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U. S. Outsourcing Introduction Since the development of communications such as internet, business globalization has accelerated, and U. S.
has been giving up a lot of jobs to foreign nations where people work for low wages; most of the predominant businesses that are listed in Fortune 500 are practicing this, outsourcing, in some way. By doing so, operational cost was cut significant, but it also resulted in large number of lay off in U. S. , and it became one of the biggest political issues. Even after Bush was elected to the Presidency, this debate does not seem like coming to an end. The paper examines the phenomenon of outsourcing, with respect to how outsourcing affects U. S.
and other nations economy, explores its positive and negative aspects, dwells on future of outsourcing, holding to the idea that outsourcing should not be limited just because it is causing high unemployment in the U. S. ; it can give jobs to high skilled workers all over the world, bring economic growth to other nations, and cut costs significantly. Types of Outsourcing Outsourcing is generally referred to as the denegation or the transfer to an external company (service provider) the operation and management of the companys business processes. There are several types of outsourcing: Infrastructure Technology Outsourcing Many non-profit companies have no resources enough to hire the IT personnel in order to maintain, support and plan the companys technology infrastructure requirements. In turn, the companies that have dedicated personnel sometimes come to conclusion that their technology needs surpass the abilities of their staff, especially when the company needs to install a new system or to upgrade the old one. In the issue, some companies outsource the support of a part (or all) their technology infrastructure.
The purpose that is served by infrastructure technology outsourcing is to use experts skills to serve the companys technology needs better and more effectively than the company can do using its own staff. Infrastructure technology outsourcing frees the company to dedicate more companys resources to the companys mission, strategic goals and objectives (Murrain, M. and Cohen, D. ). Outsourcing affords the company an opportunity to concentrate on the companys strategic goals (the company does not occupy itself with personnel policy and human resources, payroll accounting, tax statements, etc), to reorient intrinsic resources to other objectives (e.
g. finance employees can dedicate their skills to more important issues, instead of dealing with day-to-day activities), to enjoy necessary resources, to optimize payroll costs, etc. In addition, the company can outsource training technology (e. g. e-learning content development, learning management systems (Less), content integration, learning content management system software (LCMS), and the hosting of complex LMS (Business Process Outsourcing: Pros & Cons, 2005), to mention a few. Business Process Outsourcing (BPO) Business process outsourcing (BPO) implies vendor management, the outsourcing of help desks, training personnel themselves, etc.
There are two main categories of BPO: front office outsourcing (customer-related services), and back office outsourcing (internal business functions). Call centers, accounting and payroll outsourcing, human resources outsourcing are prevalent outsourcing structures. Offshore Software Development Offshore software development (OSD) is also one of the most common categories of outsourcing. The companies offer full range of services (e. g. website design, web application development, software development, application development, application integration, e-commerce consulting, etc).
The goal of OSD is to provide cost-effective and innovative solutions. How it affects U. S. and other nations economy? On a global scale, outsourcing in capacity of interaction with extrinsic IT service providers is known as the acknowledged method to enhance the efficiency of the companys business processes. The long-term outsourcing strategy is often associated with the necessary criterion for successful development of competitive business strategy and its adaptation to impetuously changing business environment.
Different Points of View Protectionism Historically, protectionism is known as the economic policy that pursues the goal to restrict trade between the nations by implementing such measures like restrictive quotas, high tariffs on imported commodity, anti-dumping laws, and various restrictive regulations aimed to discourage imports, etc. Naturally, protectionists policy does not tolerate outsourcing strategy. There are a number of strategies aimed to reverse outsourcing. For example, Kerry idea to adopt a legislation that would operators answering help-desk calls for U. S. consumers in other countries to identify their location (TRADE: Outsourcing Jobs, 2004), giving tax incentives to the U.
