Globalization Outsourcing Effects of Globalization: Outsourcing There

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Effects of Globalization: Outsourcing

There is a lot of controversy regarding the effects of globalization and free trade in the world. While the proponents of globalization contend that increased trade between different countries creates wealth and benefits everyone, the opponents of globalization focus on the increasing inequality between the have and the have-nots and believe that the poorest parts of the world such as Sub-Saharan Africa have not only failed to benefit from globalization but have actually become poorer as a result of free global trade. Somewhat surprisingly, however, concern about the effects of a globalized economy is not confined to people in the underdeveloped countries. In developed countries such as the United States, more and more people are now agitated over the increasing trend of 'outsourcing' or 'off-shoring' -- another inevitable consequence of globalization. In this paper, I shall discuss why outsourcing is causing concern in the developed countries, particularly the United States and whether the concern is justified.

Is Outsourcing a New Phenomenon?

The trend of relocating jobs to other countries is not a new development in the developed world, particularly the United States, as manufacturing companies in the developed countries have established factories abroad since at least the early sixties to take advantage of lower cost structures and wages in the developing countries. Such 'outsourcing' or re-location of factories affected manufacturing jobs in the U.S. But did not cause too much concern since the loss of jobs was relatively gradual and the local economy managed to make the necessary adjustments. Moreover, the loss of manufacturing jobs was compensated for by the higher-paying, high-skill jobs in the high-tech service sector, which was expanding rapidly. (Brainard and Laitan 2004)

Why the Concern Now?

The reduction of communication costs and the standardization of software packages in the recent past have enabled the outsourcing of 'white-collar' jobs from the U.S. As well. The trend started in the off-shoring of Call Centers and has extended to a wide-range of business functions such as customer service, telemarketing, software programming and document management. Some of the professions affected by the out-sourcing trend include call-center operation, medical transcription, tax preparation, financial services, software engineering, medical diagnosis, and research and analytical activities. The projections made by some research companies and the hype created by the media about the effects of outsourcing on jobs in the U.S. has created alarm. The McKinsey Global Institute, for example, estimates that the volume of offshore outsourcing will increase by 30 to 40% a year for the next five years. Forrester Research estimates that 3.3 million white-collar jobs will move overseas by 2015 while Deloitte Research predicts the outsourcing of 2 million financial-sector jobs by 2009. (Drezner 2004) Furthermore, alarmist statements such as, "Everything you can send down a wire is up for grabs" and "there is no job that is America's God-given right anymore" send chills up the spine of everyone apprehensive about his job prospects in the U.S.

Is the Concern About Outsourcing Justified?

Despite the overblown figures of outsourcing bandied about in the media, the reality is much different. Even if we accept the projections of Forrester Research about the outsourcing of 3.3 million U.S. white collar jobs by 2015, the figure translates into about 220,000 lay-offs a year. Given the fact that the total employment in the United States is approximately 130 million, and about 22 million new jobs are expected to be added between now and 2010, the expected job losses to off-shoring is insignificant. (Brainard and Litan 2004)

Moreover, most jobs in the U.S. (about 90% of them) still require close geographic proximity and outsourcing them is not an option. Also, despite the fact that some white-collar jobs can now be shifted overseas due to standardization of business tasks as data entry, accounting, and IT support, the majority of high-skill jobs requiring complex interaction or innovation are likely to remain inshore.