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I do not agree that the U.S. government should regulate offshore outsourcing. Although the practice carries both positive and negative consequences, benefits far outweigh the disadvantages. For companies in the United States to receive maximum gain from offshore outsourcing, the sector should not be subjected to government regulation.
Specifically, offshore outsourcing refers to the practice of outsourcing work to suppliers in foreign countries, mainly to take advantage of low cost of labor. Through outsourcing, companies typically engage foreign suppliers to perform some or all business functions in a country other than the one where the product or service will be sold or consumed. It is, however, important to ensure that the overall cost of offshore business is less than the total expense.
In general, organizations turn to outsourcing in order to reduce costs, leverage themselves ahead of competitors, and to increase adaptability to changes in the market place (Cohen 250).
Offshore outsourcing is a hotly debated issue in the United States that for a very long time has received wide coverage by the media. In 2003, just after the recession, lack of employment was still a concern and the blame was directed at offshore outsourcing as the major contributor to the reduction in U.S. output and the corresponding loss of jobs.
Offshore outsourcing is currently being driven by the recognition by many companies of the benefits of outsourcing as a business strategy.
To a large extent, this recognition has led to less emphasis on cost reduction and more emphasis on such benefits as flexibility and speed in delivering business solutions, access to new technologies and skills, ongoing productivity improvement, and enhanced training and development of employees.
Offshore outsourcing can also have an important effect on firms by helping them to accelerate the development of innovative products and services at far lower cost.
Arguments about Offshore Outsourcing
An increasing number of companies in the United States have been made to believe that offshore outsourcing is critical for improving a company’s profitability. For most of these companies, failure to use offshore outsourcing strategies leads to loss of business to competitors.
For a very long time, the United States and the West have reaped an excessive share of the wealth derived from the world capitalist system (Hira and Hira 118). However, with offshore outsourcing, long impoverished nations like China and India are now moving in the direction of obtaining and enjoying a larger portion of this wealth. While this undoubtedly lessens the American wealth and its standard of living, it is seen by many as an important aspect of global development.
Apparently, greater global equality in wealth and standard of living is not only in the interest of nations like China and India. It could be argued that it is also in everyone’s interest. For one thing, greater global equality will likely lead to a more stable and secure world.
For another, growing wealth in the Third World will greatly expand consumers and consumption and at least some of that increase will advantage the American business, economy, and society and may even lead to new kinds of jobs. Similarly, it could be argued that offshore outsourcing is good for the United States as it will force the country to continue innovating in order to find new sources of wealth and work (Ritzer 313).
Why the US Government should not Regulate Offshore Outsourcing
The U.S. offshore outsourcing industry is currently besieged by incoherent and confusing government regulations that hinder the effectiveness of the industry rather than promote it. Many outsourcing firms are so confused over recent legislation to the extent that their latest action has been to hire more lawyers to help determine if they should continue with offshore outsourcing strategies.
According to Schniederjans and Schniederjans, research on motivations for offshore outsourcing indicates that many companies use offshore outsourcing to avoid compliance with the ever increasing regulation by governments (196). In view of these challenges and the many benefits associated with offshore outsourcing, it is necessary for the U.S. government to desist from interfering with the operations in the industry.
Typically, firms opt for offshore outsourcing for a variety of reasons and the decision to outsource can be a critical one (Cohen 253). However, a firm that plans to outsource must first clarify its organizational goals and define what it wants to achieve through outsourcing. The goals of outsourcing may be tactical, such as to reduce or control costs or free up capital funds, or strategic, such as to access a specific technology.
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Outsourcing is an effective cost saving strategy when applied properly and in some cases, it may be economically viable to acquire products or services from outside.
A firm may decide to tactically outsource its bookkeeping function to an external accounting firm, as it may be more cost effective to do so than managing it internally with in-house accountants. Alternatively, firms may outsource activities that are not part of their strategic core competency and by diverting non-core functions, they are able to focus their limited resources on activities that are critical to the business.
In this case, competencies refer to a set of skills that cut across traditional functions such as production, finance, and sales. Dell is an example of a company that outsources for strategic reasons. The company regards marketing and sales as its core competencies, which focus on what matters to its customers, and outsources virtually all manufacturing. With a direct sales model, the company concentrates on speeding products through its highly efficient supply chain.
According to Hira and Hira, mainstream economists have focused on economic efficiency to explain why they believe that offshore outsourcing is beneficial for the United States (121).
Unfortunately, this view is regarded as being simplistic and ignores the real, devastating effects of offshore outsourcing. Although economists assume that the U.S. workers who are displaced can quickly secure other better jobs, the reality is that most workers are forced to settle for lower paying jobs as a result of offshore outsourcing or fail to secure other jobs altogether.
As has been demonstrated in this paper, any form of interference by the government in the offshore outsourcing business is unproductive and can easily stifle the growth of the sector. If handled appropriately, offshore outsourcing can have a positive impact on the economy of the United States as well as on its citizens. Rather than being subjected to strict government regulations, the offshore outsourcing industry should be allowed to progress at a steady natural pace.
Cohen, Eli. Information and Beyond: Part I, Santa Rosa, California: Informing Science Press, 2007. Print.
Hira, Ron and Anil Hira. Outsourcing America: The True Cost of Shipping Jobs Overseas and What Can Be Done About It, New York, NY: AMACOM, 2008. Print.
Ritzer, George. The Blackwell Companion to Globalization, Malden, MA: John Wiley & Sons, 2008. Print.
Schniederjans, Marc and Dara Schniederjans. Outsourcing And Insourcing in an International Context, Armonk, NY: M.E. Sharpe, 2005. Print.