Outsourcing as a Business Practice - Essay Example

The main drive why US companies export jobs away from the US is the fact that outsourcing serves the companies’ objective of enhancing their competitiveness and ultimately, bottom line. For example, a company may outsource a certain department which would be more expensive for them to set up than to outsource to a third party located outside of the United States. The most common example for this is the customer service department of credit card companies where calls are instead routed to a third party outsourced by the company. We can cite Capital One outsourcing its customer service department to companies like Accenture which already has the learning curve and capability to perform this function. This saves the company time, resources, and effort of setting up its own call center and instead relies on the value of service delivery provided by its outsourcing partner.

Outsourcing however is not only confined to customer service. It is also pervasive in the manufacturing sector which is evident in China whereby many products sold in the US are manufactured in China. This phenomenon is due to the availability of low-wage workers in China not to mention its relatively relaxed labor laws. In addition, China has almost an “unlimited availability of resources, significant labor cost reductions, fewer government regulations, lower taxes, and huge profits” (Burton, 2013 p. 34) which explains why there is an exodus of manufacturing plants to China.

This kind of business setup allows companies to focus on their core businesses without being distracted by an operation that can be done better by an outsourcing company. In sum, the company benefits “velocity improvement, quality improvement, cost reduction, resource, and logistics optimization, eliminating waste, reducing global supply chain complexity and risk, and improving the overall customer experience” (Burton, 2013 p. 34).

While there are myriad benefits in outsourcing, cost plays a major factor among companies to outsource jobs outside of the US. The reduction in cost is so significant that companies will even tolerate a slight deviation from the ideal standard of service delivery. For example, in the call centers outsourced to the Philippines and India, the job requires utmost proficiency in the English language since the work requires direct interaction with the respective company’s customers who are located in the US. Since most of the agents are not native speakers, it is understandable that there is a gap among non-native speakers in their communication skills. This deficiency however is offset by the savings in cost (Lockwood, 2012).

Outsourcing has an effect on wages. It will invariably pull down the wages in the home country because workers will have to compete with their counterparts in the outsourced countries who could do or almost do the same job at a significantly lower cost. The law of supply and demand states that the price of wages will generally fall down if there is a competition that could provide the same work at a lower cost. On the other hand, the reverse will happen in the outsourced country in terms of wages. Wages in outsourced countries are generally so low that even if they are contracted at a price considered as low in the contracting countries, the wages given are still considered to be high. As such, it will have a pull effect of increasing wages in the outsourcing industry.

In the long run, higher wages will mean higher disposable income and higher disposable income would lead to higher demand and ultimately, consumption. Higher consumption has a ripple effect in a given economy. The adage in economics holds true in this situation that one man’s expenditure is another man’s earnings. These earnings will again be spent which could stimulate the economy of the outsourced country.

The host country however can also benefit from outsourcing. Since companies now have lower operating costs, they can translate it to a lower price of their products and services making it more affordable. In a way, the jobs foregone and the lowering of wages are indirectly compensated by the cheaper price of goods and services.