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Outsourcing The overseas outsourcing plays an important role in American economy. In a broad sense of the term this is a practice of hiring an external organization or individuals to perform work in a country other than a country where the product or services will be sold or produced 1. There are some advantages of the overseas outsourcing. The job does not require the direct customer interaction; it can be performed on distance. One of the most attractive factors in outsourcing is the difference labor cost in original and offshore countries. The contractual relations could be repeatable.
There are also some negative factors of the overseas outsourcing. The most negative of which is the labor market suffers in the original country because the job could be spread among the citizens of the country. The overseas outsourcing may create serious problem for the national economy. First of all, employers while hiring companies or individuals overseas do not pay the taxes. Neither do the employees abroad. A former candidate to a presidential post Senator Carry paid a great deal of attention to the problem of the overseas outsourcing.
We have a three-part plan to invest in the jobs of the future: make America more competitive and innovative, increase jobs at better wages and combat outsourcing. We will jump-start job growth. Our new Jobs Tax Credit will encourage hiring by manufacturers, other businesses affected by outsourcing and small businesses in 2005 and 2006... We will end tax breaks for companies creating jobs overseas and cut taxes for 99 % of taxpaying corporations. 2 One of the most developed branches where the overseas outsourcing is widely spread is IT technologies. It was stated that the globalization of the IT services has already impacted the labor market in the USA. 2001 was the first year in more than two decades with negative growth in U. S.
IT employment. At the same time, the amount of IT service work done overseas has been growing for years. 3 The reasons for the increased overseas IT services are the improvement of the communication technologies which enables the customers to outsource effectively, the improved skills of the foreign IT specialists which provide quality overseas products. Such situation impacts the American labor market where the IT workers have more difficulties to find enough jobs. The overseas outsourcing in the IT industry may impact the issues of the National Security when the proper functioning of the crucial IT systems depends upon the foreigners. Other opinion on the overseas outsourcing is that the reduced cost of the IT services will definitely reduce total costs thus favoring business processes in America. The cost saving of the overseas products may seem substantial but it may seem only.
The cost of selecting the outsourced service provider can cost from 0. 2 to 2 per cent of the total deal. Apart of the vendor selecting there are some other fund consumer procedures in the outsourcing activity which make the outsourcing less attractive. Such factors as cost of transition, cost of American employees layoff and cost of managing an offshore contract reduce the total savings on the labor cost 4. On one hand the overseas outsourcing takes a considerable share of the labor market in the USA, but on the other hand, companies which reduce their operational costs are able to invest more funds into national economy thus creating new jobs. A recent study of outsourcing's impact on the U. S.
economy found that American companies's ending computer systems work overseas led to higher productivity and created 90, 000 jobs last year 5. The IT technologies allow providing the quality services by the overseas outsourcing. Small companies engaged in this business sector may employ experienced specialists at a lower cost thus reducing the cost of the services and consequently the cost of the customers business. The overseas outsourcing is a business process which if once started needs to meet the higher requirements of the national economy.
It can not be just simply banned by the legal regulations. Such prohibition contradicts to the essence of business. The losses of the national labor market due to the offshore outsourcing are inevitable. Once they are inevitable the society needs to work out actions to reduce them. John A.
Challenger suggests certain measures to smooth the job transition to offset overseas outsourcing 6. These measures are strengthening community colleges, making continuing education more affordable, encouraging the entrepreneurism, staying up to date, refocusing education and reconfiguring unemployment insurance. All these measures are obvious and do not need any deep explanation. In 90 s American companies succeeded to reduce the expenses by the overseas outsourcing that in its turn has boosted the growth of American economy. Last year America has experienced some unemployment. The overseas outsourcing has existed for a long time.
Some experts try to find the reasons of the growth of unemployment in the overseas outsourcing. But the real reason is the productivity. Unlike most previous business cycles, productivity has continued to grow at a fast pace right through the downturn and into recovery. One percentage point of productivity growth can eliminate up to 1. 3 million jobs a year.
With productivity growing at an annual rate of 3 % to 3 1 / 2 % rather than the expected 2 % to 2 1 / 2 %, the reason for the jobs shortfall becomes clear: Companies are using information technology to cut costs -- and that means less labor is needed. Of the 2. 7 million jobs lost over the past three years, only 300, 000 have been from outsourcing, according to Forrester Research Inc. People rightly fear that jobs in high tech and services will disappear just as manufacturing jobs did. Perhaps so.
