The aim of the this assignment is to firstly define social dumping. This assignment however defines social dumping and looks at it from a type of social dumping, in this case outsourcing. It will look at the relationship between two countries, the developed United States that outsources to the developing India.
The assignment found that American firms are outsourcing many of their jobs to India to reduce their organisational overheads in order to gain a profit. However it also found that domestically American’s are losing their jobs at a high rate of concern. Furthermore, although India is a leader in information technology, there education system is struggling to provide proficient English speakers that can deal with the firm’s clients. Another problem is the cost to maintain professional staff is starting to increase, which could potentially affect the firm profits, and the likelihood of firms relocating from India a possibility.
Recommendations for America are for government intervention, to control firms and curb the growing unemployment caused by outsourcing. For India, the recommendation is to invest in education and not rely on the short term profit.
Social dumping can be described as a process where firms or manufacturers relocate from countries where the cost of production comprising of wages is considerably higher, and therefore shift the business to countries where these costs are significantly less. These businesses are not tied down to the country they operate in and are able to move their operations when they believe for instance that the cost of doing business in a host country has become too high. Therefore because the increase in cost would affect the multi-national companies profits, multinationals want to move where costs are lower.
Hence they find themselves in a position where they have an unfair advantage over their host country, which is also a developing country. The unfair advantage comes from the developing country not wanting to lose an industry that creates employment for its people, and as a result multinational companies end up having the power to dictate how much employee’s get paid and their working conditions, in order to try and keep them from relocating.
This potentially leads to an environment where developing countries begin to attract multinational companies to operate in their countries by having lower wages and less union participation.( Erickson and Sarosh 1994,28) Therefore this assignment will provide a comparative analysis of two countries where social dumping occurs. Social dumping takes a variety of forms but the one that this assignment will look at is outsourcing.
Outsourcing can be categorized into three groups first, second and third generation outsourcing. The first category of outsourcing is determined by price and aims to decrease the workforce. The most important aim of this category is to cut costs. The outsourcing agreement is brief and involves allocated jobs, similar to a short term contracts in an attempt to reduce organisational costs. The second category was as a result of firms outsourcing essential processes that are key to the firm being able to function, such as customer service and product design.
This category of outsourcing came about as a result of changes in what customers wanted and the increased speed at which products lost their value, firms were forced to cut costs, make better products and decrease the time it took to get a finished product examples being motor vehicles and electronics. It is at this level that firms begun to not only operate where the initial business was set up, but started to operate in other countries, most importantly developing countries.(Lee, Mohamed and Ramayah(2010,319) The third and last category would appear to be determined by firm rivalry.
Here the advantage that a firm would have over others would be its capacity to react swiftly to what their customers want and keep them happy. The firm’s advantage depends on its ability to be resourceful, creative be able to adjust rapidly. (Lee, Mohamed and Ramayah(2010,32)
The two countries that will be looked at for a comparative analysis are the United States of America and India. They were chosen so as to understand how outsourcing affects both the developed and developing country, and in this case the two countries have a relationship because America the developed country, outsources to India the developing country. America will be the country looked at first with the aim of distinguishing the positive and negative aspects of outsourcing in the developed country undertaking the outsourcing.
There seems to be a persistent occurrence in the American economy that its citizens have become accustomed to, and it is the unbelievable speed that employment is being lost to foreign workers. Market and political analysts believe that the loss of employment will not only intensify, but also worsen. They believe that approximately 14 million professional jobs and roughly one in nine occupations in all areas of employment could be affected by outsourcing.
Occupations with considerably higher wages are also affected. A report that was released in 2004 forecast that 3.5 million professional jobs and 151 billion worth of wages would be lost to foreigners. Countless jobs in numerous areas are affected and these include legal services, accounting and call centre operation to mention a few. Forecasts are that employment in the areas of banking and securities will also be affected with approximately 2.3 million occupations lost to foreigners.( Hira and Hira 2005,2)
Firms in the United States are passionately accepting the relocation of jobs to other countries. Individuals in managerial positions are currently been instructed to outsource in order to maintain their positions. Numerous firms have begun to engage in the practice of coercing their employees to teach foreign staff how to do their jobs, which effectively results in them taking their jobs. The American employee is then released from employment after they have transferred their work experience.
Another type of firm that has started to outsource in America are venture capital firms. These are companies that may show potential but at the same time are very risky. Their relation to the American economy is that they happen to contribute to the economy by producing a small amount of employment. They are inclined to invest in innovative technological or biotechnological business. However the question is can America remain one of the leaders in technological advancements if venture capital firms are starting to outsource. (Hira and Hira 2005,2) Another issue that could possibly be a problem is that overseas labour is cheap.
This may be one of the main reasons that outsourcing has progressed so quickly and changed the working environment. Furthermore because developing countries have enormous amounts of uneducated labour, they can be paid less than American workers. Additionally, developing countries such as India are paid 20 per cent less in comparison to their American workers and the likelihood of income being equal could take decades.
This means that because there is so much unskilled labour in developing countries, and the labour is so far behind American firms, in the pursuit to cut costs and make a profit, American firms are purposefully doing away with their own domestic labour, which could have negative potential consequences for them in the future too.
