Introduction
The process of globalization has led to intensive networking of the globe. This has made it possible for shifting of capital as well as labour across boundaries to different regions around the earth. A very common practice which has emerged among the developed countries is the practice of outsourcing. Taylor (2006) has defined outsourcing as “a term that is used to describe a common practice whereby some component or portion of one company’s work is done by another company” (p. 252).
Good examples are given by Taylor (2006) in the form of “manufacturing firm buying component parts from a supplier, a bank hiring a software company to ensure that its electronic network is secure, and a magazine hiring freelance photographers to provide to provide photographs to complement a news story” (p. 252). Offshore outsourcing which Taylor (2006) has pointed out to be commonly referred to just as outsourcing has drawn sharp criticisms in many circles in the US. There is a general agreement that outsourcing has kept an upward growth and is expected to even grow faster in the days to come.
The extent and impact of outsourcing has two different schools of thought; while some agree that globalization is bad and has affected our nation in a negative way there are those who see nothing wrong with it. In these discussions more often than not researches such as those of Forrester Research and McKinsey Global Institute come into play.1 The debate on whether outsourcing is good for the America economy has received a great deal of attention. According to a research carried out by the Princeton Survey Research Associate, it was shown that a huge percent (68 percent) of those surveyed agreed that outsourcing was harming the U.S. economy (Taylor, 2006). This paper has taken the views of this research and will systematically show by reviewing literature and making reasonable arguments using statistics where necessary to show that outsourcing is negatively impacting the economy of the U.S.
Production Output
The proponents of outsourcing have favourably viewed outsourcing by labelling it the latest evolution of international trade. They have also pointed out to the increased production among the U.S. companies which have been realized at reduced wages. While all these are irrefutable facts, it is wise to view the big picture in the light of the interest of the economy of U.S. It should be appreciated that a U.S. company making huge profits does not necessarily mean the economy of America is being boosted. More often than not it has been pointed out that the huge profits made end up in the pockets of some few exclusive people. It is also a fact that American citizens are losing jobs. The rate of losing jobs might not be as high as depicted by the Forrester Research but it is true that as more jobs are outsourced more American citizens lose their jobs. The Americans who lose their jobs have got to seek alternatives which, in most cases, might not be as good as those they were before due to the fact they are moving out to new fields. What this simply means is more outsourcing leads to more profits being made by the US companies, more Americans losing their jobs and moving to look for alternatives in different sectors. This will definitely reduce the standard of living of the America citizens. It is clear that outsourcing in this context is just benefiting the company officials but the cost of opportunity is the American citizens (Burnett, 1998). In the context of the above discussion it is wise to view the big picture which is that some view people are benefiting but the large Americans are forced to cope with hard situations.
Loss of Personal Touch
Modern marketing is based on production of goods and services which address the needs of the customers. Outsourcing a service to a third party will be erasing the personal touch out of the product. The person in charge of processing the services and products outsourced do not have any knowledge about the clients. LaFond (2007) quoted Jim Tompkins claiming that “the outsourcing contract does not stipulate exactly what the customer expects and what the outsourcer can provide, and outsourcing decisions should not be based solely on the need to save money” (p. 1). The process of outsourcing can lead to serious backfiring. There are many examples of companies which have outsourced tasks to outsourcers who are not able to complete the assignments. Some of the examples which can be given include a $4 billion deal which was struck between the US Navy and EDS. The deal failed terribly as EDS was not able to carry out tasks it was expected to (LaFond 2007). There are other disappointing incidents which have been reported whereby the outsourcer fails to accomplish the tasks outsourced to them. The Orasi Consulting, the Hewlett-Packard, and Pace Harmon are just some of the examples which have faced similar situation (LaFond, 2007).
Niche Products
Bragg (2006) argued that niche products or just new products should not be directly outsourced. A company should manufacture the products for some time in order to troubleshoot any problems which may occur as the production process is still new.
Outsourcing is also a bad idea for niche products, since existing contract manufacturers many have no experience producing them and cannot offer cost reduction based on their own expertise or from increased purchasing volume. (Bragg 304)
Bragg (2006) argued that a company should use outsourcing services only when the company is sure that the contractors to whom the services are being outsourced have got the right facilities to enable them carry out that duty. It is most likely that companies which outsource the application of new ideas will most likely end up losing the ideas as well as some of the funds if the client to whom the work is outsourced fails to completely understand the new products.
Overdependence on other Countries
If the rate of US companies outsourcing their services keep on increasing then the chances are that the U.S. companies will eventually over depend on outsourcing. In the meantime there is likelihood that workers in the US will shift their skills to jobs which cannot be outsourced. Overdependence of the U.S. firms on some firms outside the U.S. is not in the best interest of the U.S. Bragg (2006) has warned that the reputation of some of the outsourcer firms may put the U.S. firms at risk. The author claimed that some of these companies to which the U.S. companies outsource their services to have suspicious backgrounds. Dealing with some of these companies unnecessarily puts the company image as risk:
For example, several well known companies have gained adverse publicity for outsourcing their manufacturing activities to suppliers who employ illegal immigrant or children, or who pay rates below the legal minimum. If such information becomes public knowledge, a company can be the subject of consumer boycott even if had no knowledge of the consumer‘s illegal practices. (Bragg, p. 308)
It can then be argued that the process of outsourcing to some extent support unethical businesses in some countries. This is not good especially when viewed in the context that the U.S. is at the forefront of upholding human rights. Letting money take precedence over ethics such as the child labour displays the U.S. companies with wrong images. It is worthy to take measures and ensure that all the business partners do not engage in some kind of activities which are prohibited by the U.S. constitutional.
