Companies have been outsourcing work for many
years. This trend has been carried to an extreme
in the case of offshore outsourcing - sending
work and jobs to other countries where labour
Outsourcing made sense. Specialized companies
provided their services to many client companies
at lower prices than the client companies could
do the work in-house. Both companies, the service
provider and the client, profited from the
arrangement. Unfortunately, like the building
of conglomerates before it, outsourcing got
carried to extremes. Companies began outsourcing
work to the lowest bidder and lost sight of
the effect it had on the company except for
finances. Outsourcing this work to "foreign" or "offshore" companies,
solely to take advantage of lower labor rates
in those countries, became known as offshore
The offshore outsourcing of professional and technical
jobs by US companies is done to save money, but it
has raised concerns. As the US struggles to recover
from recession, the rate of job creation lags far
behind the expected pace. There is growing concern
that this is due to offshore outsourcing.
Offshore outsourcing is neither the cure-all
it has been portrayed by business nor the
economy-destroying monster laid-off workers
claim. While offshore outsourcing does have
financial advantages for businesses, these
advantages are often far smaller than first
anticipated due to hidden costs. There are
also non-financial costs to businesses from
offshore outsourcing, including lowered public
perception and reduced morale/productivity
from remaining staff. Offshore outsourcing
can be beneficial for workers of the US companies
because their employers will be financially
stronger and better able to compete.
Initially, manufacturing jobs were outsourced.
Other countries were able to manufacture goods
more cheaply than in the US because of lower
standards of living and less restrictive laws
and environmental regulations. Recently, companies
have begun outsourcing service jobs as well.
The motivation here is solely financial. As
this new wave of outsourcing hits the middle
class, struggling with a near job-less period
of economic recovery, many citizens and lawmakers
are beginning to question the wisdom of offshore
Background to Offshore Outsourcing
For decades companies expanded their conglomerates
by buying other companies. Initially these companies
were related businesses, often suppliers. Soon the
conglomerates began buying companies with no relation.
Profit motives and the desire to be the biggest became
sufficient justification. Ultimately, the conglomerates
began to collapse under the weight of the acquired
companies. Profits started falling and companies
began to retract to their "core" businesses.
Next they discovered that they could shed even core
functions by hiring them out to companies that could
do them more efficiently and, thus, less expensively.
Payroll processing was subcontracted. Shipping was
farmed out. So was manufacturing. Companies were
hired to do collections, customer call centres, and
employee benefits. Collectively, this was called
In Favour of Offshore Outsourcing
The arguments for offshore outsourcing centre
around free trade and globalization.
- When a product or service can be produced
more cheaply overseas, it makes more sense
to import it than to produce it domestically.
- Much of the revenue earned abroad returns
to this country in wages for other employees,
investment in R&D, profits for shareholders,
and taxes for the government.
- It doesn't matter where the work is done
as long as the US companies earn the profit
to return to their shareholders.
- Companies must do what's best for themselves.
- Lower priced goods and services are good
for all consumers.
- New, more sophisticated jobs will be created
in America to fill the void now that the
less important jobs have been sent overseas.
- It will help improve the economies of poorer
countries so they won't need so much financial
aid from the US.
Opposing Offshore Outsourcing
The arguments against offshore outsourcing focus
on impacts on the American consumer and the danger
of a brain drain.
- Since prices drop only marginally due to offshore
outsourcing, while wages decrease substantially,
the consumer will be unable to purchase the product
- America was able to turn on a mighty economic
engine that ultimately won World War II. Offshore
outsourcing destroys the ability to do that again.
- The considerable profits to be made from offshore
outsourcing are retained by the rich, while the
middle class pays higher taxes and loses purchasing
- Foreign workers do not contribute to US Social
Security or other taxes. The increased tax revenue
from corporate profits does not equal the amount
lost on US workers income taxes.
- Companies could save more costs by offshore outsourcing
the CEO job. The average US computer engineer earns
six to seven times his Indian counterpart, but
the US CEO gets paid 400 times as much as his average
- The "more sophisticated jobs" that
US workers are supposed to move on to now that
their jobs have been outsourced do not exist. They
are never firmly defined. And it is an affront
to the US worker who trained for the "jobs
of the future" only to see those computer
programming jobs outsourced.
- The goods and services that have been outsourced
overseas are often sent to countries who laws are
not as protective of workers and the environment
as in the US. We ultimately pay for those oversights
in further damage to the planet.
Where It Stands
- Offshore outsourcing is currently perceived as
yet another way for the super rich corporate executives
to get richer at the expense of individual workers.
- Outsourcing work to companies that can do it
more efficiently and less expensively does make
sense, provided that it is actually less expensive
at the bottom line.
- Hidden costs include the danger that consumers
will stop buying from companies engaged in offshore
- Offshore outsourcing work means unemployed Americans
will not be able to purchase products and services
and lowly paid workers overseas will not earn enough
to purchase them. Companies that save money by
offshore outsourcing will go out of business from
lack of customers.
- Offshore outsourcing makes sense only if it truly
saves money at the bottom line.
By F. John Reh, About.com Guide