S. companies to keep jobs in America, closing tax loopholes that encourage the U. S. employers to move jobs overseas, and require other countries to meet more stringent environmental and labor standards so that employing people in those countries will cost more (TRADE: Outsourcing Jobs, 2004), to mention a few. Free Trade Free trade is a polarity to protectionism. Thus, in contrast to protectionism, free trade can be examined as a market model, where trade of commodities between the world countries is not restricted by the tariff and non-tariff barriers imposed by the government.
Despite the opinion that free trade is a threat to the U. S. economy, the trade bestows benefits for the U. S. citizens. First of all, it is claimed that free trade deficits harm domestic economic performance.
However, by almost every measure industrial production, GDP growth, poverty reduction, and employment the American economy shows better results when the trade deficit is rising (Free Trade Frequently Asked Questions 2007). Contrary to what one might expect, imports do not become a reason of a net loss of jobs in the U. S. economy; however, it may displace an insignificant part of workers in less competitive industries. Free trade stimulates domestic competition, raises overall living standards, and causes resources to shift to more productive sectors. According to the research, high level of imports to the U.
S. leads to creation of more jobs, and helps the companies to make their production more price-competitive (Free Trade Frequently Asked Questions 2007). Free trade also cannot be examined as a threat to the U. S. manufacturing base. On contrary, access to a greater supply of raw materials at lower prices enables US manufacturers to reduce costs and become competitive in markets around the world (Free Trade Frequently Asked Questions 2007).
What concerns outsourcing, the outsourced employees allows the companies to keep the prices down while producing more efficiently. In the long run, this strategy for fair provides benefits to the U. S. economy. Unemployment and Outsourcing Movement of jobs for outsourcing Outsourcing is often blamed for unemployment growth.
However, the vast majority of the U. S. economists consider that outsourcing imposes no threat to U. S.
and other nations economy. Lay off staffs that occur in result of outsourcing, make up an insignificant quantity compared to the total quantity of approximately 2 million U. S. jobs per year that appear and disappear on an annual basis.
However, Sharon Otterman (2004) claims that the drop in unemployment may be explained by factor other than outsourcing, such as: Overall downturn in the business cycle; The bursting of the tech boom and the impact it made on Wall Street; The consolidation of retailing due to giant retailers like Wal-Mart; Technological innovations that made some jobs obsolete; The chilling economic effects of the September 11 attacks and subsequent events (TRADE: Outsourcing Jobs, 2004) The process of creation and lay off jobs allows relocating financial and human resources more efficiently. American economy grows uppermost due to increasing working efficiency (especially in service industries). Globalization makes great impact on working efficiency in service industries, and the labor productivity boom was closely related to mass adoption of innovations and information technologies in all sectors of service industries in banks, stores, hospitals, etc. Therefore, the increase in labor productivity inevitable leads to multiplicative effect in other industries, by accelerating growth.
Moreover, only small quantity of jobs may be threatened by the perspective to be relocated from market-economy countries to India (or similar country). For example, only relatively low-skilled experts in Hi-Tech sector suffered cut off jobs (e. g. part-programming engineers, programmers and coders). At the same time, project managers, consultants, business analysts and other qualified professionals successfully retained their jobs, mainly due to the fact that their jobs require higher qualification and constant communication with the customers (not only by phone, but also in person). These jobs hardly will face a threat of outsourcing.
On contrary, as far as programmers services continue to become cheaper, higher qualified professionals will have the opportunity to earn more. Educational background of U. S. education Educational background is very important. The U. S.
government should undertake all efforts to ensure the U. S. workers have possibility to get education to inculcate the relevant skills and to assure consistent growth of the U. S. workers labor productivity. The government should, probably, increase on-budget expenditures for education.
Besides, some U. S. educational establishments already offer higher education for software specialists. For example, Mellon West University offers a masters degree course in software management, with the idea to help boost entrepreneurial skills, by bringing together teams to solve particular problems (Higher education for software specialists, 2007) In addition, although it seems that outsourcing creates a competition between the workers, highly skilled professionals will always be in great demand. In such a way, trainings and certification programs that teach the skills least vulnerable to global outsourcing (Career Strategies for the Age of Global Outsourcing, 2005) will serve the key to survival Good effects of outsourcing Jobs for people with skills or education Global outsourcing offers worldwide jobs for people with skills or education. It creates new opportunities for talented and skilled people living both in the U.
