Outsourcing can be defined as transferring the jobs from the UK to India, China and other third world or low –wage countries. There are many advantages of outsourcing. The following paragraphs explain the relationship of outsourcing and the supply and demand economics theory(Cooke, 2005; pp 173 -180). BODY It is good business senses for multinational companies now outsource from many developing countries (like China and India). In fact, many organizations in the United Kingdom have outsourced their operations, set –up, maintenance of their computer systems and networks and production to other countries.
A survey done on 162 European firms showed that half of the interviewed companies had outsourced most of their information technology jobs. These outsourced contracts form only 24 percent of Information Technology jobs. Definitely this had climbed up to 36 percent in 1998 in the United Kingdom alone. The main reason for the increase in outsourcing is the corporate priority to reduce labor and material costs. For, it costs higher to pay a European worker to do the same jobs in the United Kingdom (Bounfour 2003; pp. 84 -92).
Likewise, production, call center and other jobs outsourced to China or India would cost less in terms of labor and raw materials (Richardson 1999; pp. 74-94). Evidently, it is good business senses for multinational companies now outsource from many developing countries. (Domberger 1998; p. 84 -90). It is good and bad for the UK economy for multinational companies now outsource from many developing countries (like China and India). Outsourcing is good because the public can buy the same quality products at lower prices. It is also good because lower labor cost will increase net profits.
It is bad for the UK labor sector. Outsourcing has changed the labour demand in the UK. Outsourcing has caused the labour jobs especially in the manufacturing sector to decline in the UK and other European Union member states such as France and Germany according to the study by Hijzen et al in 2005. Thus, the imported products and raw materials from low –wage third world countries has greatly affected the UK companies’ demand for European manufacturing and Information Technology workers for the period 1995 to 2000. Also, outsourcing has caused a . 6 percent employment in the European Union countries.
Obviously, it is good and bad for the UK economy for multinational companies now outsource from many developing countries (Barrell, Choy and Kirby 2006; pp 63 -67). There are gainers and losers from outsourcing UK jobs. First, the people hired to do the outsourcing jobs in India, China and other third world and low –wage countries will gain from outsourcing contracts. The companies that outsource the jobs will gain because now they will pay lesser labour wages for the same quality job.
And, it costs lesser to outsource to China, India and other countries because the raw materials there are definitely cheaper. Further, the biggest gainers here are the entire UK and EU market because they can now buy the goods at lower prices as a result of some outsourcing companies’ reduction of their selling prices brought about by the lower labour and materials costs and expenses(Lever, 1997; pp. 37-42. The losers are the workers in the United Kingdom and the European Union member states because they are fighting a losing battle to the low wage workers in outsourcing country recipients.
But the biggest losers are the competitors in the UK and EU market because the UK company that has outsourced production and IT jobs can now lower their selling prices and still earn the same old profit margins which their competitors in the same industry cannot afford to for fear of losing money(Maromonte, 1998; pp. 13-25). Economics’ supply and demand theory states that as the prices of goods decrease, then the demand for the products will increase. Glaringly, there are gainers and losers from outsourcing UK jobs.
Outsourcing has many advantages and disadvantages. The supply and demand theory explains that outsourcing jobs will increase demand for products being sold because prices of goods will decline. The competitors and UK work workers are the greatest losers from outsourcing. The UK and EU market(customers) and the company that have outsourced jobs are the greatest winners from outsourcing. Conclusively, outsourcing will benefit more people (market) than if it is not implemented. UK business, including the competitors must now jump into the boat of outsourcing to survive until the next century.