Outsourcing Business in the USA - Coursework Example

Introduction The economic trend of the developed countries like America shows that the US companies have outsourced their operations in order to takeadvantage of the resources to be utilized in the process of production and service deliveries. The economic reforms adopted by several countries across the world in the age of globalization have opened up opportunities to various countries for tapping the potential resources required for expansion of the business. The economies which possess unique resources like the availability of manpower, technologies, innovation have been able to attain comparative advantage over other countries in international trade. The US companies have also taken advantage of this scenario to tap the resources available outside their geographical boundaries for which the operations of the US companies have been outsourced. The US companies have undertaken cost-benefit analysis and have taken strategic decisions in some cases to establish the productive units for manufacturing outside their own country. This has created shortage of employment opportunities for the people of US as more number of US companies started to create offshore jobs either by outsourcing or through foreign direct investments. This has led the US government to design policies for restoring the decline of American jobs for which huge penalties were imposed on the companies that were engaged in transferring job to the offshore industries either by outsourcing or through investments in the foreign economies. This paper argues the fact that the US government should not protect US jobs by imposing penalties on the US companies that are setting up manufacturing processes or outsourcing jobs to the foreign economies. Pros and cons: Supporting facts and arguments The severalbenefits due to the activities of the US companies in undertaking the process of outsourcing business operations or engaging in the foreign direct investments and carrying out offshore manufacturing activities have been discussed as follows. • Supporting the free market  The US companies which have either outsourced the business operations or set up manufacturing facilities in the foreign countries have been able to stimulate free exchange of economic resources between the countries in the international trade. This has supported the growth of free market and free trade in the global platform (Kehal and Singh 62). • International business competitiveness The setting up of manufacturing facilities and outsourcing of business operations has influenced the growth of competition in the foreign economies. This has led to the rise of competition in the international business context. • Promote urban upgrade of transformation The expansion of the business operations in the offshore markets and the outsourcing of business operations have catalyzed the process of up-gradation of industries as they strived to attain high quality in their production and service deliveries in order to sustain in the competitive markets. Thus the process of transformation led to up-gradation of urban industries (Ramanathan 56). • Lower the product price in America By carrying out manufacturing processes and outsourcing the operations to offshore markets, the US companies have been able to reduce the cost of business operations due to advantages of the strengthening domestic currency. High quality resources and the services have been obtained at a low cost which has led to lowering of prices sold in the markets. The increase in competition has further fuelled the lowering of the prices in US markets. • Businesses can focus on core skills The additional profits earned due to the utilization of offshore resources at a lower cost have put the US businesses in a more flexible position. The flexibility and the liquidity of the businesses have led them to invest on building their core skills of carrying out research and development, innovate products and services and develop the manpower resources in order to attain a sustainable development in the business (Barrar and Gervais 85). • Enables businesses to expand and develop new markets The strategic decisions of outsourcing and manufacturing products in the offshore markets have enriched their experience of handling foreign market demands. This business experience has helped the companies to expand and develop more number of new markets (Juravich 48). • Reducing the risk and cost of new products The process of outsourcing business operations have enabled the companies to transfer the risk of the new products and the services to the outsourced agencies. The cost incurred for the development of new products are also reduced as this task is performed by the outsourced agency. • Take advantage of economy of scale The companies engaged in manufacturing process and outsourcing of the business operations are able to reduce the cost over a period of time and attain economies of scale. The break-even point in the business is quickly reached and the company could look to enhance the profit margin due to the availability of high quality resources at a lower cost. The several drawbacks due to outsourcing of business operations and setting up manufacturing facilities in the offshore markets by the US companies have been discussed as follows. • American local jobs opportunities are being lost Due to the movement of the US companies towards the foreign markets either through the process of outsourcing or foreign direct investments, the local job opportunities in the US are being reduced. The job opportunities are being taken by manpower resources in the offshore market (OECD 91). • American dollars are being sent overseas It is believed that in the process of manufacturing products in the foreign markets, the US companies are spending huge amount of dollars in the foreign economies. The outsourcing contracts established with the local companies also include substantial payment in the denomination of US dollars. This includes the drainage of US dollars in large amounts (Hira and Hira 75). • America building the economy of other countries By shipping jobs abroad, the US companies have been contributing to create employment opportunities in the foreign markets. The rise of employment has given rise to the income level and the foreign economies have started to prosper be being driven by the rising demand for goods and services. The US companies have, therefore, contributed to the growth of these foreign economies. • Manufacturing cities depression The expansion of the US business in the offshore markets and outsourcing of business operations have led to transferring of jobs in the foreign markets. The shortage of the American jobs has created depression among the job seekers in the US cities. • Control and quality is being shipped abroad  The US technology and business expertise are being shared in the process of expansion of business in the foreign markets. Thus the