Government Shouldnt Impose Stiff Penalties on Companies to Protect American Jobs - Report Example

Government Shouldn’t Impose Stiff Penalties on Companies to Protect American Jobs Introduction Traditionally, companies produced their goods and offered services only for the community in which they were formed to operate. That is, goods and services were meant to be consumed in the immediate location of their production. This has changed over time due to the increased demand of the same products in other locations both locally and internationally. Therefore to meet this increased demand of their products, companies have resolved to globalize their operations by either setting production plants in other locations or partnering with other third party agencies in those countries to help them in distributing their products. This has been achieved via an outsourcing or offshoring model. Outsourcing/offshoring model helps established companies to produce or even supply their products and offer their services world widely without necessarily relocating completely from their production plants. This movement is specifically from the rich countries to countries where raw materials and labor cost are lower than their original countries of operation. This paper will discuss the pros and cons of imposing stiff penalties on companies in order to protect the American jobs. Offshoring is a situation where a company located in place chooses to expand from that one location to other parts of the world. time this involves coming up with a new production plant in the new location. This is motivated by search of low production costs in terms of cheap labor, cheap raw materials, cheap operating cost in terms of power required to keep the machines running, availability of quality workforce among others (Winkler 41). Therefore, a company in pursuit of the above mentioned benefits may transfer its manufacturing processes or part of its operations such as customer care services from its original location to an all new location. Such a transfer is usually from a more developed country to a less developed or a developing one. It is therefore evident that American companies pursuing offshoring are transferring to the developing world. In as much as offshoring has advantages to the offshoring firm it also has some long-term negative effects both to the firm and to the economy of the country in which the company was founded (OLeary) It is therefore in light of this that this paper seeks to discuss whether the government should protect American jobs by imposing stiff penalties on companies that transfer jobs offshore by outsourcing or manufacturing in a different country. To have a clear view of this we will first discuss the both the advantages and disadvantages of offshoring and from there we will draw a conclusion. Advantages of offshoring Access to cheap labor: As noted in the introductory part offshoring mostly is targeted from developed countries to less developed countries or developing countries. It is a fact that these countries have a large pool of skilled personnel, but unfortunately not all people can find employment in these countries due to their status. It therefore true if American companies relocate their manufacturing activities to these countries they are most likely to benefit from this available large pool skilled labor force (Bluzor) Availability of cheap raw materials for production: Due to lack of better technology for exploration and exploitation of natural resources and other raw materials, less developed countries have wide range of untapped natural resources which American companies can take advantage of exploring due to their sophisticated technology which developing countries cannot access. As a result therefore, American companies are able to benefit by paying a low price for the available resources. An addition to this would be the abolition of the transportation costs that would be incurred if the company was to export the same raw materials to produce goods within America (The Economist Newspaper Limited) Increased profit for the offshoring companies: An increase in profit is viewed in terms of reduced labor cost and cheap raw materials. Since American companies are able to access cheap raw materials and with the available cheap skilled labor force convert them into finished goods which they sell at their original price. Then this means an additional to their overall profit due to the reduced expenditure. This is only achieved if we hold other factors constant and assume that they do not increase the cost of production. That is, we assume they are either the same as in the mother country, America or they will be lower than they are in America (Investopedia LLC.) Growth and Expansion of the companies: Companies which offshore their operations are likely to expand and grow fast as compared to their counterparts who do not. Offshoring implies expansion of production activities in the areas in which a company was not operating previously. This therefore implies that the company is able to get and take control of new market share and as result it is able to expand its operations which in turn lead to the growth of the company (Suttamally) Reduction of pollution of the Americas environment: Setting a manufacturing plant in other parts of the world may mean reduced pollution as there will be spreading of the emissions and the release of waste to the nearby environment. For instance, it will reduce the amount of air pollution and water pollution due to reduced amount of gas emission and release of waste products which cannot be reused into waters respectively. Taking advantage of the enabling environment offered by the less developed countries: American companies are able to benefit from the enabling offered by developing countries in order to ensure that companies set up in their countries to ease their industrialization agenda. This enabling environment comes in forms of reduction in taxation or tax holidays and other incentives are offered to encourage and see that these companies have invested in their countries. As a result, the American companies are able to increase their profits by operating in the less developed countries as compared to operating in the United States (EBSCO Publishing Inc.) Another course to support offshoring is the view of the price of the land in United States of America as compared to other locations and specifically developing world. This is because the price of land is lower in developing countries than in America due to lack of proper means of exploiting this vital natural resource. Therefore an American company that chooses to set its operations in developing countries will spend on lower on acquiring land than it would if it acquired the same piece of land in America (Winkler ). Maintaining market competitiveness: A company that sets its operations overseas acts like a market leader. It has has a greater ability of obtaining and securing a larger market share as compare other companies that operate only locally. Such a company is always ahead of other related companies in terms of research and development and can easily respond to its customers’ needs. This is because they have already established a contact with the customers they serve rather than just supplying goods through a distribution channel. Improved customer service: Offshoring helps a company to serve its global customers at their immediate location. This leads to increased satisfaction to the users of the products or services which in return helps the company secure more customers. This is because customer’s claims are resolved in a speedier manner as opposed to resolving them from a distance since those attending to customers in those markets have a good understanding of them. Additionally, offshoring resolves the time zone differences and as a result ensures that customers’ needs are attended to according to their time zone without inconveniencing them (The Economist Newspaper Limited) Exploring and coming up with new