Negative Impact Of Outsourcing On Economy - Research Paper Example

? Negative impact of outsourcing Insert Negative impact of outsourcing Introduction Outsourcing is all about one company being contracted to provide services by another company, which can otherwise be offered by employees of the company in-house. Companies offering outsourcing services would often do these tasks (Reingold, 2004). However, there are some financial benefits, which are incurred by companies through outsourcing their tasks. The services that large companies usually outsource include email services, call centre, and payroll. There are companies, which are specialized in offering these services, which gives them the mandate to be contracted by large companies (Michelle, 2004). Reasons for outsourcing Companies contemplate on various ways in which they would reduce on the output of their money and intern saves on cost. Therefore, the main idea that comes across is outsourcing of some of their work. There is a notion that outsourcing has the ability of saving on cost of employment. The fact is that most of outsourcing companies work on a low budget their workers are not provided with benefits and most of their employees do not require overhead expenses (Olga, 2003). Moreover, cost can also be reduced if the company offering outsourcing services is from a different country. This is because of differences in economic stature, which will lead to high differences in currency value. The other reason why some companies outsource their work to experts is that they want to involve themselves on other business issues. This is due to the urge of concentration by individuals in a company (Lazarus, 2004). The experts will ensure that work is done, and the contracting company will leave everything to them as they concentrate on other things. The management will also give out work, which will not require their attention and resources, as they will have an easy time managing a company from within. On the other hand, companies involved with outsourcing can maintain their professionalism by operating on a streamlined direction of acquiring excellent technology, which could not be available in locally (Olga, 2003). Outsourcing helps in globalization of a company, as it is a cost-effective way of building branches and franchises in other countries. The manner in which outsourcing affects cost is indicated in the graph below. It is clear that outsourcing is an event, which has gone beyond the whole ideology of employment and working from one position as a team (Ryan, 2004). Therefore, it would best if the paper examines some negative effects related to outsourcing in the education sector, society, companies, neighborhoods, and communities (Michelle, 2004). Moreover, the paper will also determine some hidden costs incurred by companies in terms of reducing cost of productivity and decreasing support from customers. Effects of outsourcing According, to some business scholars such as Olga Kharif (2004) argue that companies prefer outsourcing because of low cost associated with it and they will save wages they would give to employees working from within the company. However, with cost of IT increasing every day, companies will realize that they sometimes use more than what they expected to use (Olga, 2003). The industry is always competitive, and most companies prefer offshore outsourcing. However, frustration is drawn back to local employee who would be rendered jobless due to another person elsewhere being given same job. Outsourcing has also created insecurity in the job market as workers can lose their positions as other people can offer their expertise from elsewhere at a cheaper price (Ryan, 2004). The other predicament caused by outsourcing is and associated with joblessness is increased crime rate. People need to survive, and they would do anything to survive. Therefore, people who lose their jobs will turn to crime (Michelle, 2004). Crimes include cyber crimes where people hack into the websites of the organizations and distort some of the vital information of a company. The joblessness caused by outsourcing also interferes with the system of education. This is because students will not attempt some careers knowing that their jobs can only be offered through outsourcing. Consumer privacy is also compromised, as vital information can be disclosed to unintended individuals (Lazarus, 2004). Effects in politics Several political controversies have emerged in relationship to outsourcing. As had been explained in the paper, there are claims pointing out that most of the corporate put their interest first instead of job security of their local workers (Lazarus, 2004). Outsourcing has been established to be one of the reasons for job insecurity but corporations advocate for it due to low cost of production. Politicians have sometimes used this as an element in their campaigns (Olga, 2003). There are those that supported the proposal for outsourcing while others termed it as a way of increasing unemployment in a country. On the other hand, there are those that threatened to implement taxation for outsourcing companies. Effects on companies The companies now have a skeptic feeling towards outsourcing because of its negative effects on the economy. The increase in number of services being given to countries oversees and most companies now tend to copy strategies being applied by companies, which implemented the whole idea. His has led to property violation, which is under intellectual perspective (Michelle, 2004). According to some western countries perspectives, it would be realized some oversees countries such as India take advantage of outsourcing to their own benefit and misuse the concept. There are some situations where companies only give contracts to only one outsourcing company for multiple years. This has lead to companies having a monotonous strategy of work delivery to their clients. This usually makes companies to luck innovative methods, which are new and can be used to help in its expansion Therefore; smaller