| In 2004 the democratic presidential candidate race | | | | that incompetent people in the east are taking our |
| was zeroed down to which candidate proves his | | | | jobs just because companies are able to get their |
| protectionism in eyes of average Americans, who | | | | work done in 20% of the amount it will cost to |
| are worried about the increasing number of jobs | | | | get it done by an American worker. So are all |
| loses due to outsourcing and off-shoring. To sum | | | | jobs going to China and India? |
| up the sentiments management thinker Tom | | | | The answer is no, in fact it varies from industry |
| Peters puts it in one of his presentation (Tom | | | | to industry, so if you are a call center or an |
| Peters 2004) -"when I was young my mom use | | | | information technology worker, people in India and |
| to tell me finish your food, people in India and | | | | Philippines are competing for your jobs. If you are |
| China are dying of hunger. Today I tell my | | | | an insurance claim processor, Irish workers may |
| daughter finish your homework, people in India | | | | be striving for their share and further facing |
| and China are looking for your job".Outsourcing | | | | competition from growing trained workforce in |
| and off shoring has become the latest rage in | | | | Poland and east European countries. If you are an |
| corporate America. Companies are resorting to | | | | aircraft engineer and designer, Russian workers |
| outsourcing to cut costs and be competitive in | | | | may be more of a concern. And if you are a |
| the market. This focus on outsourcing has led to | | | | textile industry recruit then start looking for |
| shipping out of thousands of American jobs to far | | | | opportunities outside the industry as Chinese and |
| fetched place like India and China.Today Young | | | | Mexican companies will put you out of the job if |
| people sitting in their offices in Bangalore and | | | | they haven't by now.Can these countries keep on |
| Dublin are answering average American's | | | | having these comparative advantagesWell as |
| insurance queries, planning their taxes, helping | | | | mentioned earlier it depends upon the |
| them fixing their computers, providing information | | | | comparative advantage of the country, my |
| regarding their credit card accounts and helping | | | | personal analysis is that outsourcing is a long term |
| them in planning their debts. The surge doesn't | | | | phenomenon and countries and companies which |
| last there it has now started threatening the | | | | will succeed at it will be those which will treat it as |
| white collar jobs which was once considered | | | | a part of their business strategy.Companies which |
| Americas birth right. So what will be the future | | | | just want to ride the outsourcing bandwagon with |
| for American jobs market, will it be as doomed | | | | no long term strategy in place will fail miserably at |
| as the candidates in the presidential race made to | | | | it. Like all supply and demand issues the |
| believe us or we have to dig deeper to find the | | | | outsourcing future will also be decided by the |
| real truth.What is Outsourcing and difference | | | | demand and supply of available resources in a |
| between Outsourcing and Off-Shoring Outsourcing | | | | particular country. For example off shoring and |
| and off-shoring are taken one for another but | | | | outsourcing activities during the cold war were |
| there is a fundamental difference between | | | | from the United States and England to Ireland and |
| outsourcing and off-shoring. | | | | Israel. As globalization stepped in more and more |
| Outsourcing is defined as the exporting of | | | | countries opened their door to free economy this |
| non-core business operations or jobs from internal | | | | change led to the emergence of new players like |
| production within a business to an external entity | | | | China, India, Philippines, Russia and South |
| which specializes in that specific operation. | | | | Africa.Among these China emerged as the leader |
| Decisions regarding outsourcing are often made to | | | | in manufacturing section while India is excelling in |
| lower operational costs or to focus on business | | | | information technology. India today is considered |
| core competencies. | | | | one of the most employer-friendly countries for |
| Off shoring is when the company sets up its | | | | outsourcing because Ireland and Israel have |
| offices in foreign land to avail the resources, tax | | | | almost saturated their surplus labor pools and |
| benefits or human capital. Unlike outsourcing, in off | | | | salaries in those countries have started rising. |
| shoring operations and jobs are managed by the | | | | While in India educational system churns out |
| parent company rather than getting it done from | | | | almost 3 million College graduates every year and |
| external entity. | | | | they earn approximately one-tenth to one-fifth |
| A related new term is out-tasking: it is typically | | | | the salaries of their Western European or |
| on an annual contract, or sometimes even a | | | | American counterparts.As the cycle in previous |
| shorter one. It involves continued direct or indirect | | | | outsourcing hotbeds proved that once the pool |
| management role play in decision-making by the | | | | starts saturating and prosperity level increases |
| parent company of the out-tasking business.Why | | | | the economy moves toward two things- One |
| do we OutsourceOutsourcing is not a new | | | | higher salary for the working class as they require |
| phenomenon; it is with us since time immemorial. | | | | more money to sustain their life style.- Secondly |
| Europeans started outsourcing sugar from Latin | | | | the countries will move towards higher end |
| American countries by employing local people. In | | | | products. For example in 50's Japan use to |
| modern economies it has its root in theory of | | | | manufacture clothing and garments for American |
| comparative advantages by traditional economist | | | | market. As the Japanese economy developed it |
| David Ricardo (Ricardo, 1817). As the theory | | | | started churning out silicon chips and the made |
| propagates that one should spend one's energies | | | | forage into automobiles and electronics. Today |
| on things in which it has comparative advantage. | | | | Japan is the second largest market in the world |
| It will ensure maximum utilization of the resources. | | | | and it outsource most of its clothing and |
| Similarly outsourcing enables the business to focus | | | | garments requirements from China, Japanese |
| its energy on its core competencies and avail the | | | | owned factories in Taiwan and Korea are |
