compete with American companies. That is why, many economists believe that off-shoring can strengthen the economy of other countries, but in the meantime, it can make the domestic economy more and more dependant on foreign one.
It should be mentioned that in terms of productivity the companies, which prefer off-shoring might also sustain some losses. First of all, such companies usually do not invest much money in new technologies, they prefer to hire more workers in third world countries.
Such an approach may seem to be quite a rationale at first glance, but with time passing the long-term effects of such policy can be detrimental to the company, because it produces a false impression of productivity. Nevertheless, the use of high technologies will enable to increase productivity, especially in the long run.
Another crucial point is that the domestic workers gradually lose their jobs just because of this pursuit of profit. It is often believed that offshore companies prefer off-shoring because it provides a better prize-quality ratio. However, with time passing the conditions of living and especially labor in the developing might improve, and this company will have to meet the same standards as for example in the United States or Canada. Thus, this company will have to move their factories from one developing country to another incurring more and more expenses just because of the transportation costs.
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Moreover, such companies usually face great difficulties as far as the recruitment process is concerned, because it is much easier to find a qualified worker in the United State than in some third world country. Besides these companies also have to sustain some losses, which are connected with the retraining costs. It should be taken into account that their staff includes a great number of highly qualified domestic workers and it is not so easy to find an application of their knowledge,
Many economists and jurists also single out the problem of security. The point that they are trying to make is the following, before off-shoring or outsourcing the company bears full responsibility for its products, however, this status undergoes significant change, when the manufacturing is trusted to the outsourcer. In the overwhelming majority of cases, problems arise in connection with the quality of production.
Therefore, it is quite possible for us to arrive at the conclusion that outsourcing of the US production may have detrimental effects not only on the economy of the United States but also on the companies that prefer to locate their factories in the developing countries. The widely held opinion that this economic phenomenon can stimulate the development of emerging countries is to a certain degree far-fetched, offshoring is primarily aimed at the pursuit of profit but not at the development of third-world countries.
Bharat Vagadia, (2007) “Outsourcing to India: A Legal Handbook” Springer.
Harmon, P. (2003), An Overview of Business Process Outsourcing, Business Process Trends Newsletter, Vol. 1, No. 9.
Hoogvelt Ankie. (2001) The Globalization in the Post-colonial World. Palgrave.
Korten, David. (1995). When Corporations Rule the World. Earthscan Publications Ltd. Web.
Thomas Kern, Leslie P. Willcocks. (2002) “The Relationship Advantage“ Oxford University Press.