S. and in the developing world countries. The workers must remain at the vanguard of the profession to build the best. It implies education, training and professional development that are essential to expand skill sets, not only to qualify for the positions most likely to remain at a companys U. S.
headquarters, but also to qualify for the new positions created due to global outsourcing (Career Strategies for the Age of Global Outsourcing, 2005). Global growth Outsourcing can be examined as just another category of free trade. It increases wealth in economy and is conductive to the global growth. When the companies employ workers at lower cost, it allows the company to be more productive and efficient, and, by doing this, provides the opportunity to create the same quantity of commodity with fewer resources (TRADE: Outsourcing Jobs, 2004). In its turn, it decreases the price of production in the U.
S. , it strengthens the U. S. companies and frees workers for other tasks. Finally, outsourcing savings provide the companies with opportunity to stay afloat and to survive in a highly competitive global market by offering high-quality products at reasonable and competitive pricing.
Significant cost cut It is an open secret that outsourcing is associated with a significant cost cut. According to Linda Cohen, vice-president of sourcing research in Gartner, Ninety percent of all outsourcing deals in the market today have been structured around cost improvement only (Outsourcing: Beyond Bangalore, 2006). However, there is an opinion that outsourcing cost savings have been massively over hyped with the actual cost reduction averaging just 15 per cent (Outsourcing Savings Deemed "Unrealistic.".. , 2006). According to sourcing advisors TPI, when governance costs, severance pay and professional fees are taken into account, the highest cost reduction made up 39 per cent, and the lowest 10 per cent, with an average cost reduction of 15 per cent. Yet, even 15 per cent can be examined as a significant and realistic saving. Nations that provide service for outsourcing More and more increasing number of jobs migrates from the U.
S. into other world countries such as India, Philippines, Eastern European countries, Russia, Malaysia, and Brazil. India remains an IT outsourcing powerhouse, with $ 17. 7 billion in software and IT services exports in 2005, compared with $ 3. 6 billion for China and $ 1 billion for Russia, according to trade organizations in each country (Outsourcing: Beyond Bangalore, 2006). It is the country, where dozens of million educated English-speaking workers are ready to work for 8 - 12 million dollars per year. The salaries in India make up 10 - 15 % of similar job in the U.
S. or in Europe. This being the situation that India is very attractive for the U. S. companies striving for cost cuts. As far as outsourcing in India grows by almost 50 per cent per year, Hi Tech sector of Indias economy experiences onrush of technology and grows incredibly rapidly (making about 30 per cent per year).
Good side According to the article Outsourcing: Beyond Bangalore the move reduces expenditures by 60 % to 75 %, letting the companies to benefit from geography and to offer competitive prices to the customers. The vast majority of developing countries have done fairly well to leverage their unique skills and carved niches for themselves (The Philippines' Awesome Outsourcing Opportunity, 2006) Bad side Firstly, in spite of apparent benefits, there are several risks posed by moving business and IT operations into developing countries such as geopolitical instability, insurmountable language and cultural differences, and the risk of stolen intellectual property (Outsourcing: Beyond Bangalore, 2006). Secondly, competition between cheap foreign workers results not only in significant unemployment rate in other world countries, but also decreases the salaries of those workers who managed to retain the jobs. As a result, the U.
S. citizens report the decrease by 30 per cent of the overall quantity of students who want to get education related to technical and IT sectors. In the countries where jobs are in demand due to the outsourcing phenomenon, the situation is quite the reverse. Future of Outsourcing Outsourcing has a brilliant future.
