Production management principles and practices

Corporate Outsourcing - Balance of Cost and Publicity

Before one debates the pros and cons of outsourcing, one must first answer the question of what is meant when project managers speak of out souring of labor? Offshore business process outsourcing may be defined as the exporting of work from the United States to areas of the world where there is lower labor cost or tax savings. In this type of arrangement, the foreign-based firm provides services for a U.S.-based company that could also be, or usually has been, provided in the U.S. (Donlon & Kropp, 2005)

China and India are two of the most popular countries where outsourcing takes place. This is because China has a relatively low labor cost. American plant workers earn about 15-30 USD a day. This is also true in India where, for an Indian worker the cost of labor is about one eighth of the U.S. cost of the same employee while a Chinese worker does the same job for less than 1 USD a day." (Outsourcing Today, 2005) India has the added advantage of having an English-speaking, technically skilled labor force as well.

Onshore outsourcing keeps the business process that is being outsourced in the U.S. And utilizes a partner to supply U.S. based labor and expertise for the completion of the work. (Donlon & Kropp, 2005) In other words, both companies are located in the United States, but for whatever reason the second, partner company can provide cheaper -- often-temporary labor. Often this secondary labor does not require benefits. Regardless, the outsourcing of costly permanent company labor is a phenomenon with a dual resonance in the collective mind of American labor and management today. For labor, outsourcing has become a dirty word, synonymous with corporate greed over patriotism or loyalty to permanent corporate workers. For profit-focused American management, outsourcing can be a positive way of saving money for CEOs, shareholders, consumers, and holding a sound financial 'bottom line' all at once. Yet because the consumer is also an employer, a company must take into consideration potential negative publicity costs incurred by overuse of outsourced labor.

In other words, on a balance sheet, outsourcing often makes sense. Take the following example of a study of one hundred domestically run company, where "on average," it cost an accounts payable department $16.54 to process a vendor payment," meaning that it cost the company "probably $10.50 - $11.00" to collect payment while using internal company labor on a permanent basis. (Cass, 2005) By out sourcing collection to a cheaper foreign or domestic firm, the original firm could save a great deal using workers in this relatively unobtrusive and mechanical capacity.

However, highly publicized, extensive use of outsourcing is not always so hidden -- for example when troubleshooting staff at a computer company may be technically literate, but not technically or colloquially fluent with the English language of most of the users of a 'help line.' Exploitation of local labor in poorer nations of Asia and Africa has incurred negative publicity for many factory-based companies as well. Even when popular in the nations themselves, American ire may be arisen during times of economic difficulty and again create negative press.