But odds are it will be productivity rather than outsourcing that does them in 7. The productivity benefits in the greater revenue, higher profits, lower inflation, rising stocks, and, ultimately, loftier prices for houses. In short, productivity is generating wealth, not employment. There is a paradox that the productivity which is one of the main goals of the business causes the unemployment.
The American business is an innovating one. All the time it brings new challenges. The innovating process is a permanent phenomenon and each innovation forms higher demands of the market. The overseas outsourcing supports the growth of small business directly. The IT sector is the only sector where the small companies may practice the overseas outsourcing.
It is crucially important for the small companies to introduce products at competitive prices. The overseas outsourcing allows to reduce the operational expenses considerably thus making the products and services competitive. There is no any danger for the small business representatives in the overseas outsourcing. What is more, the overseas outsourcing encourages the competition between the companies which in its turn boosts the business in general and the small business in particular. The overseas outsourcing encourages the emergence of the new services engaged in the process of outsourcing. The process of globalization and development of the IT technologies opens new perspectives for the small companies.
They may employ the foreign specialists at lower labor costs thus gaining more profit. Currently the overseas outsourcing is applicable mostly in the IT business. That means that only this sector may experience all negative and positive effects of the overseas outsourcing. On the other hand the IT products are directed mainly to the business and not to the final customer, so-called business to business - service unlike business to customer service.
That means that the overseas outsourcing reduces the cost of the final product for a customer that enables him to generate the additional demand and capabilities to buy. If there are any negative trends in the overseas outsourcing, they may impact the IT technology sector only and will not influence other small business sectors directly. America has been the country of the most advanced technologies. This innovative character of the American business including the small one will keep it ahead and it is very doubtful that America may loose its position in the global business innovation process. It is necessary to understand the consequence which may cause the overseas outsourcing. It is wrong to consider that the outsourcing is aimed just to replace the employees with the foreigners.
Normally the companies practice the outsourcing to expand their activities. From this point of view the foreign employees contracting encourages the small business. It will enable the small companies owners and entrepreneurs to expand their activities at lower investments. The figures of the overseas outsourced employees are growing but they indicate only the subcontracted jobs and not the primary ones.
This fact indicates the steady growth of economy and not its decline. While employing the specialists overseas the small business owners and entrepreneurs may subcontract to do less innovative job thus concentrating on developing the Hi-Tech products and services. It is especially important for the small business owners where the operational expenses reduction may be of the main priority. The globalization of the business processes and the Information Technologies development made the overseas outsourcing an integral part of the business process and it would be wrong to find the way to stop it.
It is necessary to understand it properly and to find the ways to use it more effectively both for the national economy and for the small business. Bibliography Offshore Outsourcing, Investor Dictionary, available at web retrieved 12. 04. 2005 Transmission and Distribution World, The Business Issues Bush and Kerry in the Ring, available at web retrieved 12. 04. 2005 Testimony of Bruce P. Mehlman, Assistant Secretary for Technology Policy, United States Department of Commerce, before the House of Representatives Committee on Small Business June 18, 2003, available at web retrieved 12. 04. 2005 Ron Kifer, The Cost of Selecting a Vendor, CIO Magazine, Sep. 1, 2003, available at web retrieved 12. 04. 2005 Jeremy Kahn, Small Firms Find That Outsourcing Cuts Both Ways, Fortune the May. 2004 Issue, available at web retrieved 12. 04. 2005 John A. Challenger, How to smooth job transition to offset overseas outsourcing, USA Today (Society for the Advancement of Education), May, 2004 retrieved 12. 04. 2005 Bruce Nussbaum, Where Are The Jobs? , Business Week online, MARCH 22, 2004, available at web retrieved 12. 04. 2005 Citation Investor Dictionary Offshore Outsourcing, Investor Dictionary. , available at Transmission and Distribution World, The Business Issues Bush and Kerry in the Ring, Bruce P.
Mehlman Ron Kifer Jeremy Kahn John A. Challenger Bruce Nussbaum
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