This paper explores the phenomenon of offshore outsourcing as an economic reality shaped by globalization and competitive pressures. It examines the arguments both for and against outsourcing, surveying evidence on job losses in the IT and customer-support sectors alongside data showing broader gains in U.S. employment. Drawing on statements from economists, government studies, and corporate examples, the paper argues that protectionist measures would harm the U.S. economy more than help it. It concludes that outsourcing, while inevitable, must be accompanied by effective federal assistance programs and corporate retraining initiatives to support displaced workers.
Outsourcing has become a highly controversial and much-debated issue over the last few years. The economic dynamics of the 21st century have vastly altered the mode of business. While globalization has opened new markets for companies, it has simultaneously forced them to seek ways to be more productive and competitive. This drive for competitive advantage has resulted in many U.S. companies moving their non-core jobs — and in some cases, core jobs as well — to offshore locations that offer both cheap labor and quality output.
Outsourcing is not a totally new concept. Companies have long outsourced their training operations, clerical work, shipping, and forwarding operations. However, the surge in information technology has brought about a paradigm shift in the way organizations operate, and outsourcing has emerged as a new business model (Fred Luthans). While improving productivity and cutting costs for organizations, outsourcing has also created a significant problem in the loss of jobs in the local economy. A brief overview of the subject and a discussion of the pros and cons surrounding the issue provides a clearer picture.
The main argument leveled against the outsourcing of jobs to overseas locations is the loss of employment in the local environment. Of immediate concern is the loss of jobs in the IT and customer support sectors in particular. Big corporations have started to shift their customer care centers to India, the Philippines, and China. It is also an established and growing trend that many major American corporations are relocating their research and development facilities to offshore locations. For example, software giants such as Oracle and Microsoft have moved part of their research and development operations to Indian units. Similarly, in the banking sector, the World Bank, ABN Amro, and many others have shifted their back-office and accounting operations to India (Wharton School). The net effect has been the loss of around 400,000 U.S. IT jobs to offshore locations.
While we cannot deny that outsourcing has resulted in job losses for a segment of the working population, we also cannot deny its positive impact on the U.S. economy as a whole. The open labor market conditions that prevail in the United States offer remarkable flexibility, which is reflected in the fact that every week more than a million workers either quit or are laid off and replaced by other personnel. Displacements due to job relocations within the U.S. result in more job losses than outsourcing does. Furthermore, the much-anticipated reinvestment of profits is already beginning to materialize. Delta Airlines managed to add over 1,200 new positions in the U.S. from the cost savings it generated by moving 1,000 jobs to India (Murray Weidenbaum).
Outsourcing has not only enabled companies to thrive in the face of high operating costs but has also increased global competitiveness. According to NASSCOM, "U.S. banks, financial services, and insurance companies have saved $6 billion to $8 billion in the past four years owing to IT outsourcing to India," and, "Helped by these savings, companies have prevented layoffs and instead added 125,000 more jobs" (Winston Chai). As economists suggest, outsourcing will be an inevitable feature of this global competitive market.
Outsourcing is a global phenomenon and should not be perceived as a peculiar trend unique to the United States. Any attempt to hinder the open global market would have serious economic repercussions for the United States, which is both the world's largest exporter and importer of goods and services (Alan Reynolds). The law of comparative advantage operates in today's global economic environment. Protectionist policies would not only drastically undermine the competitive strength of American entrepreneurs but would also increase the price of commodities in the domestic market. Protectionists must recognize that more than 60% of U.S. IT revenue is generated from overseas nations (Murray Weidenbaum). As Chairman of the U.S. Federal Reserve Alan Greenspan stated: "These alleged cures would make matters worse rather than better. They would do little to create jobs; and if foreigners were to retaliate, we would surely lose jobs" (Matt Hines).
"Why protectionism would harm the U.S. economy"
"TAA program reform and corporate retraining initiatives"
It is a fact that technology has resulted in more job losses while at the same time creating more new jobs. When computers began to enter the corporate world, similar apprehensions were expressed. People feared job losses from computerization and automation (William V. Bandoch). Yet computers have since become an integral part of our lives, generating tremendous momentum for the national economy and improving virtually every aspect of daily life. Would it have been right to reject computers because automation would eliminate clerical and routine office positions? In fact, computerization created an entirely new pool of well-paid jobs.
You’re 52% through this paper. Sign up to read the remaining 2 sections.
Sign Up Now — Instant Access Already a member? Log inAlways verify citation format against your institution’s current style guide requirements.