Outsourcing and Relocation as Our

Outsourcing and Relocation

As our world has become smaller through the advent of new technologies, the economics of business in this highly competitive global economy can now be said to revolve around profits achieved through corporate migration. The consumers of the world have new expectations for lower pricing mixed with higher quality products and services which puts a great deal of pressure on the business community. Couple these consumer demands with the pressures expected by the investment community and one gets a true sense of twenty-first century business. All areas of the American economy from both the service and manufacturing arenas have had to search for novel opportunities or strategies that systematically reduced costs while still providing increased revenues. In the past, businesses simply reduced their labor forces to meet profit demands. Simply put, during the 1990's, layoffs, downsizing or corporate re-structuring were terms that basically equated to reduced labor costs for increased profits. But layoffs are no longer the answer. Today, relocation and outsourcing are the solution to fix thin profit margins from the last decade. There are many examples of corporate America literally moving whole factories and numerous jobs to foreign locations to meet the demands of consumers and investors. Outsourcing and relocation are now logical and viable solutions for doing business in the twenty-first century.

Economics boils down to the basic formula of supply and demand. The United States has always been known for the successes of its free enterprise process and the United States has always lead by example when it came to creating new business models, ideas, or innovations. But today, business and economic news in the United States has been dominated by corporate doom and gloom. Blue Chip stocks are at all time lows while layoffs have become the norm as unemployment keeps climbing. The Enron scandal is just one example of the pressures placed on corporate America to keep producing large profits to meet investor expectations. "The Unites States is going through a massive structural shift -- many economists, business analysts and corporate executives haven't figured this out (yet). The shift into a new economy based on information technology is well underway." (McGarvey, 1996) the old way of doing business has not been conducive to meeting the demands of the new global economy. That is the reason for so much bad economic news like strikes, layoffs and plant closings. Yet, surprisingly, the United States economy has been experiencing steady growth because of the shift in the corporate mentality to find cheaper labor and off shore factories and other related new business opportunities.

A good example of growth through relocation and outsourcing can be seen by the adjustments made in the automobile industry. The automobile industry has actually been producing profits over the past few years far surpassing the dismal economic results from only a decade ago. The adjustments the industry has made are a direct result of how they plan to do business in the future. Relocation and outsourcing is the industry's new business strategy. In other words, manufacturing automobiles has become a global business that has become fueled by cheap foreign labor in new emerging markets throughout Asia and South America. Companies like the Ford Motor Company and General Motors have had to relocate their factories overseas in the new emerging markets and away from the high priced labor here in the United States.

The automobile industry understands that the new automobile consumers of the future will live in countries like China, India, Mexico and the other emerging market nations. It is simply cheaper for the automobile industry to build their cars and parts abroad because labor and taxes are so much lower. The move to build factories closer to parts manufacturers has helped just in time manufacturing techniques and also eliminated the high cost of importing parts and components built abroad and shipped to American factories only to be shipped back to foreign markets as finished cars. It no longer makes sense for the automobile industry to build cars in the United States and then ship them to the consumers abroad. Corporations like Ford and GM and the rest of the automobile industry have found relocation and outsourcing as a viable solution for cutting costs but still meeting the high quality demands expected by their customers.

Cheaper labor and emerging markets are no longer just manufacturing terms. The service industry in the United States has also been hit with a need to rethink the standard economic business model. The likes of service oriented companies like America Online (AOL) is a prime example of how relocation and outsourcing has changed the way service oriented businesses function in this global economy. AOL continues to be one of our nation's most intelligent economic organizations as they take advantage of the outsourcing for the majority of their customer oriented operations. When an AOL customer calls in to have his password reset he may be talking to someone in India, South America or even the Middle East. Although the customer may not know where his call for help has been routed to, the end result of the call is that the problem is usually solved but at a greatly reduced cost to AOL compared to if that same call was routed to a call center within the United States boarders.

AOL's competition is just now beginning to understand the importance of outsourcing the various customer related functions of the business abroad. Like AOL and the Microsoft Network (MSN) before them, EarthLink has been forced by economic profit concerns to relocate all billing, sales, and tech-support call resources abroad. "EarthLink Inc. has announced plans to cut 1,300 jobs, 40% of its workforce, as the company consolidates and outsources its contact centers." (InformationWeek, 2004) This announcement will relocate the third largest internet ISP provider's customer related job functions from cities in Pennsylvania and California and all call-center jobs from Atlanta, Georgia to various foreign-based call centers.

Companies like Microsoft, International Business Machines (IBM), Dell and Hewlett Packard (HP) of the computer software and manufacturing industries were forerunners in the relocation and outsourcing game. "Hewlett-Packard Co. is another of the many corporations to outsource their customer services call center, by setting up a contact center in Bangalore, India earlier in the year." (Binghame, 2004) Although these large computer industry organizations outsource only parts of their operations, many smaller computer companies throughout the industry have chosen to outsource their entire operations abroad with the majority turning to India's many outsourcing and communications companies.

Customer call centers located in the United States no longer make economic sense when compared to the labor cost advantages attained abroad. Foreign call centers offer the same quality pre and post sale support and very often also offer free technical support. All these services are received at a much reduced cost for the organizations utilizing the services. Foreign call centers offer other advantages as well like Research & Development facilities that reduce the costs associated with bringing new equipment or technologies to market. The service and computer industry organizations will continue to find innovative ideas to reduce production and service costs and moving factories abroad seems to be a sound economic cost reduction strategy for the twenty-first century.