Outsourcing in a Global Community Term Paper
- Length: 8 pages
- Subject: Economics
- Type: Term Paper
- Paper: #24310724
Excerpt from Term Paper :
Outsourcing in a Global Community
"Even though 'Outsourcing' has its demerits and has been criticized the benefits which it brings is advantageous to the U.S. both now and in the long run."
This statement identifies a claim of fact showing that even though outsourcing has its demerits as any other condition would entail, the benefits which the U.S. economy would achieve by way of outsourcing is much more than its disadvantages and the advantages are not only beneficial now, but also in the long-term.
Outsourcing results in while a firm contract out a business activity to an outsider supplier. This process is normal within the U.S. economy for quite a substantial period. It has become easier to outsource business activities like the customer service, telemarketing, and document management. Other businesses inclusive of medical transcription, tax preparation, and financial services also outsource their activities. The estimates made by the Gartner research firm by the end of 2004 reveals that one out of every 10 IT jobs was outsourced overseas. Deloitte Research indicates about the outsourcing of 2 million financial sector jobs by 2009. The McKinsey Global Institute estimates that the volume of offshore outsourcing will grow by 30 to 40% a year for the ensuing five years. The analysis made by Forrester Research predicts about the 3.3 million White collar jobs will transformed by 2015. (Drezner, 2004)
Forrester Research also predicts that the U.S. will lose a total of 3.3 million service jobs to outsourcing within the period between 2000 and 2015. AMR Research indicates about the outsourcing of information technology jobs by the one fifth of manufacturers and financial services companies and expects that the percentage will be doubled in the ensuing two years. (Annett; Wong; Creighton, 2004) It has been criticized that while many U.S. companies anticipated drastic surpluses from sending some jobs overseas, those anticipations sometimes have not been attained. As per the survey conducted by McKinsey Global Institute Survey of 216 top-level US. executives, businesses anticipated saving up to 70% but the average savings was about 20%. Moreover about half of the responses from those having overseas projects were prone to bring their work back to U.S. since those anticipated cost savings were not attained. (The Pros and Cons of Offshoring)
It has been revealed by the critics that what companies fail to see is the prospective concealed costs of outsourcing. These constitute the legal costs of effecting to a contract between companies, and time spent coordinating contracts. This cost is difficult to predict resulting in overall costs to be underestimated that in turn results in overall surpluses to be overestimated. Sometimes we fail to comprehend that the companies providing our outsourcing activities are more than probable to be outsourcing to more than just us. In consequence to this, the decisions made by such outsourcing companies may probably be less conducive to our all round corporate objectives while justifying being more gainful for them. While resorting to outsourcing it is significant to view at the possible loss of flexibility in reacting to varying business conditions, deficient of internal and external customer concentration, and sharing cost savings. The loss of such functions in several cases outweighs the probable cost surpluses of outsourcing. (The Disadvantages of Outsourcing)
The loss of internally acquired skills is regarded as a major criticism against outsourcing. Resorting to outsourcing the purchasing side of business companies will free their purchasing professionals who in the course of building their career have gathered corporate executive capabilities that would prove to be beneficial within the organization. At the time of outsourcing loss of regulation is evident but when company is not desirous of liberating some of the regulations then one visualizes having a lot of problems with outsourcing that could be the reason sufficient to decide not to outsource. Another difficulty associated with outsourcing is that when companies rise to enhance the amount of employee turnover, and the quality of the performance of one's employee declines. The reason for such occurrences are that contract employees are less company focused and they do not care about the overall effectiveness of the company. (The Disadvantages of Outsourcing)
Irrespective of the fact that outsourcing has its own disadvantages, many economists reveal outsourcing generates benefits over its demerits even now and also over the long drag by reducing prices to consumers, making companies more productive and orienting workers to more effective jobs. Additionally, the U.S.A. apparently getting more jobs out of income from foreign investment than it has been losing to outsourcing, as revealed by the reports of Commerce Department. (Webb, 2004) Irrespective of the fact that outsourcing will divert some jobs from the U.S. A number of academic and government institutions predict that by the end of 2015, about 3.3 million jobs from U.S. will move overseas. However the U.S. economy is predicted to create 22 million new jobs within the period. The variations driving jobs overseas are not considerably varied from the changes that technologically growing economies have experienced over the past few decades.
During the last decade, the U.S. economy has generated a total of 35 million new private sector jobs for an average of 3.5 million new jobs per annum. On the basis of such rate, the majority of moved workers are re-engaged within six months. The elasticity in the employment market and the movement of labor makes it certain that workers losing their jobs are quickly absorbed back into the economy. Outsourcing activity is another illustration of innovations impelling for a healthy, emerging office market and is seen to have about four basic advantages. Firstly, declined operating expenses make it certain that U.S. businesses continue to be competitive globally. Secondly the companies that make the jobs to mobile across the nations engaged in purchase of further goods and services from other U.S. firms generating export revenue. Thirdly, the U.S. companies that apply foreign labor send the earning back to home that generates further scope of investing in future business growth and also generate taxable revenue at all levels. Fourthly, U.S. workers involved in low-value services are then able to follow higher level jobs. (The Pros and Cons of Offshoring)
As Martin Baily, a Senior Fellow at the Institute for International Economics and a Senior Advisor to the McKinsey Global Institute or MGI, and Diana Farrell, Director, MGI, opined on the present discussions about offshoring and put the concern in perspective. The authors cite MGI research that represents the considerable advantages the U.S. continues to achieve from offshoring through corporate savings, additional exports, repatriated profits, greater productivity, and new jobs. (Exploding the Myths of OffShoring) According to Catherine L. Mann, outsourcing jobs would enable the U.S. economy to prosper now as well as in the long run. She states that there is a need to differentiate between the employment which is lost by workers of a particular industry of the U.S. economy and particular employment jobs which are affected within each industry. Further jobs which are being criticized to be lost abroad would emerge in a neighboring state. (Mann, 2004)
The Bureau of Labor Statistics reveals that outsourcing has given rise to productivity acceleration in some of the sectors. To illustrate in the sphere of manufacturing the blending of domestic outsourcing and off shoring has given rise to about 1.5% per annum to sectoral output per hour growth through 1995 and about 1% per annum growth thereafter that is probably enhance in the coming years. (The Effect of Outsourcing and Offshoring on BLS Productivity Measures) Catherine Mann of the Institute for International Economics indicates that the globalization of IT production has improved U.S. GDP to the tune of $230 billion over the last seven years; the economic integration of IT services is required to give rise to a same increment. While the price of the IT services declines sectors that have yet to take advantage of them to maximum possible extent -- such as construction and health care -- will start to do so, thus decreasing their cost of production and improving the quality of their output. (Drezner, 2004)
The Washington, DC- based AeA, earlier recognized as the American Electronics Association reveals that shipping jobs overseas will likely to benefit the competitive interests of United States in the long run. They consider that the offshore outsourcing is the least significant variable in the decrease of high-tech jobs. The decline of global economy, the completion of the high tech trend, and radical improvement in the productivity trends are the great elements. The concern for high-tech and information technology jobs moving offshore is intensifying, as revealed by AeA President Bill Archey, brought out in The San Jose Mercury News. According to him the threat that we are losing the high level, high education jobs is vehemently exaggerated. Actually it is not occurring. Irrespective of the fact that AeA acknowledged some people will be injured from outsourcing, it revealed in a prepared statement that offshore outsourcing is prone to entail a long-term benefit for the United States. (Webb, 2004)