companies have no capability of growing and developing since it has to have reliable partners (Lazarus, 2004). Effects on security The other effects of outsourcing are general and have their own effects that are to the country and business communities. There are situations where there are possibilities of fraud. This is because there are some sensitive issues in the companies are always sent abroad to other countries. This has promoted incidences of theft of low-tech and even in non-technological areas. This is because of the confidential issues being given to other companies, which might end up in the hands of their competitors in the market (Michelle, 2004). For instance, when an incident happened in a medical centre where one staff member from the outsourcing company threatened that she would expose records of the patients on internet because of the wages she never received. These issues are problematic in other countries because the laws that govern confidentiality of companies differ (Olga, 2003). Effect on the education system The future of employees in America is being threatened. This has also affected the education system, as students do not take some of the courses in colleges. Students with the notion that they are incapable to be employed in the future shun courses that involve computer engineering and IT (Ryan, 2004). Enrolments in these fields have declined, and scholars in the computing world have even decided to take a tour in universities to try to help the students on the benefits of computer courses, which includes Bill Gates (Michelle, 2004). The students from the technological industry have troubled the head of IT departments in the universities and institutes with this mass exodus. They feel that the country is losing their future in computing to China and India. On the other hand, the offshore outsourcing is making the country loose economically as there has been an increasing of the country’s technology workers (Reingold, 2004). Problems related to outsourcing Although when a company outsources work to another company without their long-term existence is never guaranteed, companies find themselves to trust that work will be done (Lazarus, 2004). On the other hand, there are those things that seem problematic for companies when they outsource their task overseas. They are Cultural differences Outsourcing in a different part of the world will sometimes face issues such as language barrier, which is classified under difference in culture. This difference may lead to misunderstanding how work should be conducted due to both parties involved having different perception on the way work should be handled (Ryan, 2004). On the other hand, work schedule could be interfered with if location of the outsourcing company is different. This would interfere with meeting deadlines. For instance, cultural practice in the other country requires that they have a holiday, or they should not be working at a time of the day example night (Michelle, 2004). Hard to track In case, a person that is handling outsourced task handles the work unprofessionally and unethically it would be difficult to trace individual as he is in another country. This issue would also be of concern; incase there is a correction to be done on the task done. Moreover, urgent tasks would also be had to be given to the company (Lazarus, 2004). Susceptible to Hackers Outsourcing companies are always given mandate of acquiring information from computers, which are available in the company. This would be dangerous as they could hack into any information that maybe they are not allowed to access (Olga, 2003). Piracy Outsourcing work to other countries paves way for existence of piracy among individuals. Knowing that the work is to be used in a different country, individual would claim work as his while at the same time giving the same work to another person in a different location. There will be no proof that the work does not belong to him since it would be difficult to find him and penalize him (Michelle, 2004). The general negative impact of outsourcing in businesses A company while making decisions regarding outsourcing, some factors should always be considered. These factors will determine whether outsourcing should be the best for companies. These factors are seen to be the down side for outsourcing in different countries. Loss of managerial control It is a fact that using whenever one company assigns a task to another company the management will also change, as supervisor of task will be from the outsourcing company. This will be problematic for the company since the outsourcing company is driven and motivated by different goals and visions (Michelle, 2004). These goals might be different from the one in the company giving the contract. Moreover, this will make the main company diversify their goals, as they will have to try to use the standards that are portrayed to the clients. The outsourcing company will only be working to ensure that they make their own profit, which is based on their individual target. Hidden cost Whenever company is outsourcing work, the contract is usually signed to meet needs of the company handling the task. These are given to cover for services rendered for them. There will be no cost sharing of some of the important areas in the business. This refers to the cost of handling lawyer to oversee signing of the contract (Olga, 2003). The other thing is that whenever there is a loss in case of work, which is not satisfactory to the client or consumer, the whole expense will be given to the main company, not the outsourcing company. The contracting company never has any room for negotiation because they are the ones looking for services and they work with the cost given to them by the so-called experts. Security threat and confidentiality The information about companies is seen to be the lifeblood, which keeps companies running. The risk of giving this information to people working outside, the company it will be at risk of being exposed. Confidential information such as