Positive and negative impact of “foreign outsourcing.”
Analyze positive and negative impact of “foreign outsourcing.” Does the positive effect exceed the negative impact, or inverse?
Positive and Negative Impact Foreign Outsourcing
Outsourcing and offshoring are terms used interchangeably to mean the same thing. However, these concepts are quite different. Essentially, outsourcing refers to the process of obtaining a service or product through a third party while offshoring encompasses the process through which a company takes its operation to another country (Carbaugh, 2018). For example, a car company based in America can opt to open its subsidiary in Australia. This implies that the car company will be offshoring to Australia. Better still, a company can engage in offshoring by opening all its subsidiaries in a foreign country (Davies, 2015). There are myriad of negative and positive aspects associated with outsourcing. Concisely, outsourcing improves the overall economy of the other country but at the same time hinders the economic growth of the outsourcing country (Sako, 2016). Numerous concerns have emerged on whether outsourcing must only involve foreign countries. Against this background information, this paper delves into the positive and negative aspects of outsourcing. Moreover, the paper establishes the specific aspect of outsourcing that exceeds the other.
Positive Aspects of Outsourcing
Increasing the Profit of the Company
Most companies majorly engage in business to make a profit. To maximize on their profits, most companies can use various techniques but the most common one entails lowering their production costs (Carbaugh, 2018). As a fact, most firms engage in outsourcing with the aim of lowering their production costs while at the same time increasing their revenues profit. A major aspect of production that is significantly reduced by outsourcing is labor cost. Essentially, this implies that a company tends to venture into a country’s foreign markets where they can obtain labour cheaply regardless of whether such economies will suffer from losing jobs (Davies, 2015). This implies that a company will invariably choose to outsource from economies with cheap labor at the expense of the job loss in the parent country (Davies, 2015). Besides cheap labour, reducing production costs associated with outsourcing encompasses lowering expenses related to hiring and training of workers. Possibly, the companies can reduce the additional costs of cost of hiring and training the employee by outsourcing. As such, any cost of production saved goes along way increasing the company’s company (Carbaugh, 2018).
Increasing Efficiency of the Economy
Findings of a stud by Carbaugh (2018) revealed that most companies consider the opportunity cost of producing goods or services as the reason behind outsourcing. Essentially, a classic example is a case of a startup tech company. The CEO of such a company can feel more convenient to outsource HR because he or she will spend most of his or her time meeting venture capitalists than managing the benefits associated with the employees. Therefore, by engaging an already established HR, the CEO will have the advantage of getting the company to start up faster (Gewald, 2020). Another critical aspect to note is that when highly skilled individuals can outsource lower value tasks but spend most of the time performing high-value tasks, companies tend to benefit. The proponents of outsourcing have contended that engaging in such activity boosts the efficiency of the economy (Carbaugh, 2018). Moreover, when skilled personnel are allowed to perform a task, the level of productivity in an economy increases significantly leading to better economic growth and development.
Job Distribution from Developed to Developing Countries
Reportedly, developing countries tend to experience high rates of unemployment (Sako, 2016). These high levels of unemployment make the labor market less costly. As such, the low labour costs cost in such economies make outsourcing more appealing to companies operating the developing countries. Intuitively, the attractiveness of outsourcing implies that the overall benefits of multinational companies increasing the job opportunities through outsourcing to the developing countries outweigh the job losses in the parent developed country (Davies, 2015). As a result, outsourcing to developing countries can potentially bridge the global disparities between the poor and the rich countries.
Strengthening of the International Ties
Gewald (2020) reported that most countries that engage in trade hardly involve in war. As a fact, such countries usually work together as a unit and pursue a common goal. On the same vein, outsourcing acts as a catalyst that strengthens the relationships between companies in the economies and countries they operate in (Carbaugh, 2018). Through outsourcing, leaders and governments in the trading countries tend to develop a good rapport amongst themselves that consequently creates a friendly environment for production.
Negatives of Outsourcing
Loss of Jobs
Job loss to the parent country is one of the glaring demerits of outsourcing. Essentially, the outsourcing leads to the loss of the employment opportunities that could have been enjoyed by the citizens of the parent country that consequently could have improved their economies (Davies, 2015). A typical case is the US that constantly lose potential job opportunities by companies opting for foreign countries. In America, the most hit sector is the manufacturing industry (Carbaugh, 2018).
Lack of Transparency
It is the nature of consumers to inquire about the origin of the products they buy and use. However, outsourcing makes it difficult for them to trace the origin of the product (Davies, 2015). For example, a textile company based in the United States can decide to outsource an aspect of its business to another company in a foreign country like Mexica. In return, the Mexican company can decide to outsource to another Mexican company for staffing (Hirschheim & Dibbern, 2019). It means that in the event that staff in Mexico is unqualified, it can be challenging to identify the source of mistake. Moreover, outsourcing makes it difficult for managers and other personnel to understand the supply chain of a company so that they can launch any compliant they may have.
It is Potentially Backfiring for the Outsourcing Company
Outsourcing is not always a sure bet that the company will reap the benefits (Gewald, 2020). In some instances, the outsourcing company tends to suffer financial loss and image tarnishing from outsourcing. Normally, this happens when the outsourcing company has little knowledge on its partner that equally engages in outsourcing (Carbaugh, 2018). Precisely, the outsourcing company can suffer financial loss in case its partner hardly meets the deadlines. Moreover, in some situations, various challenges such as communication problems can be experienced. Similarly, the outsourcing cost could be potentially higher than what was projected. This, according to Davies (2015), makes outsourcing a gamble
In conclusion, outsourcing is a hotly contested debate in the politics of the United States of America. By definition, outsourcing involves a third party availing a product or a service that a company requires. Some American economists and politicians believe that outsourcing is a means of increasing the country’s revenue and the wellbeing of the country’s economy. However, some sections of politicians and economists see outsourcing as a hindrance to America’s economic development. From the above discussions, it is apparent that the positive aspects of outsourcing outweigh the negative ones.
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Gewald, H. (2020). The perceived benefits of business process outsourcing. Strategic Outsourcing: An International Journal, 3(2), 89-105.
Greaver, M. F. (2018). Strategic outsourcing: A structured approach to outsourcing decisions and initiatives. New York: AMACOM.
Hirschheim, R., & Dibbern, J. (2019). Outsourcing in a Global Economy: Traditional Information Technology Outsourcing, Offshore Outsourcing, and Business Process Outsourcing. Information Systems Outsourcing, 3-21.
Sako, M. (2016). Outsourcing and Offshoring: Implications for Productivity of Business Services. Oxford Review of Economic Policy, 22(4), 499-512.