Outsourcing: The Contracting Organisation - Case Study Example

Outsourcing is generally perceived as an economically detrimental policy insofar as the outsourcer's home economy is concerned. According to Domberger (2005), while founded upon sound economic principles, outsourcing involves moving production and manufacturing out of the home economy and to an international one. This leads to the loss of job within the home economy and in some instances, to the closure of manufacturing and production firms (Domberger, 2005). Therefore, while outsourcing positively contributes to the lowering of production costs, enabling retailers to offer consumers a comparable quality of goods for lower prices, it has the potential to negatively impact the home economy.

Through outsourcing, Wal-Mart has been able to continually undercut its prices and in so doing, offer consumers prices which its competitors cannot meet. As indicated in an Enterprise (2004) article on Wal-Mart and international outsourcing, had Wal-Mart continued to buy American products from American manufacturers and producers, it would not have been able to sell its goods for the prices it currently does. By contracting with Chinese manufacturers for the manufacture of products, such as garments, toilet paper, and toys, to name but a few, according to Wal-Mart quality standards and specifications, it has been able to significantly cut down on cost and therefore on price without sacrificing quality (Enterprise, 2004).

The implication here is that Wal-Mart has embarked upon the international outsourcing of a vast percentage of the goods which it offers its customers for the purpose of ensuring low prices. While the rationale behind Wal-Mart's international outsourcing is the provision of quality goods at unmatched prices to its consumers, the volume of its international outsourcing has economic side-effects. The company, according to Laws (2004) outsources over 80% of its entire inventory to lesser developed and developing nations, chief amongst which is China.

Insofar as the goods in question have been manufactured in accordance with Wal-Mart specifications, the place or country of manufacture is not an issue which consumers have voiced concern about. From their perspective, and as Fishman (2003) explains, Wal-Mart is doing them an invaluable service through its consideration of their budgetary concerns and its subsequent efforts to ensure their receipt of quality goods, not only at low process but at prices which are continually being lowered. The fact that Wal-Mart outsells the totality of its competitors (Fishman, 2003) may be interpreted as an explicit statement of support for its practices by the consumer market.

Sales figures aside, American consumers and the US economy are only seemingly benefiting from Wal-Mart's international outsourcing. Available figures indicate that the scope of Wal-Mart's outsourcing activities has led to the loss of almost half a million jobs in the US market (Laws, 2004). Added to that, its practice of forcing its US suppliers to constantly undercut their profit margins has compelled Wal-Mart suppliers to both downsize and to outsource a significant percentage of their own inventories to China and other Asian nations (Fishman, 2003).