Offshoring and Outsourcing Outsourcing, as

Offshoring and Outsourcing Outsourcing, as a business practice that started almost three decades ago, refers to delegating certain operations engaged in a company's internal production to external parties that are specialized in managing the operation that is being outsourced. The entire process of outsourcing relies a great deal on experts belonging to the external environment of the company involved, experts that are able to manage the operation in case for the company (Wikipedia, 2007).

Outsourcing usually includes a contractual relationship between the company and the supplier, the external party, which is responsible for providing human resources, processes, technology, intellectual property, and assets. The main reason for which companies rely on outsourcing is the fact that this practice helps these companies to diminish their production costs, to save important amounts of time, energy, and other resources, and to increase their efficiency. Important companies worldwide rely more and more on outsourcing, by dispersing "work among global networks of staff ranging from the U.S.

To Asia to Easter Europe" (BusinessWeek, 2006). Offshoring is a type of outsourcing, and it refers to relocating business processes of a company. Usually, the most frequent business processes that are offshored by companies that follow this practice are production, manufacturing, and services (Wikipedia, 2007). As mentioned above in the case of outsourcing in general, the main reason for which companies apply the practice of offshoring is the fact that it significantly diminishes costs. This obviously leads to competitive advantage.

Of course, there are other reasons involved in following these practices, like finding more skilled workers in other locations. The locations that most companies use for offshore outsourcing are currently India, China, and certain regions in Eastern Europe, regions that are able to provide important human resources needed by these companies. However, a lot of criticism is brought to these practices, both by specialists and by regular people that have been negatively affected by these practices.

Offshoring and outsourcing also have their advocates that explain the positive effects that emerge from using these practices that have become very common worldwide. Offshoring and Outsourcing effects on the U.S. labor market These two practices, along with production relocation, are considered by some specialists to present mostly negative effects on the United States economy in general and on the U.S. labor market in particular. Other specialists declare themselves in total favor of these practices, considering them to provide a series of advantages for both the U.S.

companies that use them and for the U.S. economy. The following pages will focus on providing an objective outlook on the issue of offshoring and outsourcing by presenting both negative and positive effects of these practices. The most important negative effect that has been signaled by experts and by the U.S. Bureau of Labor Statistics is that many Americans lost their jobs due to these practices.

This argument is not considered to be a viable one by other specialists that state that "just under a million Americans lost their jobs as a result of unscheduled (excluding seasonal work and vacation periods) mass layoffs, and approximately 12% of these layoffs can be attributed to movement of work (domestic in-house relocation, outsourcing, offshoring, and offshore outsourcing).

This 12% number is relatively large, although not as big a reason for mass layoffs as, for instance, contract completion (~25%) or downsizing (~16%) and roughly on par with layoffs due to bankruptcy and financial difficulty combined"(Kirkegaard, 2007). In other words, one can say that offshoring and outsourcing are responsible for the loss of certain domestic jobs, but the percentage is somehow situated between normal values, as there are other economic phenomena responsible for even more severe domestic jobs losses. Some facts about U.S.

domestic jobs losses from mass layoffs related to offshoring and outsourcing between 2004Q1-2005Q4 are presented below: Total number of separations, excluding seasonal and vacation related - 974,078 Total number of separations associated to movement of work - 116,205 Percent share of total separations - 11.9 Total number of separations associated with movement of work for which employers were able to provide specific information regarding the movement of work component - 83,683 Percent share of separations associated with movement of work domestically and within company (domestic in-house relocation) - 54.9 (6.5) Percent share of separations associated with movement of work domestically and to a nonaffiliated producer - 11.9 (1.4) Percent share of separations associated with movement of work internationally and within company (offshoring) - 26.3 (3.1) Percent share of separations associated with movement of work internationally and to a nonaffiliated producer (offshore outsourcing) - 6.9 (0.8).

The values in parentheses represent the share of total separations (Kirkegaard, 2007). These practices affect all sorts of professions, but probably the most affected is the one related to it. Between 1999 and 2005 the U.S. It related occupations have suffered significant changes in the number of workers. The value of percentage change for the most important U.S.

