INTERNATIONAL ECONOMIES 5
Outsourcingis defined as the allocation of business processes to an externalservice provider who is a specialist in that specific sector. Mostcompanies lack theexpertise to handle all aspects of its daily businesses(Schniederjanset al., 2011).
Moreover,some processes are normally temporal hence the company/organizationfinds it unnecessary to hire in-house/permanent professionals toperform the tasks. Factors that have led to the growth of this globaltrend in outsourcing include presence of lowly paid labour that haveno experience, inadequate professions in the business environmenttogether with ability to work consistently in other businessactivities(Kehal& Singh 2010).These have solely contributed tomost of the outsourced business around the globe. For example, themost important advantage of outsourcing in India is the expertise incommunication and technical capabilities.
Somegovernment agencies choose to outsource some of the businessactivities in order to earn reasonable returns that can positivelyimpact on the country’s economy. The activity of outsourcing bycompanies has been of great advantage to the US economy as cheapgoods are now available from other countries thus benefiting both thelarge scale export manufactures and consumers. Studies showthat the offset programs carried out by the U.S. commercial aircraftindustry since 1960’s has seen foreign manufacturers produceproducts in exchange for completed aircraft purchases (Kehal& Singh 2010).
The outsourcing of workersto countries in the developingworld is a cost-saving measure employed by a majority of thecompanies. This is beneficial to the US economy as it substantiallyreduces the price of carrying out business activities like those forworkers compensation, those involving retirements, health concerns aswell as those for specialization and profession. A variety ofbenefits is achieved by small scale business companies from theoutsourcing of human resource. Outsourcing has shown to be of valueboth to companies outside U.S as well as those situated in U.S. Thereis great demand for goods from foreign companies in U.S economy whichhas facilitated growth of these companies as well as growth of theireconomy. The engagement in international trade by the United Stateshelps in obtaining goods at lower costs which translated to betterand improved returns on Investments and economically priced goods forthe consumers. (Schniederjanset-al., 2011).
Statisticsshows that there is heavy dependence on imports when US outsource forgoods and services thus making the country being among those engagingin global marketing. The current economies focus mainly on marketingglobally. This has shown to bear fruits both for US as well as otherdeveloping countries and to balance this scale, the United Statesexports goods and the U.S. dollars to other countries (Irelandet al., 2010).
Outsourcingdone by companies in the United States leads to the stimulation ofinvestments gained by countries outside the economy. The gains are amotivation to the economy as it helps improve the living standards bycreating employment opportunities to the people. When the citizensfrom the foreign countries have source of income, they are in aposition to buy goods from US and this leads to their country’seconomy improvement.
Onecommon theory is that paying low wages for work translates tocompanies being at a better place of producing goods cheaply andmaking savings available to users or rather consumers. When workersare being paid lowly, the company is in a position to hire more ofthem from outside countries meaning that there will be higherconsumer spending. Theorist point of view suggests that strugglingeconomies boosts the economies of those countries thereby increasingtrade for the United States products. This also allows the developingcountries to be able to pay back their debts to the United Statesthereby leading to a better political relationship between thetwo countries (Schniederjanset al., 2011).
Report carried out by Mckinsey Global Institute indicated thatoutsourcing reduces costs government services to more than half thusincreasing competitiveness of US companies in the global markets.Outsourcing returns profits from US owned affiliates in othercountries allowing US companies to deploy workers from US in moreproductive jobs (Ireland etal., 2010).
Advantagesof outsourcing outweigh the disadvantages. To begin with, outsourcingsaves costs of carrying out business activities as well as reducingcosts of employing labor. Core businesses are in a position to takecentre stage leaving the other businesses to be taken care of by anexpertise outside the company. In addition, some activities such ascleaning which is minor help pay attention to major activities suchas accounting, procurement and sales. The fact also remains that,outsourcing helps minimize the overall ongoing expenses of anorganization (Kehal& Singh 2010).
Whencertain functions in a company become uncontrollable operationally,then outsourcing comes in handy in overcoming such difficulties.Outsourcing helps in streamlining a company’s cash flow. It easesthe burden of investing in investments such as technology and toomany workers. Outsourcing gives businesses the possibility ofdeveloping new skill sets and competences that can be used for theircompetitive advantage. Finally, outsourcing gives companies theflexibility in managing labour and given that the expertise work isto ensure that the workforces is properly managed, the company inturns saves costs and selects the best workforce to run the corebusiness in the company (Schniederjanset al., 2011).
However,the disadvantages of outsourcing include the company not being in aposition to control its activities due to loss of managementfunctions such as planning and controlling, loss of important dataand information as a result of illegal tracking by outsiders as wellas lack of secrecy to the company’s database. It is thereforeimportant that an immediate step be taken to protect data andinformation to minimize their losses. Delays are crucial problem inoutsourcing. There is also high chance of inaccurate information as aresult of multitasking of activities and employment of unqualifiedcheap labour. Finally, lack of knowledge of the outsourcing providerand their location may lead to poor communication thereby loweringproductivity (Schniederjans,M. J. et al, 2011).
Itis in the backdrop of these arguments that I tend to agree with thenotion that outsourcing of businesses in the U.S. has taken a toll onour economy.
Ireland,R. D., Hoskisson, R. E., &Hitt, M. A. (2010). Understandingbusiness strategy: Concepts and cases.Mason, OH: Thomson South-Western.
Kehal,H. S., & Singh, V. P. (2010). Outsourcingand off-shoring in the 21st century: A socio- economic perspective.Hershey, Pa: Idea Group Pub.
Schniederjans,M. J., Schniederjans, A. M., &Schniederjans, D. G.(2011). Outsourcing management information systems.Hershey, PA: Idea Group Pub.