What’s more, other developing countries are keen to reproduce India’s achievements of being able to essentially take American jobs. (Hira and Hira 2005,3) The truth of the matter is the U.S has already begun to lose its competitive advantage, and it is only a matter of time before it is totally surpassed in being a leader in technological advancement as many Asian countries such as Japan and Korea progress. The dilemma now for the U.S is that a phobia has developed by potential students to enter technological fields as there is a concern that their employment in this area is not guaranteed.
This offcourse jeopardizes its technological ability to advance. In addition there’s a possibility that technological jobs will transfer to India and China with many countries entering the field to compete for these jobs too. As for American workers that have lost their jobs, their ability to find work is not very good, as figures approximate that one in three cannot find work after losing their job. A number of domestic workers that had work in manufacturing lost their jobs to outsourcing, retrained and obtained employment in information technology. There is every likelihood that they will lose these jobs too. (Hira and Hira 2005,5)
The other country that will now be looked at is India. As of 1990 India had outsourced companies that did the repetitive, boring work which included understanding the mechanics of how software worked, as this was overlooked by their fellow compatriots in America. The scenario changed as India got an unintended helping hand when wariness of software collapse in the name of Y2k meant that India was the go to country in regards to software expertise.
The U.S had a increasing need for skilled labour in the form of information technology experts, which India had, to fill the lack of IT staff in the 90’s in America. At the time, America was willing to accept professional IT foreign staff, especially from India to solve their problem. This was the beginning of the first category of outsourcing illustrated in the second paragraph of this paper where overheads are reduced to lower organisational costs. In this case day to day allocated jobs such as payroll and the keeping of records begun to be outsourced to India by American firms ( Ignatius 2004, 1022)
Presently occupations being outsourced to India cover an extensive area from debt collection and accounting to call centre’s. Oddly, Indians who immigrated to America lured by the high paying employment of the IT boom are now themselves like the American’s faced with having to accept a decrease in their pay or even lose their employment all together, as their occupations are outsourced to India. ( Ignatius 2004, 1023)
There are numerous industries that have been outsourced to India but the one that will be focused on is the service industry of call centre’s. A concern that is brought up is the increasing turnover of staff particularly in call centre’s. The yearly turnover which is estimated to be 50 per cent has not excluded long standing, well known firms who attract staff by providing not only providing housing but the opportunity to invest in the firm. In spite of this the turnover remains high, as a result of the strain and pressure of staff being overworked.
Another reason though is that competing firms are offering increased pay. The high turnover would also suggest that there are more employment opportunities in India and not enough of the right people to do the job. There appears to be an emerging dilemma of India to produce enough proficient English speaking professionals, as this amount lags way behind even though an estimated million students graduate. All firms especially those requiring highly specialised labor such as engineers will insist on employing those with proficient English.
One of the main reasons for proficient English including call centre’s is that even though the firms have outsourced, their clients still need to communicate to them, and a problem is the increased communication barrier between the Indians and the firm’s clients in America. Another difficulty comes when firms cannot fulfill their English speaking requirement for employment because the number of people with these skills is not enough. Furthermore in order to get more proficient and professional English speakers would require not only investment but also a lot of time to.
What has begun to happen is within India itself business have emerged with the goal of providing labour regardless of quality at a lower price. The challenge for firms will be whether to continue to demand for quality or cut costs. The trouble with cutting costs is that firms could begin to lose clients because of the communication barrier.
Another concern is that as demand for highly proficient professionals increases, so does the cost in order to attract and keep them. If the cost of doing business in India were to rise, there is a chance that firms could possibly start to think about relocating to another location with cheaper labour and at the same time no language barrier. ( Ignatius 2004, 1024)
In the case of United states it would be recommended that the government gets involved and not allow multi-national companies govern the policy. People’s lives’ are at stake and these firms are only interested in profit at the end of the day. It is not in Americas best interests to give away their jobs, when unemployment is high and people have no jobs. Just as in the global financial crisis when banks and lending institutions activities were not monitored and checked, this is a potential catastrophe waiting to happen.( Hira and Hira 2005,2)
It would be recommended that India for their own benefit start to invest in education. It had progressed well and at one time was the information technology leader, however the failure to reinvest in to education for quick profit has pushed their progress back. ( Ignatius 2004, 1024)
In conclusion outsourcing though on the surface would appear to be beneficial to both the developed, United States and the developing country India, it can be said that there are a lot more negative ramifications that outweigh the good. In the case of the United States multinational companies have relocated to less developed countries in the pursuit to reduce their organisational overhead costs, resulting in a profit for them. (Hira and Hira 2005,3)
However the problem for this developed country is that in the process of outsourcing, they have lost their jobs, one of the tools that allows their economy to function and grow as with no jobs comes less production, which eventually could lead to increased problems to their already troubled economy. (Hira and Hira 2005,19)
In the case of India outsourcing has been both positive and negative. It has been positive because many in the huge population have been able to obtain employment and learn skills. However it has also has also highlighted the gap that exists in the education sector due to India’s inability to invest in education, and instead opted to gain short term profit.( Ignatius 2004, 1024)
Chow Lee, Jason Wai, Osman Mohamad, and T. Ramayah. 2010. “Outsourcing: Is the Social Exchange Theory Still Relevant in Developing Countries?” Journal of Research in Interactive Marketing 4 (4): 316-345. doi:http://dx.doi.org/10.1108/17505931011092826. http://search.proquest.com/docview/761523873?accountid=10382.
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