The process of outsourcing is defined as using the expertise and potentials of a third-party on contractual basis. The procedure is believed to accommodate various facets of societies on the basis of labor division as outlined by the doctrines of a free market economy and principles of globalization. As stated earlier it was during the 1980s that the process kicked off mainly due to the efforts of transnational corporations when they initiated to hire labor force across national boundaries.
Even though the process of outsourcing has managed to come out from its embryonic stages, there are still a number of dos and don’ts that are associated with the entire process that have developed subsequent effects on the development of the US economy. (Bragg 2006) The Cons of Information Technology Despite of all the sanguine and mind-pleasing analysis and predictions that were provided by government backed agencies and organizations all over the world, the moment for reality check arrived when the financial depression that engulfed powerful economies in the mid of the year 2007, ignited a turmoil at home.
Stock market nosedived; mortgage companies began to discharge distress signals and prominent multinational corporations as their counteracting strategy commenced labor retrenchment procedures, as a result of which unemployment began to climb. In such times when recession was reaching its apogee, the only alternative these corporations had to anchor was to search for cheap labor and outsourcing proved to be a silver lining for them.
All kingpin computer organizations from Dell to Intel and from Intel to Microsoft began stationing their employees out from national borders. In order to further slump expenses these companies also provided outsourcing countries the convenience of sending their technical support, software development and quality assurance experts to these countries as a result of overseas shifting of employment local labor came on the brink of bankruptcy. (Mezak 2006)
In addition to this other organizations began to outsource their services to countries like India and China where staggering population makes the availability of cheap labor much more convenient and as a result entire companies were outsourced to these places due to which it was the local labor that experienced the malignancy of being axed from their companies. In all the economic chaos that followed in the backdrop of such depressing conditions it was the local labor that developed the greatest resentment for outsourcing as they squarely blame it for their impoverishment. Cook and Nyhan 2004) The Benefits of Outsourcing Nevertheless, on the flip side there are many benefits and advantages that an organization or an economy on the whole from the myriad advantages presented by outsourcing at their disposal. According to a study that was conducted in the country by Global Insight in the year 2005 it was disclosed that due to fruitful outsourcing efforts, IT of the sector was able to generate a surplus 257,042 new employment opportunities in the year which was anticipated to skyrocket to a phenomenal 337,625 by the year 2010.
It was further revealed that the sector which contributes an approximate $68. 7 billion in the cumulative GDP of the country is expected to add another $38. 7 billion by 2010 generated solely from global sourcing of computer software services. The study further accentuated the fact that repeated and effective mechanism of outsourcing will prove helpful in creating new markets for employment and slash inflation rates whereas the termination of such services will only develop adverse repercussions in slowing the progressing pace of the economy. Olian 2004) The Implications of Outsourcing for Local Labor Force and Organizations Statistics obtained and disclosed by recent surveys and investigations conducted by Forrester Research Center disclosed that in the current fiscal year 1. 59 million people are anticipated to lose their job and this figure is expected to reach 3. 32 million by the year 2015.
In another survey that was conducted by the same institute on a wide scale encompassing opinions of over 73,000 executives globally, only 58% of American executives said that outsourcing could explore new ways of economic progress whereas in India 97% of business executives believed that it is indeed beneficial, in China the figure was 86% and in Europe 70% favored policies for outsourcing development. In addition to this when 1,019 adults when inquired about outsourcing, 60% of them straight forwardly polled in negative, whereas only 23% said that it was important for financial rejuvenation.
Even though it is a substantiated fact that many prominent organizations belonging to either manufacturing or service providing category have shifted their businesses overseas stranding local labor market, but they have ultimately put at stake the revenues that were being generated from their local market. (Prywes 2000) Advocates of outsourcing still argue that the economic condition can be shifted into a positive direction and new job opportunities explored if towering expenditures of corporations are controlled.
There are a number of government agencies that outsource their work to different country labor which saves them millions of dollars directly affecting consumer spending as well as expenses being handled by the state treasury. In this context a common theory that is applied is that if a company is giving fewer wages to its employees, it directly implies that the company will be making products that are more consumers friendly, hence lowering of prices would directly increase consumer spending and therefore the revenue generated from spending will enable local companies to hire local labor once again.
A major question that pops in mind after reading so much against the phenomenon of outsourcing is that if the entire process is so detrimental for the economy of any country then why is it still being promoted and encouraged and then if is being promoted who are actually the beneficiaries of it? In actual sense there are a couple of major advantage extractors of outsourcing which includes stakeholders of corporate organizations as well as consumers which are sometimes at the expense of American wage earners.
A prime advantage of outsourcing is that with cheaper imports flowing in the country consumers are provided the facility of purchasing commodities at a much cheaper rate than what was being offered to them initially. A report published by the McKinsey Institute unraveled that it is intrinsically due to global outsourcing attributes that corporations are able to generate net revenue of 45 to 55% coupled with the profits earned by consumer purchases which helps them in financing their offshore operations of outsourcing.
Dollar impacts and Costs origination in Outsourcing It is generally acknowledged that the costs of outsourcing are mainly afforded by the company performing the outsourcing task and the one which is involved in the deployment of its employees and services at the specific location for conducting the outsourcing project.
During the initial years of outsourcing, all responsibilities were shifted to the company taking the outsourcing project as a result of which the cost factor involved in the project increased, in addition to this some countries after their labor and service providing employee level established a credible and prestigious reputation started to demand more prices for their superior quality service providing capability similar to what was done by India in the recent years after they cemented their credibility in the global Information Technology sector.
Even many companies were able to afford the surging expenses of outsourcing but with the invasion of an economic recession in the financial arena, this outlook changed substantially. Now many companies performing outsourcing exercises compensate such costs by providing their own labor and employees through proper training and education of technology.
Apart from this the currency concerns also matter, primarily for the country affording the entire expenditure of the outsourcing project whereas it proves beneficial for the developing country executing the project. The fluctuations in the currency directly affect consumer consumption capability, which poses a direct threat to the recovery and reimbursement of costs and expenses for the outsourcing company in the project that is being developed by them. (Amiti and Wei-Jin 2004)
University/College: University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Date: 16 October 2016
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