Outsourcing is not as bad as everyone makes it out to be, there are a lot of reasons to practice outsourcing. Exploiting comparative advantage, and cutting costs for the producer as well as the consumer are among the most important reasons. The company can produce a lot more of their product and lower their prices, which is good for them and us. Other positive things that are a product of outsourcing: less bad jobs and more good jobs, larger customer base to sell our products too, increased world influence and presence by having our companies supply jobs around the world, and a lot more.
A major part of the problem is how the word outsourcing is used - how it was framed in our mind by the media and by politicians. We only use the term “outsourcing” when jobs we like are being lost, and not just any old job. Take Trefler for example:
It is worth noting a problem with refining the definition of [outsourcing]. Most of us would be comfortable with the following statement: “Manulife is offshore outsourcing development of its new human resources software to India, while the plastic products industry is importing shopping bags from China.” Why is one “offshore outsourcing” and the other “importing”? In both cases, products currently made in Asia were previously made in-house in America, and in both cases there has been phenomenal growth over the past five years. There are no good answers to this question. (Trefler 39)This is indeed a major part of the problem. They want us to think that outsourcing is bad. They want us to think that outsourcing is evil. So, in order to make us think how they want us to think, they only use the word when the practice is at it’s worst. When it takes the “good” jobs. And, they don’t use the word when a bad job that is lost to workers overseas. Oh, no. That isn’t outsourcing- it’s just importing.
Another large part of the problem is how uneducated the average American is on the topic, and how little they know of the reasons that company’s outsource. Sure, they know that the company wants more money, but that’s all they know. They know nothing of these other reasons: Cost reduction; A company is able to spend less money though outsourcing; thereby, reducing the total cost to the company and enabling said company to pass the savings onto the buyers of their product. (Engardio 2006) Cost Restructuring; A company is able to restructure their costs to allow for better market predictability. Improve Quality; A company is able to increase the quality of their product by outsourcing. Workers in other countries do a wonderful job manufacturing, and they simply do it better then we do. Increased Knowledge; A company has access to a larger pool of potential workers from countries all around the world, giving them access to more intellectual property and a wider range of experience. (Engardio 2006) Legal Reasons; A company can have their services provided in compliance with a legally binding contract with financial penalties to any employee who breaks said contract. (Rothman 2003) Operations Expertise; Outsourcing opens the door to channels of operations that already exist, ones that would be difficult, time consuming, and expensive to develop for one’s own company. Staffing Problems; Outsourcing gives access to a larger pool of talent and skilled workers. Catalyzing Change; A company can use outsourcing to help change the way it organizes in a way that their current employee base couldn’t do alone. Risk Management: Outsourcing can be used as a way to minimize the companies legal risk. (Roehirg 2006) Time Zone Exploitation; having employees all around the world has its advantages, being able to offer a service “all day, every day” is very simple when all of your employees live in different time zones. Avoiding Unions; In the United States, unions can make things very difficult for the employer, and unions do not exist over seas. These reasons are very valid, and when looked at through the eyes of the company, outsourcing doesn’t seem so bad.
Other unimportant, but positive effects of outsourcing include: developing the infrastructures of our host nations, increasing our world-wide presence, offering jobs to poorer countries, exploiting the workforce of countries more populated than America is, creating a population that is reliant on American companies for jobs or products. All of those things happen when we partake in outsourcing, and they’re all good for some group of people.
I decided to choose this topic, and slant the way I did, when I heard the lecture on comparative advantage in INR. Having a mental grasp on comparative advantage helps me see through to the positives of outsourcing as well. For example: Country A makes very good apple juice. It has the soil, the climate, and all of the perfect conditions to make apple juice. Country A could still make orange or grape juice, but it wouldn’t be as efficient as growing apples. Country A should just make its apple juice, and outsource the work required to make orange or grape juice, as apple juice is their best product. By using this concept of comparative advantage, we could focus on what we do best here at home, while using what other countries to best to our advantage. Fruit grows well in South America, so we should grow fruit there. Manufacturing is done best in places that have low-wages, so we should manufacture there. The examples could go on forever, but the fact remains: if we don’t have our companies in South America growing fruit, some other country would have their companies their growing fruit. One of those options earns us a lot of money. Which is better for the country?
Any worries that we’re outsourcing to any one country too much, and that we’re going to make them too rich goes against the “Ironclad Law of Comparative Advantage” which states simply: a low-wage country can’t continue to be a low-wage country for all of eternity. It is impossible because as their status rises, so does the value of the money in the country, which increases the cost of outsourcing there, which decreases the reason that people would want to outsource to there. Look at China, for example: China is starting to outsource its factories to other countries. This means that there are other countries that can produce stuff for cheaper than China can. How much longer will companies continue to stay in China? Not much longer. India is another interesting case study. Many of our technical service jobs and call centers have been sent to India. Since the start of this, the starting salary of a call center employee has more than doubled, and continues to rise. At this rate, it will be cheaper to bring the call centers back home in just a few years, or at least outsource them somewhere else.
Any worries that we’re outsourcing to any one country too much, and that we’re going to make them too rich goes against the “Ironclad Law of Comparative Advantage” which states simply: a low-wage country can’t continue to be a low-wage country for all of eternity. It is impossible because as their status rises, so does the value of the money in the country, which increases the cost of outsourcing there, which decreases the reason that people would want to outsource to there. Look at China, for example: China is starting to outsource its factories to other countries. This means that there are other countries that can produce stuff for cheaper than China can. How much longer will companies continue to stay in China? Not much longer. India is another interesting case study. Many of our technical service jobs and call centers have been sent to India. Since the start of this, the starting salary of a call center employee has more than doubled, and continues to rise. At this rate, it will be cheaper to bring the call centers back home in just a few years, or at least outsource them somewhere else.
Manufacturing Jobs are leaving the country, and other jobs are replacing them, as evident by the low unemployment rate. If these new jobs are better or worse, is yet to be seen, but expectations are high. If the low paying manufacturing jobs of the past are leaving the country, that leaves more room for people to get educated and to get a degree in a field of their choice, and to have a job worth having, something the third-world countries that we outsource too can’t possible attain at their level of development. Outsourcing, in a way, forces people into colleges, which is better for our society as a whole.
Outsourcing really isn’t as bad is it’s made out to be - sure, it has its negatives: job loss isn’t a good thing, having a lower job security isn’t a good thing either, but the positives outweigh the negatives tenfold. The reasons to practice outsourcing certainly justify having a few less jobs and a little less job security, after all who doesn’t want their money to go farther while in the grocery store, or shopping for holiday gifts?
Works Cited
Engardio, Pete. “Foreign Affairs - the Outsourcing Bogeyman.” Business Week. 29 Oct 2007 <http://www.foreignaffairs.org/20040501faessay83301/daniel-w-drezner/the-outsourcing-bogeyman.html>.
Roehirg, P. “Be on Governance to Manage Outsourcing Risk.” BT Quarterly. 2006. BT Quarterly. 02 Nov. 2007 <http://www.btquarterly.com/?mc=bet-governance&page=ss-viewresearch>.
Rothman, J. “11 Steps to Sucessful Outsourcing: a Contrarian’s View.” Computer World. 2003. Computer World. 05 Nov. 2007 <www.computerworld.com/developmenttopics/development/story/0,10801,84847,00.html>
Trefler, Daniel. “Serves Offshoring: Threads and Opportunities.” Brookings Trade Forums: 2005. Washington, D.C.
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