Global Outsourcing in IT Sector - Essay Example

Senior executives and corporate leaders around the world agree that outsourcing is good for the world economy. These executives also realize that outsourcing can deliver more than just labor cost savings (Daga & Kaka, 2006). While in all markets executives think outsourcing is better for the world economy rather their own markets, the issue has become politically sensitive in America (P&P, 2004). The issue has become highly emotional because of two dramatically different effects – while some claim that it will result in layoffs and dislocation for many US workers, most economists believe that it will ultimately strengthen the US economy (Otterman, 2004). Despite the recent economic downturn, according to a McKinsey Analysis, the U. S. economy created an average of 3.5 million new jobs in the private sector per year (Otterman). Nine million people come on to the job market every year (Gardels, 2004). Outsourcing helps to stimulate the economy. The loss of jobs can be attributed to other factors like the bursting of the tech bubble and its effects on Wall Street, the consolidation of retailing under giants like Wal-Mart, and the after math of September 11 and other events. The Bush administration is convinced that shifting the white collar jobs to the developing countries might cause short term pain but is a part of the positive transformation that will enrich the US economy over time (Vieth & Chen, 2004). The Information Technology Association of America (ITAA) also agrees that while outsourcing white collar jobs may have thrown some Americans out of jobs, it will ultimately lower the inflation, create jobs, and boost productivity (MSN Money, 2004). Just when layoffs and ‘pay-for-performance’ was taking place, educated and eager workforce emerged in countries like India, China, Malaysia and Vietnam (Johnson, 1999). Outsourcing assists with a form’s globalization strategy, helps broaden infrastructure capabilities, and offers local market access advantages it can help alleviate the technical labor shortages in the West (Hemphill, 2004). Other benefits include access to skilled personnel across the world, exploitation of follow-the-sun model to improve delivery schedules, and make up for the gaps in the internal capabilities of the firms (Rao, 2004). Outsourcing can free up assets and reduce costs in the immediate financial period and help firms focus on core activities (Harland, Knight, Lamming & Walker, 2006). The shortage of qualified labor in US and Europe was partly caused by the IT boom of the 1990s and the need for technicians for the new e-business (Gonsalez, Gasco, Llopis, 2006). The problem of fixing the Y2K bugs was another strong reason that increased outsourcing to India (Sourirajan). Indian software companies were eager to prove their capability and capitalized on the demand from the US to handle the Y2K bug. IT products and services have an increasingly short life cycle which increased the demand for more flexibility for IT enterprises. It was not possible to create and maintain adequately trained human resources that could cope with the volatility of the demand and heterogeneity of the projects (Gonsalez et al). The Intel Chairman is reported to have expressed turmoil over the decision to outsource (Hemphill, 2004). While firm is obliged to increase the shareholder value by reducing costs and increasing profits, they also have a responsibility towards the US IT workers who help build the nation technology industry. If the government does not find the proper balance between the two choices, Intel would have to take a traditional approach of increasing the shareholder value. According to a Forrester Report, US will export 3.3 million US jobs by 2010 and most will be in the IT software development sector (Sourirajan, 2004). By 2015, Forrester predicts, roughly 3.3 million service jobs will have moved offshore, including 1.7 million "back office" jobs such as payroll processing and accounting, and 473,000 jobs in the information technology industry (Otterman). Not only movement of jobs, even the threat of moving jobs will keep salaries low (Prestowitz, 2004). Power, Bonifazi and Desouza (2004) point out that many US companies may not understand or appreciate cultural differences which outsourcing could pose. There will always be two sets of reactions to any innovation or change that takes place. The issue of outsourcing is not as serious as it is made out to be and the media is responsible for this hype. There is no evidence that outsourcing has caused the recession and there is no evidence that it is making it worse. The hype is both on the issue of job loss as well as in the share of the GDP of US. Statistics advocate that reemployment takes place after education and training and the net result is not negative. On the other hand, savings are phenomenal as per McKinsey, which goes up to 50% on task and process level improvements. Consumers too benefit as inflation and interest rates come down and the prices of good become lower. Statistics further prove that the GDP and the net new jobs also increase. The reasons why outsourcing started initially was because of the economic downturn and downsizing that the US was facing. Cost saving feasibility of the firm was the prime concern at that time. How then can outsourcing be now blamed for job loss? Outsourcing was the easy way out for companies to sustain and continue to deliver shareholder value. The ultimate social impact in the US will be positive as outsourcing has allowed the US to become highly specialized; the workforce has become highly educated and qualified while salaries have gone up. America still commands the biggest market in terms of finished IT solutions. The standard of living will go up as disposable income increases. Outsourcing is a long-term issue with long term benefits and should not be perceived as a short term measure. The government should take steps to ensure that the displaced employees are provided sustenance and along with it training and education in different skills that are necessary for the US economy. In the IT sector itself skills are essential in risk assessment, strategic management, and allied fields. These jobs require expertise and also fetch higher salaries. All these amply demonstrate that fears of job loss and downturn of economy are unfounded and merely a hype. References: Daga, D., & Kaka, N. F., (2006), Taking offshoring beyond labor cost savings, The McKinsey Quarterly, 14 April 2007 Gardels, N., (2004), Globalization bites back, NPQ, Spring 2004 Gonsalez, R., Gasco, J., Llopis, J., (2006), Information systems offshore outsourcing, Industrial Management & Data Systems Vol. 106 No. 9, 2006 pp. 1233-1248 Harland, C., Knight, L., Lamming, R., & Walker, H., (2006), Outsourcing: assessing the risks and benefits for organizations, sectors and nations, International Journal of Operations & Production Management Vol. 25 No. 9, 2005 pp. 831-850 Hemphill, T. A., (2004), Global Outsourcing: effective functional strategy or deficient corporate governance, Corporate Governance, Vol. 4 No. 4 pp. 62-68 Johnson, N. J., (1999), The Changing Narrative in the American Workplace, Business & Society Review, 104:2 209-224 MSN Money (2004), Outsourcing actually creates U.S. jobs, study finds, 14 April 2007 Otterman, S., (2004), TRADE: Outsourcing Jobs, Council on Foreign Relations, 14 April 2007 P&P (2004), The McKinsey Global Survey of Business Executives, March 2004, The McKinsey Quarterly, 14 April 2007 Power, M., Bonifazi, C., & Desouza, K. C., (2004), The ten outsourcing traps to avoid, Journal of Business Strategy, Vol 25 No. 2 pp. pp. 37-42 Prestowitz, C., (20040, Smart Outsourcing, Dumb Outsourcing, NPQ, Summer 2004, pp. 40-42 Rao, M. T., (2004), Key Issues for Global IT Sourcing: country and individual factors, IS Sourcing, Information Systems Management, www.ism-journal.com, Summer 2004 Sourirajan, S., (2004), GLOBALIZATION and OFFSHORE OUTSOURCING A Tale of Two Realities, Vieth, W., & Chen, E., (2004), Bush economic report praises outsourcing jobs, 14 April 2007 Read More