medical records and payroll should be given while taking all the precautions. Therefore, the main company should take accounts of information such as formulas, medical records and the background of products being given to an outsourcing company (Lazarus, 2004). On the other hand, a contract should have a clause that penalize against exposure of vital information. Quality problems The motivation of outsourcing companies is based on profit making. Hence, contract created by outsourcing company will not concentrate on quality of the product. Moreover, the contracting company will also concentrate on the ways at which they would be able to decrease their cost. Therefore, the outsourcing company will be concentrating on how to meet the deadlines (Olga, 2003). In any case there are some corrections to be made after the due time, charges will be increased. The contracting company will always be tied to perform on financial conditions of an outsourcing company. They will ensure that the outsourcing company meets their financial needs to avoid delays in their work. This means that the outsourcing company should never go bankrupt to ensure proper progression of the work (Michelle, 2004). Bad publicity There are individuals who are always bitter of the term out sourcing. These individuals had to lose their jobs because their work had to be outsourced to other people. Bad publicity is always accustomed to lying off workers in the community or society (Schoenberger, 2004). The people who work for the outsourcing companies see the idea being beneficial but for individuals who lost their jobs will always condemn outsourcing. The positive side of outsourcing In as much as the paper has condemned existence of outsourcing, there are some positive aspects of outsourcing that should be considered. These factors are the elements, which make companies, introduce outsourcing into their operations (Olga, 2003). The outsourcing companies always ensure that the main prospect of the contracting company is delivered. The delivery will enhance growth of a company as it expands without consuming financial and human resources (Michelle, 2004). The second element is based on saving of cost. There are claims that in order to make profits in the company, it would be required that the output should be high. This means that workforce should also be high. This reason mandates companies to opt for outsourcing since people will work from outside the company hence reduction on the wages. Thirdly, the benefit of outsourcing is in reduction of overheads. The costs of overheads in companies are high because of the functions of back-office. This is the reason why outsourcing will be used in functions and movement for a company easily. Therefore, the office will have a small, work force but workload being done is high (Olga, 2003). The other benefit is based on control of operations. The cost of operations in most companies is found to be high because they tend to outsource to reduce cost of operations. In addition, there are some departments in companies, which are usually out of control or poorly managed. This is where outsourcing comes in, as there are some outsourcing companies, which are capable of implementing better management skills. Moreover, outsourcing promotes staffing flexibility. The outsourcing companies work on a flexible notion where they are capable of performing several tasks when required (Schoenberger, 2004). This means that there will be no need of contracting other companies, when one requires a task to be completed different from the one they had contracted before. Outsourcing also promotes risk management and continuity. There are periods when the companies record employee turnover, which is high, which will be accustomed to inconsistency and uncertainty in the operations of the company (Michelle, 2004). However, outsourcing will ensure that the risks are standardized and reduced by providing continuity in the company. Conclusion Outsourcing refers to subcontracting of work to individuals and third party companies. This is done with the aim of creation of designs, products and services to clients. The main objective of companies opting for outsourcing their work is to reduce their cost in wages. However, most of the companies have realized that there are many negative aspects in the idea. The effects are based on community, economy and the educational system. On the other hand, outsourcing is always manned with problems, which are seen to affect the consistency of companies. These problems include cultural differences, difficulties of tracking the workers, hacking into company’s files and piracy. One crucial problem that outsourcing has brought to the country is the high rate of unemployment. This has made individuals feel that their jobs are insecure. This job insecurity has also made students in colleges to stop majoring in computing fields. However, in as much as there are many disadvantages associated with outsourcing, there are advantages, which trigger and motivate the implementation of outsourcing by companies. References Lazarus, D. (2004) Looking Offshore: Outsorced UCSF notes highlight privacy risk. SFGate.com 28 Mar. http://sfgate.com/cgibin/article.cgi?file=/chronicle/archive/2004/03/28/MNGFS3080R264.DTL Michelle. D, (2004) Outsourcing Report Blames Schools. Wired News 24 Mar. 2004. 28 Mar. 2004. Viewed, 7 February 8, 2012 http://www.wired.com/news/business/0,1367,62780,00.html Olga. K, (2003), The Hidden Costs of IT Outsourcing. Business Week, Lexis-Nexis Academic. News. Los Angeles. University of Southern California Library, Reingold, J. (2004) Into Thin Air. Fast Company. Lexis-Nexis Academic. News. Los Angeles. University of Southern California Library. Ryan P, (2004), Signs of offshore backlash growing. Computer World Canada. Lexis-Nexis Academic. News. University of Southern California Library, Los Angeles. Schoenberger, K. (2004) US students shun computer sciences. Mercury News viewed on 7 February on http://www.mercurynews.com/mld/mercurynews/news/8263034.htm Read More