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Numerous studies have shown how important globalization has become to outsourcing. Further, the same studies postulate the fact that outsourcing has become vital to numerous international economies, and today, it is becoming impossible for international and even national firms to operate without outsourcing key inputs of production (Salazar and Sawyer 2007). Outsourcing has led to operational efficiency, with evidence showing that, with outsourcing, firms are no longer able to operate or function alone without international presence or experience. In addition, outsourcing enables firms to tap into existing operations and leverage an outsourcer’s experience and capital while getting globalization strategy up running more quickly (Salazar and Sawyer 2007).
Can firms succeed without outsourcing?
Richard Hodgetts and Kathryn Hegar, in their book titled, ‘Modern Human Relations at Work’, observe that sending upscale jobs offshore such as research, chip design, engineering, and financial analysis constitute the emerging trends of globalization. This includes concepts that are saving the United States of America’s companies’ costs and these savings are estimated to be about 50 percent to 60 percent (Hodgetts and Hegar, 2007).
The concept of outsourcing is becoming one of the biggest trends that are modifying and redefining the world’s economy, and the aspects driving and propagating outsourcing include digitization, the internet, and high-speed data networks that are becoming common in the world (Hodgetts and Hegar 2007).
Many reasons have been cited as to why outsourcing is a concept that is becoming common and necessary: it is important in realizing and gaining outside expertise; it has become necessary in improving service quality; and outsourcing has had the advantageous role of just focusing on the core function of the business (Jones and Valli, 2008). Disseminating data on the current expanding market of outsourcing, Hodgetts and Hegar (2007) express that the outsourcing market is currently expanding was in 1998, the outsourcing market had 300,000 employees but by the year 2005, it had about 3.7 million employees (Hodgetts and Hegar 2007).
Big companies in the world market are seen to have embraced the outsourcing market and they cite costs, talents, and globalization to be the major reasons for outsourcing (Tompkins 2005). For example, companies like Intel Inc and Texas Instruments Inc have many engineers from China and India. Hewlett-Packard Company on the other hand has more than 3,000 engineers in India, while on its part, United Parcel Service, which is the world’s biggest carrier, has utilized outsourcing and as a result, the company has improved on its core competencies (Hodgetts and Hegar, 2007).
Cornerstone Research Group Inc., in its published article titled, ‘Doing Business with us: Why Outsource R&D’, postulates some vital roles that outsourcing benefits the organization with, which in turn have become important key areas motivating organizations to outsource (Cornerstone Research Group Inc., 2001). According to the company, outsourcing is becoming common and necessary due to the ability of the concept to reduce costs, the ability to reduce risks associated with the business, and plays an important role in speeding up product entry in the market (Cornerstone Research Group Inc., 2001).
The aspect of cost reduction originates from the capability of outsourcing to result and influence improvements in business efficiency. In addition, outsourcing results in shorter product development cycles, as well as enabling businesses to have exposure to sophisticated and advanced technologies, which in turn have revolutionalized business operations; moreover, outsourcing has resulted in businesses to experience improvements in ways it utilizes resources (Cornerstone Research Group Inc., 2001).
To other businesses and firms, outsourcing has been used to re-allocate internal resources in the business specifically from non-core to core activities and this has greatly accelerated the business flexibility with regard to responding to the dynamics taking place in the wider market place (Cornerstone Research Group Inc., 2001). More so, outsourcing has been the main tool and process in which organizations find it appropriate to initiate changes by removing outdated and unproductive resources (Cornerstone Research Group Inc., 2001).
Market operation especially with regard to market entry has become a challenge to most businesses and firms, with one identified problem being the lack of experienced expatriate to lead the firm in the murky waters of international business competition. In such situations, outsourcing has emerged as a concept that is providing necessary help to companies in terms of initiating short-term product development needs while at the same time enable the company to have the necessary key skills to facilitate multiple projects especially using the available inadequate staff (Cornerstone Research Group Inc., 2001).
Globalization is an aspect that is leading to increased outsourcing activities. As more companies become international and expand with limited resources, the need to cut costs while at the same time maintaining efficiency has necessitated the need for outsourcing. Outsourcing is going to characterize firms that have both short-term and long-term growth strategies. Outsourcing at the same time is going to make firms have an edge in the competitive environment over rivals to availability of a pool of skills to drive the firm’s goals and objectives in more strategic ways. Therefore, for success and effective strategic operation success in most organizations, today is characterized by embracing outsourcing.
Why there are heightened calls to restrict outsourcing?
