Is Outsourcing Good for America - Essay Example

Is Outsourcing Good for America? When President Bush’s chief economic adviser, Dr. Gregory Mankiw was asked by a reporter as to whether outsourcing was good or bad, he replied “Yes, it is probably good for America in the long run “ (Hira 2). And that single statement spawned one of the biggest debate in America if indeed outsourcing can be good for America. But despite the debate, it is certain that outsourcing is already inevitable. In today’s globalized economy and stiff competition, one of the management tool and prerogative employed by companies is to outsource several processes of the business that it may be able to concentrate on its core business and keep up with competition. As Konig & Koskela elaborates “Over the last years, as a result of the growing globalization, international outsourcing, which is defined as the acquisition of production parts from an independent foreign supplier, has become an important managerial tool in reorganizing a firm’s production process (22). Outsourcing as a managerial tool however is not a new or a radical business practice concept. Offshoring, a specific subset of outsourcing, involves the practice of moving noncore operations overseas, either by transferring jobs to a foreign subcontractor or building a facility where labor is cheap (Burkholder 2). It is only recent that outsourcing became pervasive as precipitated by the advances in information technology, integration of economy and the necessity for businesses to keep up with competition. As further elaborated by Burkholder, Private industry and the federal government have numerous reasons for outsourcing. Based on a survey by the General Services Administration in February 1998, “Outsourcing Information Technology,” the following are the primary reasons, in descending order of importance, for outsourcing information systems: Focus in-house resources on core functions. Allow personnel cost savings. Improve quality of information systems services. Increase flexibility (9). And this pervasiveness in resorting to outsourcing has changed the way business is done. Now, some early adopters are figuring out how to tap overseas workers for personal tasks. They're turning to a vast talent pool in India, China, Bangladesh and elsewhere for jobs ranging from landscape architecture to kitchen remodeling and math tutoring. They're also outsourcing some surprisingly small jobs, including getting a dress designed, creating address labels for wedding invitations or finding a good deal on a hotel room, for example (http://online.wsj.com). Given the scope and scale that outsourcing is being practiced today, it is no longer a surprise that this has caused anxiety among workers of host countries of a possible displacement from their jobs. Those workers' fears however have some grounding in fact. The prime motive of most corporate bean counters jumping on the offshoring bandwagon has been to take advantage of such "labor arbitrage" -- the huge wage gap between industrialized and developing nations. And without doubt, big layoffs often accompany big outsourcing deals (http://www.businessweek.com). Business as an entity is still profit driven and will always look for ways for it have a competitive edge against competitor to maintain profitability and increase the value for its shareholders. As always, it will always be motivated on cutting cost to maximize profitability. Such, outsourcing is just one of its strategy to keep up with competition and maintain its profitability in the market. For sure jobs will be in danger. With wages in developing countries like India and China which is only 10 to 20% compared to US salary, the incentive for companies to outsource is just very hard to resist especially when there seems to be an endless supply of educated and underemployed workers (Hira 3) who can equally perform a US based job. The IT industry, which was once one of the highest paid jobs, is estimated by the experts of the University of California to be in danger of being outsourced. And nothing can seem to be done about it as corporate America is embracing the trend as an imperative to remain profitable and competitive. The hesitance before is already replaced by enthusiasm to outsource as manifested by Wachovia chief executive Ken Thompson initially expressed reluctance about offshoring but joined the trend after a trip to India in 2005. The company now partners with a number of outside vendors. . . . After first shifting some technology functions to vendors, Wachovia teamed with Genpact in 2005 to handle a variety of back-office processes . . . including loan review functions, collections and investment banking analysis. . . . Wachovia’s latest offshoring venture is a call center in the Philippines. . . . It’s the bank’s first customer-service operation overseas (Whitaker et al 13). Truly, outsourcing is already inevitable. The previous argument that workers that will be displaced by outsourcing can be rehired in similar or other industry seems to be untenable. With the US economy still reeling from the 2009 crisis, jobs are still scarce with unemployment hitting at an average of 10 %. Such that, even some of the jobs created by President Obama’s stimulus package are also under the threat of being outsourced or already outsourced. The threat of outsourcing is not only confined to unemployment and inadvertent competition of opportunities but also has inimical effect to the government. As jobs are being outsourced and repatriated, government are losing potential taxpayers whose taxes can be used for providing social services and expansion. And that is being taken away by outsourcing jobs overseas. This is being aggravated by the changing economic policies that rules international trade. With the implementation of NAFTA or North American Free Trade Agreement, it has furtherly burgeoned the unemployment rate of United States being its textile industry severely affected by the cheap textile products abroad. Even as jobs are direly needed today for America’s expedient economic recovery, the lure of exporting jobs overseas is just too great to resist. Of course outsourcing can make an organization focus on its core business that drives its competitiveness and take advantage on the specialized skill of its vendor to perform its peripheral activities at the least cost. This may enable the company to deliver better services and products of higher quality at a lower cost which will benefit the consumer. And this may be the answer that Dr. Gregory Mankiw, President Bush’s economic adviser was trying to imply that outsourcing can be good for America in the long-run. But the social cost is just too great for it to outweight the benefit especially today where America is still recovering from the recent economic crisis and unemployment is still on its all time high. That whatever jobs created for Americans to reduce unemployment is being undermined as foreign workers abroad also inadvertently compete for the same job through outsourcing. Such that, any effort by the government to create jobs is being deducted by outsourcing. Considering the above, outsourcing is not merely a management tool and strategy for the business to reduce cost and focus on its core business to stay competitive and profitable. Outsourcing is way more transcendental than that as it changes the face of the business and nature of employment. REFERENCES: Books 1. Burkhlder, Nicholas C. Outsourcing: The Definitive View, Applications, and Implications. Hoboken, New Jersey. Published simultaneously in Canada. John Wiley & Sons, Inc. 2006. 2. Hira, Ron & Hira, Anil. Outsourcing America: What’s behind our National Crisis and How We Can Reclaim American Jobs. Online Magazine 1. ELLEN GAMERMAN, Outsourcing Your Life , June 2, 2007, http://online.wsj.com/article/SB118073815238422013.html 2. Stephanie Overby. Outsourcing Customers Focus on SLAs to Detriment of Business Transformation. Tue, May 24, 2011. http://www.cio.com/article/682869/Outsourcing_Customers_Focus_on_SLAs_to_Detriment_of_Business_Transformation?taxonomyId=3195 3. Pete Engardio, with Michael Arndt in Green Bay, Wis., and Dean Foust . The Future Of Outsourcing. Charlotte, N.C. JANUARY 30, 2006. http://www.businessweek.com/magazine/content/06_05/b3969401.htm Journals 1. Konig, Jan; Koskela Erkki. Does International Outsourcing Really Lower Workers' Income?; Journal of Labor Research, Mar2011 2. Whitaker, Jonathan; Mithas, Sunil; Krishnan, M. S. Organizational Learning and Capabilities for Onshore and Offshore Business Process Outsourcing.. Journal of Management Information Systems, Winter2010, Vol. 27 Issue 3, p11-42, 32p, 1 Diagram, 7 Charts, 2 Graphs Read More