Outsourcing is identified as the practice of contracting one or more business functions to someone else. The reasons behind outsourcing are identified to be varied as they depend on the particular needs of the company. However, the major reason behind this global trend in the corporate world is to reduce the total cost of labor in the production process and to procure specific professional expertise in the production process.
The American economy has been under immense pressure for a long time due to the increasing cost of production related to the particular legislation revolving around minimum wages as well as union regulations (Hira, & Hira, 2008). It is identified that by the year 2004 there was increased political interest on the issue of outsourcing American jobs as corporations and other businesses identified that it was the only way they could stay competitive in the global market.
The American population on the other hand, identified that this would deny them the much needed jobs and consequently incomes. On the other side of this debate there are those who advocate the review of tax laws so as to increase outsourcing into the US. This is after it was identified that corporate tax was a deterrent to global companies who would wish to take advantage of the vast resources that the American economy has to offer (Hira, & Hira, 2008).
It is identified that the major reason behind outsourcing into the American market is to take advantage of the particular market potential that America has. While other companies may be outsourcing some of their labor functions to developing nations so as to reduce their overall expenses on labor, most of them are outsourcing their production as well as marketing centers into the US to take advantage of the rich expertise that the American workforce has to offer as well as market their products in the American market.
Germany is another country that has been struggling with the issue of outsourcing for a while now. Their problem has been based on the particular hemorrhaging of German jobs as labor unions are becoming more powerful and the total cost of labor is increasing. However, the country has benefited from its strict takeover laws that are also enforced by the fact that the country subscribes to European Union laws on transfer of labor.
These are not specific to the particular contracting out of jobs, but rather specify the limitations of contracting out particular production centers. This has secured German jobs even though their companies have been hurting. On the other hand, the outsourcing of jobs by global corporations into Germany has not been growing except in particular production centers that required specific expertise (Tompkins, Simonson & Tompkins, 2005).
This has been credited to the fact that Germany is identified as an expensive alternative when compared to other developing countries. The motor vehicle manufacturing industry in Germany has been identified to be one of the proponents of outsourcing with previously vibrant production centers being shifted to countries like South Africa.
With the entrant of their eastern neighbors into the European Union who have low wage rates such as Poland, the country has been losing some of the smaller enterprises to these countries as it is identified that it is cheaper to produce there and there are more profits to be made through outsourcing (Corbett, 2004).
Nike is identified as one of the biggest producers and distributors of athletic footwear in the world. The company has grown over the years to become a global multinational with its profits in the American market alone growing to over $13 billion by the year 2001 and to $18.6 billion by the year 2008.
The company was established in January 1964, but was then referred to as Blue Ribbon Sports. The company is based in Oregon in the USA, but has operations all over the world through subsidiaries as well as external contractors. Its other subsidiaries include Converse, Umbro, Cole Haan and Hurley International. Over the years the company has moved to explore alternative markets apart from their sportswear by producing clothing for sports fanatics as well as Nike labels for their loyal customers.
The company has a total of 34,400 employees spread all over their international interests. They contribute to even more jobs in the global market through their various outsourcing programs that have been around for some years now (Stonehouse & Campbell, 2004).
Over the years the company has been outsourcing most of its production activities to other developing markets where they find it cheaper to produce. This has been the subject of the increased criticism that they have been receiving all over the world as it is identified that the outside contractors violate quite a number of labor laws as well as basic human rights in the production process.
The company has, however, been quick to refute these claims even though a lot of evidence on poor working conditions, low wages as well as the use of child labor has been raised (Tompkins, Simonson & Tompkins, 2005).
Over the years the company has developed a rather distinct code of conduct for its external contractors and this has worked to streamline their outsourcing activities. This has improved its global image especially due to its involvement in United Nation’s efforts on human rights as well as their environmental concern in their production processes (Stonehouse & Campbell, 2004).
With the increasing competition in the global sports ware market the company has had to come up with ways of meeting their profit margins while still maintaining their competitive edge in the market. The company has been quite conscious of the particular needs of their loyal customer base and they have identified that they currently enjoy a cost advantage.
However, with the increasing cost of production the company has identified that shifting the same costs to the customers may not resonate well with the market and they may end up losing their competitive edge (Tompkins, Simonson & Tompkins, 2005). They have, therefore, resolved to seek alternative production mechanisms that will reduce their total production costs. Their interest has been in the procuring of cheap labor as well as the easy access to raw materials (Hira & Hira, 2008).
They have, therefore, outsourced their production centers to countries that provide cheap labor and have readily available and cheap raw materials for their production processes. This has been quite successful in the increasing of their revenues as they have been able to gain a cost advantage over their competitors (Corbett, 2004).
They have been able to provide their customers with high quality products at reduced market prices while still meeting their profit margins. Outsourcing is identified as a viable option for companies struggling with expensive cost of production or the availability of production resources.
References
Corbett, M., F. (2004). The Outsourcing Revolution: Why It Makes Sense and How to Do It Right. New York: Kaplan Publishing.
Hira, R, & Hira, A. (2008). Outsourcing America: The True Cost of Shipping Jobs Overseas and What Can Be Done about It. New York: AMACOM.
Stonehouse, G, & Campbell, D. (2004). Global and transnational business: strategy and management. New York: John Wiley & Sons.
Tompkins, J, Simonson, S, & Tompkins, B. (2005). Logistics and Manufacturing Outsourcing: Harness Your Core Competencies. New York: Tompkins Press.