What is Outsourcing? It is a method in which companies subcontract labor and support to outside agencies (Klepper, 1997). How, why, and who companies outsource to are quickly becoming social topics of discussion in our society. Everyone seems to have an opinion on outsourcing. I bet that I can walk into a social gathering right now and hear discussions like "outsourcing is good for the American consumer" or outsourcing takes jobs away from all of the hard working Americans." In either case, outsourcing has raised great concerns over its effects on the American economy. In this paper, I will discuss the types of outsourcing, pros and cons associated with outsourcing, management views of outsourcing, employee views of outsourcing, and give my opinion of outsourcing. What does outsourcing do? It enables companies to focus on the mission at hand, to save money and be competitive.
Depending on a Company's needs determines the type of outsourcing that company may use (Embleton, 1998). Outsourcing is a very diverse market, and there are many different outsourcing options from. Two common types of outsourcing I will focus on are Information Technology (IT) outsourcing and Business Process Outsourcing (BPO) (Bowen, 1998). Through research, I found that Information Technology (IT) Outsourcing is a rapidly growing market.
I. T. outsourcing enables companies to continue to manage their core business, while outside agencies manage their technology needs (Bowen, 1998). It's a way of getting rid of those high paid, college graduated employees. I. T.
outsourcing allows companies to use cost-cutting methods to cover computing needs, large mainframe and midrange data center, manage numerous networks and run desktops across the globe (Bowen, 1998). Advantages of outsourcing information technology include, but are not limited to, less capital expenditure, less management headache, and keeping focus on core competencies. Less capital expenditure means a company does not have to buy expensive hardware and software. Less management headache relieves companies of having to hire and manage accounting personnel. Keeping focus on core competencies affords companies' time to strengthen and gain a competitive edge over the competition (DiRomualdo, 1998). Disadvantages of outsourcing information include less managerial control, may be more expensive, and Security and confidentiality issues.
Less managerial control means it may be harder to manage the outsourcing service provider as compared to managing your own employees. Also, it may be more expensive to outsource. Sometimes it is cheaper to keep a process in-house as compared to outsourcing. Security and confidentiality concerns may arise, especially with payroll and confidential information such as salary (Earl, 1996). BPO is similar to information technology outsourcing but includes outsourcing related to accounting, HR, benefits, payroll, and finance functions and activities (Embleton, 1998). Business Process Outsourcing (BPO) is a decision to subcontract some or all important, non-core, business processes.
This allows companies to invest its time, talent, and capital on basic business strategies that help company growth. Better and more affordable services become available for consumers and taxpayers (Embleton, 1998). Outsourcing allows companies to operate on an around-the-clock, 24/7 production cycle, further adding to productivity (Embleton, 1998). No matter what type of outsourcing a company uses, there is a see-saw effect, someone on the high and low end. There are pros, cons, positives and negatives.
For example, if you are a cost-cutting director at a competitive company, the mention of outsourcing, especially offshore, may bring a smile to your face. For computer programmers, call center workers, or factory workers the reaction is likely to be more negative. The primary pro is that outsourcing jobs outside of the U. S. may help to encourage trade and actually create a stronger economy in the U.
S. , and later on down the line, more jobs (Nicholas, 1998). There's a theory floating around that once lower-skilled jobs leave the U. S.
, the higher valued jobs are left for the Americans to grab. However, this is tough for hard working Americans to swallow who are staring unemployment in the face (DiRomualdo, 1998). Why do people hate outsourcing? It is because of the lost jobs. While researching on the Internet, I found that there are two main reasons for the major disapproval of outsourcing. Job loss is obviously the number one reason, but another is inferior quality of service (Strassmann, 1995). I'm sure many people have dialed into call center with problems with a particular product or service only to find a foreign customer service that just learned to speak English.
But, in order to compete, companies know they need to send jobs outside of the U. S. to countries like India and South America. This is also causing Indian workers, both here and in India, to worry about the possible repercussion of American opinion and to fear the political backlash against what they see as a boost to their own economy (Strassmann, 1995). The loss of jobs here in the U. S.
even in the midst of a strengthening economy, is obviously a negative result of outsourcing. Although the global outlook supports outsourcing in IT and manufacturing, Americans worker are fighting to resist the push to send jobs overseas (Strassmann, 1995). Although it has not yet passed in the Senate, there is a movement to limit the outsourcing of work paid for with federal funds. Democrats are using this political lever in campaigning against the difficult economy under President Bush (Hayes, 1994).
Within the pros and cons of outsourcing, there are different viewpoints. There's the company's stand on outsourcing and the laborer's stand on outsourcing and trust me, they aren't the same. Most companies feel there are a lot of advantages to outsourcing, especially offshore. First of all, outsourcing saves companies a lot of effort and money. But companies also benefit from having more time to focus on what they need to do to remain competitive (Embleton, 1998). Another huge advantage of outsourcing is time.