Inefficiency
It has been proved that outsourcing of services by Americans companies at times can be quite expensive. There are numerous examples which have been forwarded showing the inefficiencies of outsourcing. There is a general complain against the quality of services that are delivered through the outsourcing process. According to Sanders (2009), the tasks which are outsourced are often not completed technically. Sanders (2009) argued that the tasks outsourced are only completed to the basic level; the clients fail to address the core issue which the task is meant for. For instance, it has been argued that the Indians are good coders but it has become evident that they are not able to apply practically the coding skills: “they don’t understand the business problem” and “they are good coders but they simply don’t think about the problem they are trying to solve” (Sanders p. 1).
Another issue that Sanders (2009) has pointed out is the fundamental philosophical difference between American business men and the outsourcers. For instance, it has been pointed out that outsourcers are not keen on the usage of the words such as “I will fix it”, “I understand”. These statements to an American businessman mean that the problem will be fixed soon. But it comes as a surprise to the American business men when things are fixed. This leads to lack of accountability which is a big frustration to the Americans (Hira & Hira, 2008).
Evidence from the past
Evidence from the past speaks strongly against the practice of outsourcing. It is worth acknowledging the fact that there are some outsourcing deals which have done well and at the same time there are high profile cases which have failed and are worth factoring in when outsourcing is discussed. One author has viewed outsourcing as gambling with a business (Simon, 2008). Simon (2008) argued that outsourcing of some business functions makes the business owners lose control of the business. The quality of the business services will then depend on the relationship that will be sustained between business and the outsourcer. One example is already given above and it is about the deal between the American Navy and EDS. Simon (2008) likens a contract between a business and the outsourcer with marriage. He warns that it is never smooth always because there are bound to be rocky times, expectations which are not aligned, misunderstanding which arise from culture differences and misinterpretations. The author listed the following high profile cases which went sour in the process of outsourcing:
The UK’s National Health Service terminated a contract with EDS after a £7.6bn (that’s about $11bn USD!) overrun on a nationwide computer system. Shop Direct, a UK-based retailer, pulled its call centre in 2002 out of Bangalore, India, due to poor service and infrastructure and moved the jobs back to its UK operation. In 2003, Dell had to pull technical support operations out of Bangalore, due to a very high degree of complaints. Also in 2003, the defunct Lehman Brothers stopped its contract with Wipro Spectramind, another Indian provider, who provided its internal IT helpdesk. (Simon 1)
In the context of the US, there are some cases which are worth mentioning. Take the example of the medical firm which met tough management configuration as it tried to outsource. According to the narration of Schwartz (2008), this outsourcing exercise was faced with a number of challenges. The outsourcer was an Indian and it is reported that it took approximately six month for the firm personnel in charge of the outsourcing exercise to understand what the Indian was saying. It is reported that the personnel had expected the pronunciation issue but they were not expecting that the Virtual Source Space tool they were using locally could fail over long distances. This caused a transmission problem which caused delay on both ends of up to 11 to 13 hours. Later it was realized that the medical firm had replaced its own skilled people to save money in the place of people who were going to examine the issue for the first time (Schwartz, 2008).
Conclusion
What conclusion do we draw from this discussion? First, we must appreciate the facts on both sides. Second, we need to be realistic and point out frankly who the real beneficiaries and losers are. Thirdly, we need to call for immediate action. It is true that there are companies in the US, which are satisfied with outsourcing of their duties. To them, the duties are done and are of high quality. These companies also save money by outsourcing their duties. We also need to point out that not all cases go well. Some outsourcing cases are not accomplished well and as a result the final work is often shoddy, of low quality and the entity outsourcing often does not save the amount expected to be saved. Another fact which needs to be tabled is that with every single job outsourced an American citizen losses a job. Outsourcing is simply shifting jobs away from America to other countries. It is worth noting that the savings which are made by business entities only belong to the business entities. Technically what outsourcing does is to fatten business entities and foreign at the expense of the American citizens. It is also worth noting that all the tasks outsourced can be comfortably accomplished at home including those high profile tasks which often turn sour. Therefore it is in the interest of the American citizens that outsourcing be scaled down.
References
Bragg, S. (2006). Outsourcing: a guide to selecting the correct business unit negotiating the contract-maintaining control of the process. New York, NY: John Wiley and Sons.
Burnett, R. (1998). Outsourcing IT: the legal aspects. New York, NY: Gower Publishing.
Hira, R., & Hira, A. (2008). Outsourcing America: the true cost of shipping jobs overseas and what can be done about it. New York, NY: AMACOM Div American Mgmt Assn.
LaFond, A. (2007). When Outsourcing Goes Bad. Manufacturing.Net. Web.
Sanders, J. (2009). What went wrong with outsourcing? Web.
Schwartz, E. (2008). Painful lessons from IT outsourcing gone bad. Web.
Simon. (2008). When outsourcing goes wrong.
Taylor, J. (2006). Principles of Macroeconomics. New York, NY: Cengage Learning.
Footnotes
- The research by Forrester estimated that 3.3 million U.S. jobs will be outsourced by 2015 which is an average of around 300, 000 jobs per year; the study by McKinsey Global Institute estimated that the entire developed world will have located 4.1 million service jobs in low wage countries (read more on this from Taylor’s text).