business models: offshoring companies are able to explore and come up with new business models that are in line with the constantly changing and dynamic world of business. A company is thus able to reimage and change the way they do their business and also shows that it places a top value to their clients. Based on the result they get a company may come up or adopt a new technological model which helps it to step up its operations and making sure it remains a market a leader. Investment activities diversification: some countries rules and regulations restrict the operations of an established company and therefore they do not allow the company to diversify its activities. Offshoring such activities will help the business to diversify its operations without and still ensure that it operates within the regulations of the country (Investopedia LLC.) Despite the above advantages, offshore outsourcing also has a number of disadvantages and contributes negatively to the economy of the country in which the company was first established. We therefore look at some of the negative effects brought about by offshore outsourcing of business operations outside United States of America. Disadvantages of Offshore outsourcing Job losses to the American citizens: offshore outsourcing has been blamed for the loss of jobs. This is because when companies go for the cheap labor in the developing countries the Americans who were employed will lose their jobs to the developing countries work force. This is because if that company would have expanded its operations within the United States of America then jobs created would be taken by the Americans. However this does not happen in offshoring as employees are obtained from the immediate locality. For instance in a study conducted by the NBC and a similar study conducted by the Wall Street Journal in the year 2010 indicated that job offshoring was the leading cause of Americas problems. This is where 86% of the Americans who participated in the poll reported that indeed job offshoring was the major contributor to their country’s economic problems (The Economist Newspaper Limited). Many companies are therefore hostile towards offshoring due to the high levels of unemployment witnessed during 2007 / 2008 financial crisis. Cultural differences and communication misunderstanding may hinder company’s growth. Communication being the key to any company’s growth and development is hindered when company offshores its operations into a totally new geographic area which has different culture and their main language of communication differs from that of America. Therefore communicating to draw decisive conclusions will be almost impossible. Therefore, for the company to thrive in this area there will be other expenses incurred to ensure effective communication. This may be in terms of either learning the new languages or training the residents of those locations to learn English. It may also involve the expenses of learning the new cultures and values of the people in which the company wants to set its business operations. Tighter tax and other laws: Due to vested interests of the authorities of these developing countries to protect and bring up their own industries, they are likely to impose stricter rules and regulations governing international firms. This would in turn limit growth and expansion of the American firms. Loss of government revenues / decreased government Revenues: Revenues collected by the government are likely to be lost if a company that has been operating in America relocates as all the taxes all the taxes will be taken by the hosting country. Additionally, a decrease in revenues collected would be expected if the company moves part of its operations into another country. Risk of exposing confidential data and other information related to the success of the company: Offshoring means sharing vital information with the countries in which the business operations have been delegated. Such things as employee information, company’s success strategies are likely to be exposed and this may lead to the down fall of the company involved. Also, things such as the technology that a company uses are at the risk of being copied and thus leaving the company with no competitive advantage over other companies that operate in the same line of products or services (Investopedia LLC.) Products quality could be corrupted: Despite lower production costs, the quality of the goods produced may not match the quality of goods produced in the United States due inefficiencies of the working force. This may result due to inability to operate sophisticated machines and other technology used by the company. As a result the quality of goods produced would be lower than if the same goods were produced in America. Company’s profits are likely to be affected by other currencies appreciation and depreciation: The profit of the company may decrease if the currency of the country in which it operates depreciates. The vice versa is also true if the country of operation currency appreciates. It is therefore evident that the profit of the company may not be as stable as when the company produces in America. Negative publicity of the company: This may result due to loss of jobs by the American citizens to foreign work force. An example is the case of the two United States based computer companies Dell and IBM whose public image was tarnished as a result of exporting jobs that were meant for Americans to overseas (UK Essays). Uncertain Political Climate in developing countries: Political climate in developing countries is always uncertain as tension and wars could erupt any time leading to destruction of properties owned by the company. This would be a great blow to the involved company which could lead to its closure (Arabe). Conclusion In light of the above advantages and disadvantages of the offshore outsourcing, it can be noted that offshoring is almost equally detrimental to both the company and the Americas economic growth. This is because despite the company achieving its goals of low cost of production in terms of the cheap labor, proximity to the raw material sources which also reduces transportation costs, the company is still faced by other problems which if not resolved could led to its down fall. Despite some of the problems it brings to the country’s economy I would propose that the government does not impose penalties to the companies that are practicing offshore outsourcing. My argument is based on the fact that as the company exports its job creation it also benefits from offshoring its operations. Although these benefits may not be easily identified in the short run they are likely to show in the long run. My other argument is that although employment opportunities are exported, America gains from good interrelationships established between that country and the United States. Therefore, I conclude that the government should not place any restrictions on offshore outsourcing and should let the market forces determine the employment structure. References Arabe, Katrina C. Industry Markets News - The Pros and Cons of Offshore Outsourcing. 17 October 2002. 11 February 2015 . Bluzor. Bluzor - Benefits of Offshoring. 2011. 11 February 2015 . EBSCO Publishing Inc. "Business Basics Article Summary - Offshoring." 2009. EBSCO Publishing Inc. Web site. 11 February 2015 . Investopedia LLC. Pros And Cons Of Offshore Investing. 2015. 11 February 2015 . OLeary, Christopher. Encyclopedia Britannica - Offshoring. 03 September 2014. 11 February 2015 . Suttamally, Balasubramaniyan. Offshorings positives outweigh its negatives. 05 July 2004. 11 February 2015 . The Economist Newspaper Limited. The story so far - Offshoring has brought huge economic benefits, but at a heavy political price. 19 January 2013. 11 February 2015 . Winkler, Deborah. Services Offshoring and Its Impact on the Labor Market: Theoretical Insights, Empirical Evidence, and Economic Policy Recommendations for Germany. Heidelberg: Physica, 2009. Print. Read More