Outsourcing has been associated with the loss of jobs (Hasting 2009; DIR Journal Web Directory, 2008). Workers from many companies cite this as the major reason why outsourcing is viewed negatively.
Outsourcing to other people constitutes numerous negative aspects than benefits (Nounou, 2003) and some of the identified negatives of outsourcing include “loss of critical skills and technical knowledge which in most cases go to the contractor and then competitors; and loss of employees which the firm might not have intended to lose.” In addition, there is “loss of internal communication; less opportunity for knowledge growth and development of internal expertise; loss of links with suppliers; emergence of hidden costs; delays in resolving crises, response time factors; lack of availability of particular necessary skills; loss of control over work timing; inhibits continuous improvement; and lack of commitment by contract personnel” (Hasting, 2009, p.227).
Detailing the impact of outsourcing to American society, of course, which appears to be negative Nkpuhe in an article titled, ‘How to fix US unemployment problem’ note that, as the USA fight major was outside the country, there is a major and new war that is slowly brooding on the American land and that war is unemployment (Nkpuhe 2010). According to the author, the American population is gnawing in frustrations and pain when best minds and skills such as those from Stanford, Harvard, and Hopkins universities cannot find employment due to tendencies for American companies to outsource for cheap skills and expertise from the Asian population (Nkpuhe 2010).
The observation of the author is that globalization has opened up economies that costs of doing business are relatively low and trade barriers are less while prospects of profits are enormous. The result of these is that majority of American companies have embraced outsourcing while others are in constant migration to conducive and upcoming economies leaving the American economy and workforce in disarray (Nkpuhe 2010). The author observes this trend and notes that the USA has to change these behaviors and tendencies or else risk being eclipsed from leading the world in terms of stable economies (Nkpuhe 2010).
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According to the observation of the author, his assertion is that “America through outsourcing has lost its vitality and brutal pragmatism in manufacturing and factory business, where America is becoming a nation where it is no cooler to work in factories, we have engineers on tie in Silicon Valley designing for factory guys in China and as a country that is precisely a big problem” (Nkpuhe 2010, p.1).
The general worry across many experts and analysts is that outsourcing is leading to the loss of that necessary technical excellence that in actual sense is only achieved by working in a factory or firm. At the same time, vitality and desire for innovation are fast being eroded among the American personnel as more designs can be outsourced from other regions of the world. The conclusion of the author is that “the next generation of American engineers will have a very big disadvantage compared to Chinese since they will have few factories to learn, improve, and advance” (Nkpuhe 2010, p.1).
Outsourcing is a concept that is gradually becoming a public debate with two sides emerging in support for and against the concept. Those supporting the concept cite the demands of globalization, which no society can ignore, to be the direct cause of the increased need for outsourcing. On the other hand, those against citing the fact that outsourcing is leading to loss of jobs, increasing the unemployment rate, and largely detracting innovation desires.
However, the question that needs to be asked is; can firms compete very well in global markets without outsourcing? A subjective answer to this is that nowhere numerous evidence has shown that societies embracing outsourcing as part of globalization products are integrating well in international and national economies and markets. Lack of little concerns for outsourcing limit an organization numerous opportunities that are necessary for growth, expansion, and increased productivity. Therefore, those calling for the restriction of outsourcing possibly have no adequate orientation to the benefits of outsourcing, and their perception and desire may well mean taking back the larger society to a state of poverty and reduced economic growth and development.
Cornerstone Research Group Inc. 2001. Doing Business with Us: Why Outsource R&D. Web.
DIR Journal Web Directory. 2008. How Outsourcing Affects the U.S. Economy. Web.
Hastings, N. A., 2009. Physical Asset Management. NY, Springer. Web.
Hodgetts, R. M., and Hegar, K. W., 2007. Modern Human Relations at Work. OH, Cengage Learning. Web.
Jones, A., and Valli, C., 2008. Building a Digital Forensic Laboratory: Establishing and Managing a Successful Facility. PA, Butterworth-Heinemann. Web.
Nkpuhe, G., 2010. How to fix the USA unemployment problem. Web.
Nounou, E., 2003. E-Journal: The Impact of Outsourcing on the American Worker. Drum Major Institute for Public Policy. Web.
Salazar, A. J. and Sawyer, S., 2007. Handbook of information technology in organizations and electronic markets. World Scientific. Web.
Tompkins, J. A., 2005. Outsourcing: Solution or Setback? 90th Annual International Supply Management Conference. Web.