quality and control of the business is being shipped abroad that has not been to the advantage of the US companies (Contractor, Kumar. and Kundu 35). • Job opportunity lost lead to rising crime rate The cut down of the American jobs in the US markets has led to the rising depression and increase in the activities of crime. This has affected the US economy in the worst manner. • Job opportunity lost lead to high deficit The decrease in the American jobs lead to high deficits in the domestic economy of US. The sharp job cuts in US due to transfer of jobs to offshore markets led to the lowering of the income level and liquidity in the economy. The high deficits would occur in the areas of national income level and purchasing power parity for the people of US. • American patents are being stolen Due to the opening up of US investments in the foreign markets and outsourcing of business operations, there are possibilities of US patents being duplicated by the foreign agencies for their own interest. This does not serve towards the welfare of the US business houses. Considering the pros and cons of the process of outsourcing business operations and foreign direct investments by the US companies, it could be argued that the US government should not impose penalties on the companies that have transferred jobs to offshore markets in the process of business outsourcing and expansion. This is due to the fact the age of economic globalization has opened up opportunities for the US enterprises to tap the resources of manpower, supply chain facilities, energy infrastructure, etc. in the offshore markets of Europe, Middle East, South Asia, etc. The companies which are driven by the profit motives would be willing to utilise the resources that are available outside the geographical boundaries of US. The cost benefit analysis conducted by the US companies like Accenture, IBM, Intel have led to identify comparatively higher benefits in outsourcing business operations. The business sectors in US that have been engaged in the process of outsourcing the business operations or producing goods and services in the offshore markets include the manufacturing sector, ITES, R&D divisions of companies, call centers, etc. The companies of the US market have chosen India, Indonesia, China, and Bulgaria as the four most preferred foreign destination in 2013. Even if the US government impose huge penalties on the companies, the preference of the US enterprises in choosing foreign markets over the domestic market is never going to stop due to the advantages analyzed from the cost-benefit analysis. The government should also stop imposing penalties on the US companies considering the benefits realized by the companies that would in turn lead to the overall growth and development of the US economy.The US companies would were able to utilize the resources and the factors of production available in the foreign markets at a comparatively low cost which enabled them to increase their economic profits (Vagadia 28). From the point of view of economics, the outsourcing of business operations and the foreign investment in carrying out operations in the foreign markets have led to free exchange of resources and business expertise in the international trade. This has increased the level of competition in the local markets. This has been beneficial for the development of the international economy and a parity in economic status have been restored among the countries. The increase in competition has increased the quality of goods and services and lowered the prices of products. The outsourcing of the business operations by the US companies has led to the transfer of risk and the cost of new products and services to the outsourced agencies in the foreign economies. The cost savings in the business has not only increased the profit margin of US companies but also lowered the prices at which the products have been sold in the US markets. Considering the prospects of development of the US economy and a healthy and the scope of fostering a healthy competition in the international markets, the US government should not impose fines on the companies engaged in outsourcing or manufacturing in foreign markets. Conclusion The process of outsourcing business operations or carrying out manufacturing activities by the US companies in foreign markets have led to the transferring of jobs from the US economies to foreign economies. Although it has curtailed the number of jobs in America, the US government should not impose hefty fines on the companies that are engaged in expanding the manufacturing operations and outsourcing of business to foreign economies. This has been argues with the help of supporting facts on the increasing foreign investments and outsourcing which is beneficial for both the companies and the economy. The government fines could, however, not stop the process of outsourcing of the US companies. This is due to the advantages analyzed by the companies from the cost benefit analysis. Apart from this, the undertaking of manufacturing activities or outsourcing business to the foreign markets have contribute to the development of urban industries and the international economy. The pain of reduction of American jobs is temporary as the overall development of the international economy would lead to growth of investments in the US economy as well. The rise in the level of competition due to free exchange of resources and infrastructure in international trade would lead to improvement in the quality of goods and services. The prices of the goods would also be lowered thereby restoring the parity in terms of bargaining power of both the enterprises and the consumers. Works Cited Hira,Ron. andAnil, Hira. Outsourcing America: The True Cost of Shipping Jobs Overseas and What Can Be Done About It. New York: AMACOM Div American Mgmt Assn, 2008. Print. Ramanathan. The Role of Organisational Change Management in Offshore Outsourcing of Information Technology Services: Qualitative Case Studies from a Multinational Pharmaceutical Company. Florida: Universal-Publishers, 2009. Print. OECD.Offshoring and Employment Trends and Impacts: Trends and Impacts. Paris: OECD Publishing, 2007. Print. Juravich, Tom. The Future of Work in Massachusetts. Massachusetts: Univ of Massachusetts Press, 2007. Print. Barrar, Peter.andRoxane, Gervais. Global Outsourcing Strategies: An International Reference on Effective Outsourcing Relationships. Burlington: Gower Publishing, Ltd., 2006. Print. Kehal,Harbhajan. andVarinder, Singh. Outsourcing and Offshoring in the 21st Century. London: Idea Group Inc (IGI), 2006. Print. Contractor,Farok.,Vikas, Kumar. and Sumit, Kundu. Global Outsourcing and Offshoring: An Integrated Approach to Theory and Corporate Strategy. Cambridge: Cambridge University Press, 2011. Print. Vagadia, Bharat.Strategic Outsourcing: The Alchemy to Business Transformation in a Globally Converged World. Heidelberg: Springer, 2011. Print. Read More