It related occupations between that period of time are detailed below: Telemarketers: -17.5 Telephone operators: -42.4 Switchboard operators: -21.6 Computer operators: -34.9 Data entry keyers:-43 Word processors and typists: -43.4 Desktop publishers: -19.2 Electrical and electronic equipment assemblers: -46.5 Semiconductor processors: 6.2 Computer support specialists: 8 Computer and information scientists, research: -1.5 Computer programmers: -26.4 Computer software engineers, applications: 58.5 Computer software engineers, systems software: 53.4 Computer systems analysts: 14.9 Database administrators: -2.1 Network and computer systems administrators: 32.1 Network systems and data communications analysts: 88.3 Computer hardware engineers: 30.1 Electrical engineers: -2.9 Electronics engineers, except computer: 21.7 (Kirkegaard, 2007).

From the data displayed above, one can observe that due to the processes of offshoring and outsourcing, certain jobs are lost, while other domestic jobs are created. Also, the most affected sector of the U.S. economy by these practices is it and it related occupations. In certain occupations, like telephone operators, computer operators, data entry keyers, typists, or assemblers, the percentage of job losses is overwhelming, reaching almost half of the total of jobs in these domains, on the one hand.

On the other hand, a significant number of domestic jobs are created due to these practices, in occupations like computer software engineers, computer hardware engineers, or network systems and data communications analysts. In other words, there is a slightly equitable balance between the jobs that are lost and the jobs that are created due to offshoring and outsourcing. Another way of looking at this issue is if one admits that these jobs are not completely lost, but they are transformed. Employment and unemployment rates in the U.S.

Several indicators of the U.S. labor market activity are listed below: The total civilian labor force in 2007 was of 152, 912 in Q1, and 152,807 in Q2 In 2007 the employment reached a value of 146,044 in Q1, and 145,956 in Q2 In 2007 the unemployment reached a value of 6,869 in Q1, and 6,851 in Q2 The number of persons not involved in labor force in 2007 was of 77,927 in Q1, and 78,675 in Q2 (BLS, 2007).

In 2007 the unemployment rate for the United States was of 4.6% The highest unemployment rate in 2007 was in the state of Michigan and it reached 7.2% The lowest unemployment rate in 2007 was in the state of Idaho and it reached 2.3% (BLS, 2007). Negative effects of offshoring and outsourcing Any issue has its positive and its negative side as well. And offshoring and outsourcing make no exception. Certain negative aspects have been attributed to these two practices.

However, the truth is that the negative effects can only be observed for short-term and medium term periods. The most important negative effect of these practices that is admitted by both regular people and certain specialists is related to job losses. The fact is that certain domestic jobs have been lost by American employees in favor of foreign, relocated ones. But this is only half of the truth.

The other fact refers to the fact that these practices have created less job losses than other economic phenomena that are considered to be somehow normal. In other words, "outsourcing will create winners and losers, and the pain of dislocation will be real for workers and their families" (Mankiw & Swagel, 2006). Another negative aspect discovered by specialists is related to the first one discussed above and it refers to wages. Wages in the American economy are considered to have diminished due to practices like offshoring, outsourcing, or production relocation.

Also, the employees' power of negotiating their wages and financial benefits is considered to have decrease, creating an unfavorable work environment for employees. Positive effects of offshoring and outsourcing Most specialists agree on the positive effects of these two practices. Offshoring and outsourcing, as well as production relocation, present positive effects for both the companies involved in these practices in particular and for the entire economy in general. Even more, one can refer to positive effects of these practices on a global level, as they affect the entire global economy.

The most important positive aspect is of course, related to lowering costs. By relocating their businesses, companies save significant amounts of money, time, and other resources that can be better used for other purposes, therefore increasing the company's productivity and general efficiency. Also, "this positive effect of offshoring is considered the primary reason why companies prefer to outsource their jobs to other countries, especially those in the South East Asia since wages are undeniably cheaper" (ePacific, 2007).

In addition to this, it has been proven that offshoring and outsourcing are responsible for creating significant numbers of domestic jobs in certain domains of activity. In.