For example, because of the time difference between the US and India, companies that send work overseas can often have results as early as the next morning. Generally, companies that outsource can save anywhere from 20 to 40 percent in cost because of wage differences (Embleton, 1998). Obviously, a lot of American workers who lose their jobs to workers in offshore countries are angry. But realize a computer programmer in the U. S. makes an average of $60, 000 a year compared to an Indian programmer who makes $12, 000 a year (Bowen, 1998).
With that being said, it's easy to see why many companies are turning to offshore outsourcing. On the other hand, "Joe Blow" laborer feels that outsourcing is and will continue to pinch the American consumer and their ability to pay their debt and could be affected by our next election (De Rose, 2004). Nearly two-thirds of U. S. workers say that offshore outsourcing of jobs is bad for the economy and half feel there should be strong penalties for companies that ship work to foreign countries (De Rose, 2004). A nationwide poll of 2, 814 workers found that while 66 percent of worker felt outsourcing was bad for the nation's economy, most felt their own jobs were not in jeopardy (De Rose, 2004).
But, 33 percent of manufacturing workers believe that their jobs could be moved overseas and only 11 percent of service workers felt the same about their jobs (De Rose, 2004). According to Jeff Anderson, senior vice president of Hudson Global Resources, half of the surveyed workers opposed the practice so strongly that they advocate government penalties on companies that outsource jobs to offshore locations (De Rose, 2004). There are many interesting opinions on whether outsourcing is good or bad. While conducting research for this paper I've gained a better understanding of how, why, and where companies outsource. A clearer picture was painted for me to formulate my opinion of outsourcing. At the moment, it's hard for me to take a permanent position on one side or the other.
Outsourcing is reality. It was created by the essence of human nature, survival of the fittest, dog eat dog world. Companies have to stay competitive in the market or every ones out of a job. If I were a big company and needed to be competitive to survive, I would outsource to.
But the fact is, I'm not a big company. I'm a hard working American who wonders about job security. Sure, it may be true that outsourcing can help the American economy in the future, but I can't feed my family now on that hope. I know first hand the effects of loosing a job because it is being outsourced and replaced by cheaper labor.
I grow up in an area where lost of jobs meant higher crime, drug trafficking, and higher rates of incarceration. So when it comes to certain aspects of outsourcing I am bias. I've noticed in recent years how many companies have jumped on the outsourcing train, impressed by the short-term benefits. Outsourcing customer service centers seem to be popular amongst most companies today.
This is the reason many of the major company's customer service departments suck. For many companies, outsourcing is easier than creative problem solving. I've never had a good experience with support that had been outsourced to a foreign country. I wonder if anyone from these companies bothers to call and test their own support lines. There are times when I feel America should stop the outsourcing of American jobs to cheap-labor countries. If we don't stop this job loss, we will eventually deprive ourselves, since the majority of Americans must work in order to live.
With the concept of off shoring, I think we are going to see a big reduction of the middle-class in America. Information Technology and programming jobs will go the way of steel mill jobs of the 70 s and 80 s and textile jobs of the 90 s. I think in the next five years, we will see a major boom in the offshore outsourcing millions of jobs. This will jeopardize our way of life. I really wonder about America's economic future. We are already living under the threat of terrorism and have a huge budget deficit cause by the war in Iraq and the military campaign against terrorism.
These are causing enough damage to our economy. I think the cost-cutting method of outsourcing will put a major stain on our standards of living. If lower skilled jobs were to stay in America, options will remain available for those who do not wish to nor have the skills to get a college degree. Today, the U. S. work force is divided.
At one end there's an endless supply of low-paying jobs such as teaching and retail sales. There not outsourced because these positions require direct personal interaction and not a voice on the other end of the telephone (Hayes, 1994). On the opposite side there's already a trend of fewer high-paying jobs such as software project managers and information systems security professionals. These jobs involve complex tasks that can't be performed offshore because they often require handling sensitive material (Hayes, 1994). As you may have seen, my opinion of outsourcing varies. For the most part, I think outsourcing protects the rich and helps the poor to stay right where they are.
It's them who suffer the most from outsourcing. They " re the one who don't have the education to obtain those higher paying jobs. The rich get richer while the poor stay poor. Being able to produce a product more cheaply is a great advantage in the global marketplace. The more competitive a company is, the greater likelihood it will thrive, profit, and grow. Eventually, a company will hire more workers.
On the other hand, a company that can't be competitive will go out of business and not be able to employee anyone. This is essentially the essence of outsourcing, a cost-cutting method used by companies to stay competitive in today's global market. There's always winner and a loser. It's that seesaw effect where someone's on the high and low end. Companies will always pursue the lowest-cost structure, which means less skilled work will move out of the U.
S. to emerging economies. That's a good thing for the country picking up the contract, because their living standards will rise. Workers in developing nations will get new and higher-paying jobs, and consumers in the U. S.
will be able to buy products that are cheaper than if they were made at home. But is this really good for our society. We will soon find out. References Bowen. T and La Monica, M.
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