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This paper tackles the concept of outsourcing in America and aims to explore the reasons behind the need to outsource jobs. Outsourcing has said to have several effects on the United States’ economy as well as its citizens and this paper aims to explore both the good and the ill effects of such practice towards America. What is Outsourcing? Outsourcing, as defined in the Microsourcing website is “the transfer of the management and/or day-to-day execution of a business process to an external service provider.
This means that one company gives part of its tasks to another company, which specifically offers such services. They are called “BPOs” or Business Process Outsourcing. Usually these business processes none-core tasks that can be handled by an external company. Further, there are at least two entities involved: the client- the company in need of external parties for their company; and, the provider-the external party that will cater to the need of the company. According to an article entitled “Why Outsourcing is Happening? ” found in the PropertyOz website, there are four types of outsourcing, summarized as follows:
Out-tasking, which is basically buying ad hoc services; Functional sourcing, where corporations start to bundle certain services that have partners or Providers; Vertical sourcing, where corporations pick one or two partners and give them rights to provide specific functions for a period of time; and, Integrating outsourcing which takes the people currently performing the function, invest in them and links the service delivery to the service delivery of human resources, facilities management, procurement and ‘back of house’ functions. (2)
Several enterprises in the US, depending on the nature and need of the company, resort to one of the four above mentioned types of outsourcing. The Benefits of Outsourcing America and Europe has been outsourcing jobs for it is cheaper in terms of labor and some businesses get to operate in a 24 hours a day, 7 days a week. Such becomes possible because as the US office closes, India or any outsourced job provider opens; thus, greater productivity for the client company. In addition, companies can also focus on their core competencies and delegate less fundamental tasks to other companies at a reasonable cost.
One of the benefits of outsourcing is reduced cost for the business. Countries that offer outsourcing services like India have cheap labor. For instance, a call center representative’s salary can pay up to 10 agents when the service is outsourced. According to Positive articles. com, Alex Martin claims that “in India, the dollar exchange rate is 45 rupees per every American dollar. Thus the average American worker who would take (for e. g) $5 per hour can be replaced by an Indian worker employed at $2/hour.
Additionally, Manning says that, “Outsourcing significantly reduces the costs of important services such as Information Technology, which many businesses originally could not afford. ” (1) Thus, this means greater profit for the company. One example would be Delta Airlines which saved a total of $25 million because of outsourcing. The company outsourced 1000 call center services from India. The savings were used to expand the business and in the process hiring 1,200 new US positions for sales. (Manning 1)
Aside from reduced cost, another benefit is, as less vital tasks are being outsourced; better quality jobs are left for US citizens. Manning claims that “the average American worker is far better trained and more productive than the average foreigner, and companies are always looking for ways to put them to better use. ” (1) Again citing the case of Delta Airlines, in the period between 1999 an 2003, there were 70,000 computer programmers who lost their position for outsourcing.
However, there were 115,000 employees who shifted to better paying jobs. Manning 1) This demonstrates that even if Americans lose their place in the fields of customer service and information technology, there still are higher paying jobs and better opportunities in the domains of sales and management. In an article by Meenakshi Ganjoo entitled “IT outsourcing benefits US economy” he says that the American workers and the US Economy overall benefit from information technology outsourcing basing from facts and figures: worldwide sourcing of IT services and software generated an additional 257,042 net new US jobs in 2005, a number that is expected to rise to 337,625 by 2010.
With low inflation and high productivity, global sourcing also increased real hourly wages in the US by $0. 06 in 2005. [Additionally,] worldwide sourcing contributed $68. 7 billion in real US GDP. Moreover, Martin says in his article entitled “The Benefits of Outsourcing In Small Businesses” that small businesses can benefit so much from outsourcing as it “allows them to work with the minimum of labor and equipment expenditure. ” For instance, a small company that requires telemarketing need not create a unit for telemarketing tasks.
Instead it can opt to outsource the services and focus on the more crucial tasks in the business. The Disadvantages of Outsourcing One of the most perceived threats of Americans towards outsourcing is the loss of jobs. As other countries like India and China get the jobs that were originally meant for the Americans, some feel that outsourcing does more harm than good to the economy. Moreover, some believe that not only the less crucial but high-tech jobs are being outsourced.
Thus, as Bhumike Ghumire states, some are “concerned that in the future, America will lose its edge as the technical leader. In the case of a call center that is being outsourced to China or India, opponents of outsourcing believe that the quality of service being delivered is substandard, compared to that of the service provided by Americans. At times, the customer cannot understand the call center representative because of his/her accent. Though they engage in American accent trainings, not all can perform as well as Americans do. Evidently, Gallup research claims that there are a good 80% of American customers that are unsatisfied and thus disapprove of outsourcing.
A comment on the Gallup article by Brennan stated that when he calls for assistance and the call falls to an outsourced company, he does not get a speedy response. For one, it will take several minutes for the representative to understand his query, having to explain it piece by piece. Then, either he is put on hold as the person looks for solutions or he is told that he will be called back by the representative. With this Brennan prefers to speak to someone of the same culture.
Apart from these, the Software Project website mentions a few other cons of outsourcing on the business side, summarized below: • Outsourcing can cause “loss of managerial control. ” As the company has opt to outsource, it now managing the BPO provider which is more difficult in contrast to “managing one’s employees. ” • There is the tendency to overlook other costs in outsourcing. Software Project states there are “legal costs of putting together a contract between companies and time spent on coordinating the contracts” can cause for unexpected expenditure for the company “Outsourcing can also prove to be a threat to the security and confidentiality of issues of a company. ” This applies to those who outsource payroll services where information on compensation can be disclosed. • Outsourcing also tends to limit the growth of the internal employee as things he could have learned and handled is passed onto another party. Conclusion Since the concept of outsourcing is relatively new, opposing reactions to its effectiveness is expected. Basing on the various literatures, outsourcing offers a good deal of cost efficiency to businesses.
However as regards the laying off of Americans, businesses should ensure that high end jobs are indeed accessible to them. They should be provided with training to ensure that they qualify for the remaining positions. There are a number of groups that are advocating against outsourcing in America. Some people in media, for instance, CNN commentator Lou Dobbs has interviewed Americans who have lost their jobs for outsourcing, viewing it as “evil scheme to take precious jobs from Americans” (Manning 1).
Outsourcing can be viewed as an inevitable occurrence and part of the dynamics of a progressing economy. It requires the Americans, especially the affected ones, to continually learn, switch and improve skills to “secure the jobs demanded by changing businesses in a dynamic economy. ” As long as this is met, there should be no fear of the America losing its leadership. Manning and other economists believe that outsourcing may have displaced jobs from Americans but in the long run will improve economic efficiency and will make the US economy grow.
Needless to say, they suppose that the pros outweigh the cons. Admittedly, there are those who are directly hurt by the process and a few sacrifices are necessary, however there are far better results like higher profitability and productivity among businesses. As a comparison, Manning maintains: “The invention of electricity caused the many people of the candle and lamp industries to lose their jobs, but in the end led to huge improvements in productivity and quality of life. ” (1)