It transforms the industries and changes the way the world works. A more strategic and enlightened concept of outsourcing emerges as managers get a better fix on its potential (The Future Of Outsourcing, 2006) More styles to fit to each jobs or outsourcers; Outsourcing provides the new creative companies with opportunity to derive benefits from outsourcing strategies even more rapid than well-known established companies. It allows the companies to compete with business giants on a very global basis with very low costs (The Future Of Outsourcing, 2006) Requires great discernment and strategy No doubts, outsourcing like any other governance assessment should take into account the following: holistic appraisal of success measures, great discernment, future-focused perspective on the companys strategic goals and objectives, utilization of the best practices, and other meaningful measures that will result in duplication of effort and efficiency. Conclusion In closing it may be said that outsourcing should not be limited just because it is claimed to cause high unemployment in the United States; it can give jobs to high skilled workers all over the world, bring economic growth to other nations, and cut costs significantly. Moreover, the effect of outsourcing is positive. Even in case a short-term effect produced by outsourcing may continue to cause the unemployment in the U.
S, the long-term scope is positive. It is recommended to avoid any protectionists measures that may result in increase rather than in decrease of unemployment due to overall efficiency decline in the U. S. economy. The employment rate and labor content may increase predominantly due to education growth that will allow the U. S.
workers gaining an advantage over the competitors from other world countries. Instead of implementation of protectionists policy the consistent decision is to increase on-budget expenditures for education to assure consistent growth of the U. S. workers labor productivity.
Works Cited Business Process Outsourcing: Pros & Cons. April 2005. 5 April 2007 < web >. The article dwells about the basic concepts of outsourcing, explains the term outsourcing, and economic benefits of outsourcing. The article is written by Josh Berlin, the president of Berlin & Associates, a research and advisory firm focused on e-learning, so the content is reliable.
Career Strategies for the Age of Global Outsourcing. February 2005. 5 April 2007 < web >. The article discusses the trend of global outsourcing, focusing on both positive and negative outcomes. It also provides recommendations for workers to keep pace with the continually increasing demand for IT literacy skills. Free Trade Frequently Asked Questions. 5 April 2007 < web >. The author of the article answers frequently asked questions concerning globalization and free trade.
The article contains links to related works that offer more in-depth analysis of the material. Higher education for software specialists. 23 March 2007. 5 April 2007 < web >. The article dwells on what education is the relevant background for IT professionals and reviews opportunities that allows boosting entrepreneurial skills, by bringing together teams to solve particular problems Murrain, Michelle and Cohen, Douglas. Infrastructure Outsourcing. 6 February 2003. 6 April 2007 < web >.
The article claims that Clear communication and a good working relationship are the keys to infrastructure outsourcing. The authors explain the basics of infrastructure outsourcing, involving hardware and software outsourcing, local area / wide area network outsourcing, internet access, help desk, support, and training outsourcing. Outsourcing Savings Deemed "Unrealistic.".. 13 April 2006. 5 April 2007 < web >. The article offers a detailed analysis of realistic outsourcing savings to answer the question How much does outsourcing really save? Outsourcing: Beyond Bangalore. 11 December 2006. 5 April 2007 < web >. The author examines an opportunity of moving IT operations into developing countries, taking into account the risks, such as insurmountable language and cultural differences, geopolitical instability, and the risk of stolen intellectual property.
The Future Of Outsourcing. 30 January 2006. 5 April 2007 < web >. The article dwells on the future of outsourcing, and explores how global outsourcing is transforming whole industries and changing the way we work. The Philippines' Awesome Outsourcing Opportunity. 19 September 2006. 5 April 2007 < web >. The article discusses Philippines outsourcing opportunity in the market with respect to India's dramatic economic rise. TRADE: Outsourcing Jobs. 20 February 2004. 5 April 2007 < web >. The article examines the practice of shifting jobs to lower-wage countries that has become highly emotional because of outsourcing's two dramatically different effects: it leads to layoffs and dislocations for thousands of U.
S. workers, even as most economists say it will ultimately strengthen the U. S. economy.
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