subject: Outsourcing to a Foreign Country [print this page] Outsourcing to a Foreign Country Outsourcing to a Foreign Country
Outsourcing to a Foreign Country
David Mulqueen
ACC 303
November 14, 2010
Outsourcing often refers to the process of sub-contracting to a third-party and is usually viewed as a component to the growing divisions of labor surrounding all societies. Outsourcing is regularly looked to be a product of today's economy and is possible through the improvements in trading, transportation and communication internationally. Companies frequently outsource to still developing countries that provide cheap labor such as China, Costa Rica, India, Mexico and many more. The main reason why companies outsource is for substantial cost savings. It is always more expensive to employ an in house worker than an out of house employee. Additional reasons are the quality services, access to specialized skills, less restrictive labor laws and many more. During the late 1960's and 1970's was the time period in which outsourcing was introduced and recognized. During that decade of the 1980's, wages of people in the United States with only high school level educations dropped while those who had earned college degrees increased. At the time it was expected that those with higher degrees would be less likely to be hired but in fact it was the less educated which were not receiving employment. The only reasoning of this was that the demand for highly skilled workers was growing. Two explanations are the fact that computers were now becoming a major part of business, thus needing skilled workers to operate them and second, outsourcing. The least skilled jobs like assembly and component production were outsourced while jobs like marketing, sales and research and development remained in the home country. It was becoming evident that outsourcing had become an issue in the United States and that home citizens would clearly suffer from lack of pay and loss of employment. "By shifting activities from one country to the other, outsourcing can increase the relative demand for skilled labor inboth countries, as has actually occurred in a number of industrial and developing countries. However, the same result can occur from skill-biased technological change, such as the increased use of computers, which can increase the relative demand for skilled labor across countries (Jensen)." The effects mentioned above can be described as events that fall along the value chain, the competitor advantage of a firm. As a company moves its productions offshore, they will usually outsource the least skilled jobs and benefit from the cheaper labor.
Despite the benefits of outsourcing by individual businesses to foreign countries, there are also some disadvantages. "Bernard, Jensen, and Schott (2006) examine the implications of falling trade costs on U.S. manufacturers, and specifically examine the channels by which trade affects the distribution of economic activity. They find when trade costs in an industry fall, plants are more likely to close. They also find that low productivity, non-exporting plants are more likely to die (Jensen)." While companies practice outsourcing, there is almost always the language barrier. Phone calls may be difficult to understand pronunciations and comprehend topics as sometimes there is a loss of wording in translation. This can lead to a decrease in customer relations. Thick foreign accents can make it difficult for customers to understand what thecall centeremployees are saying. This can lead to frustration and drive customers away to other businesses who use operators and sales staff who speak clear, accent-free English.
Employees working for an outsourced company may lack company knowledge, misunderstanding the goals of the company, target markets, or strategies of the firm. When a firm begins to outsource its business processes, it might find that it is difficult to manage the offshore provider when compared to managing processes within the organization. "Also, there can be disadvantages in renewing contracts, misunderstanding of the contract, lack of communication, poor quality and delayed services amongst others and many more (www.outsource2indea.com)."
Outsourcing has both its benefits and disadvantages no matter which way a business corporation, politician or business professional looks at it. As a topic that has been around for roughly half a century it is obvious that companies are willing to do almost anything in order to see the success of their business. They are willing to cut operating costs and save money on labor but they will struggle with language barriers and management. Outsourcing will continue to be a part of the modern world economy for many years to come as corporations try to out-compete each other to cut labor costs and retain higher revenues while the home country will have a significant decrease in unemployment and struggle to create new jobs.
