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The Economic Impact of Outsourcing - Essay Example

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The Economic Impact of Outsourcing International outsourcing has turned out to be an emergent trend in the sphere of global trade. (Hummels et al., 2001). Post the financial crisis of 2008, economists are reconsidering their views against the practice of outsourcing as it becomes a vital, cost cutting tool used in the measures needed to be implemented to bring the global economy back to health…
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The Economic Impact of Outsourcing
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The Economic Impact of Outsourcing

Download file to see previous pages... There were several reasons this practice gained a following in this time period. What was needed desperately was a way to improve asset management, cash flows and margins. The infrastructure demands for the industry were growing but there was a greater need for the business organizations to cut overheads more drastically if they wanted to survive because the budgets were shrinking at an even faster pace. It was this need for cost cutting that spurred the use of the practice of outsourcing in the industry. Of the numerous other benefits of outsourcing, some of the most prominent ones are reducing operating costs, reducing the effect of obsolete technology, using newer technology as soon as it is available for use and letting specialists handle challenging issues etcetera. The lobby against the practice of outsourcing bases their argument on the fact that when a company outsources it loses quite a bit of control over the firm’s operations and additional cost of services rendered etcetera. But a holistic view of the situation makes it clear that the advantages of outsourcing far outweigh any costs that company will have to incur in the process. One factor that cannot be overlooked-however great the benefits-is that of possible risk, but with some modern day transparency measures in place it is easier to make sure that the firm being outsourced to remains committed to what is expected of them. The third party that is outsourced to has a core competency in the services that the firm wants. They use the quickest, most efficient production methods and the latest technology which enable them to produce in more cost effective methods while still preserving the expected quality of production. And the firm that is outsourcing can invest the money saved more wisely, in more productive ventures. (Haynes, M., 2009). People who are against the practice of outsourcing argue that this is a major cause of layoffs in the first world. However, supporters argue that even though the costs for the local industry in terms of layoffs cannot be ignored, the benefits gained tend to overpower the adverse impacts. It is basically a question of going for the overall economy’s gain at the personal expense of a small part of the economy’s labor force. Supporters further argue that if outsourcing is banned, it won’t save a lot of people from being laid off; they say that any protection measures of the sort will result in overall economic loss. Regulation will thus cause inefficiency in the economy. Opponents however, stick to their side of the argument. They want to preserve jobs and prevent livelihoods form being destroyed. To objectively analyze the economic benefits of outsourcing, one needs to look beyond the aspect of jobs lost in the local economy and take a more macro view of the situation. Outsourcing lets firms cut costs and improve efficiency all in one go. Supporters expand on this by saying that outsourcing allows companies to access the latest resources and the best capabilities. Outsourcing allows these companies to share the workload and risk of production processes and frees resources for investment purposes that would otherwise be invariably tied up. But that’s not all, outsourcing aids innovative practices by making it possible for firms to invest in research and development, customer service and ...Download file to see next pagesRead More
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This paper begins by defining outsourcing and then describing the different forms of outsourcing. Next it outlines why organizations opt to outsource and how they select what to or not to outsource. The paper then dwells on the advantages and disadvantages of outsourcing from two perspectives: from the point of view of a company and from the point of view of the country.
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