| benefits of others dexterity in operations, in which | | | | producing chips for Japanese electronics. Today |
| other companies have efficiency. These | | | | some of the biggest names in electronics in |
| efficiencies could be process related like company | | | | American market are Japanese. What started as |
| A is better than Company B in making T-shirts, or | | | | a Akio Morita revolutionary Walkman today |
| they can be formulated like one government | | | | blossomed into Play Station 3 , next generation |
| providing more tax holidays then another so the | | | | gaming console.How outsourcing influencing the |
| first country become preferred destinations even | | | | American economyThe growing tendency of |
| though the actual cost of getting a T-shirt made | | | | companies in corporate America to go for |
| is comparatively higher than the second country. | | | | outsourcing has seriously influenced the American |
| According to the McKinsey consulting analysis | | | | job market. The fear and noises have almost the |
| off-shoring creates net additional value for both | | | | same decibel level as the one heard with the |
| outsourcing economy as well as in-sourcing | | | | introduction of NAFTA ( North American Free |
| economy, taking India as example it says that for | | | | Trade Agreement ) in early nineties. The fear at |
| every dollar off-shored, the U.S. economy accrues | | | | that point of time was that opening our borders |
| between $1.12 and $1.14 while the India captures | | | | for Mexican agriculture products will wipe of the |
| just 33 cents. US economy benefits from | | | | agriculture industry in the country. It will flood US |
| combination of reduced costs (58 cents), | | | | with Mexican workers all over and lots of |
| purchase from US Suppliers (5 cents) and | | | | manufacturing jobs in southern America |
| repatriated earnings (4 cents). In addition some 67 | | | | agriculture and automobile sectors will be lost. Had |
| cents for directly retained benefits and 45-47 | | | | these fears came true after the decade of free |
| cents from re-deployment of labor in high end | | | | trade in North America. The free trade |
| jobs.Advantages of Outsourcing Companies like | | | | proponents believed it has created more jobs and |
| Dell and AT&T has received a lot of negative | | | | the economy has grown at a faster rate then in |
| publicity for locating their customer support | | | | the previous decade while the opponents believes |
| system off shore and thus taking away American | | | | it led to job cuts in manufacturing and textile |
| jobs, but the companies still went ahead with | | | | sector, in which Mexico has become the largest |
| outsourcing. So the big question is what are the | | | | clothing supplier to United States of America with |
| advantages or benefits which are driving most | | | | in a decade. The truth lies somewhere in |
| top companies today to outsource their business | | | | between.Effect of NAFTA on US economyAs |
| processes from foreign shores.- Business Cost | | | | free trade brings more opportunities it also brings |
| Sharing - Large businesses continue to outsource | | | | new competitors. NAFTA opened the US |
| as costs are shared by the third parties. As the | | | | manufacturer doors for exporting products to |
| third parties have their own area of specialization, | | | | Mexico plus setting up their factories in Mexico to |
| they keep on investing in those facilities. It saves | | | | make them more competitive to European |
| the American company to invest in that | | | | manufacturers. Overall sectoral analysis throws |
| infrastructure.- Reduce Costs - One of the most | | | | some light on the true picture |
| tempting reasons to outsource is that the third | | | | Textile SectorThe protectionist most feared |
| party will provide better service at lesser cost. | | | | about the influx of Mexican garments in the US |
| This is one of the most significant reason why | | | | market resulting in job losses. Taking advantage |
| outsourcing is going to third world countries where | | | | of NAFTA , Mexico became the largest supplier |
| labor is inexpensive compared to developed world. | | | | of clothing and garments to United States with in |
| In third world countries where growth and | | | | a decade, but looking closely we will analyze that |
| prosperity level is low, companies are able to | | | | though it has taken away garment manufacturing |
| significantly reduce their wage bill by paying less | | | | jobs but it has increased jobs in spinning and |
| salary to people for the same work which was | | | | weaving sectors of textile industry. The garment |
| done by a worker in developed country for higher | | | | cut and tailored in Mexican factories is American. |
| salary. Is it exploitation - to answer it plainly in | | | | It provided a good value to our cotton farmers in |
| most cases it is not, as the income level these | | | | the country. Additionally it created new jobs in |
| companies provide is relatively higher than the | | | | retailing, transporting and hospitality industry.If we |
| prevalent income level in those countries.- Tax | | | | look at it from country strategic prospective it |
| Benefits - As Outsourcing brings lots of jobs to | | | | kept away the dominance of China in US market. |
| the country where projects and tasks are | | | | So it balanced our basket of clothing suppliers.Low |
| outsourced, most government in these countries | | | | price clothing has also kept inflation rate at lower |
| provide tax holidays and other benefits which | | | | levels. Today when the protectionist are |
| makes outsourcing a viable option.- Makes | | | | screaming from the top of their voices about |
| company competitive - As most companies are | | | | pitfalls of outsourcing, I like to remind them that |
| outsourcing today so the one which are not doing | | | | the minimum price of a 'Made in America' jeans |
| it have a cost disadvantage. To remain | | | | can't be less than $80 dollars, it is just because of |
| competitive against competitors, most companies | | | | outsourcing that we are able to buy it at $12 in |
| these days resort to out sourcing. In fact this | | | | nearby Wal-Mart stores. (Jim McKay, Pittsburgh |
| competitive benchmark usually leads companies to | | | | Post-Gazette, 2004)Automobile and manufacturing |
| explore new foreign outsourcing destinations with | | | | sectorGoing through an article of New York |
| better infrastructure and incentives. For example | | | | Times economist Paul Krugman (New York Times |
| to provide cheaper clothes in 70's and 80's | | | | 2005), he stated that Toyota has decided to |
| companies like Wal-Mart start outsourcing apparel | | | | start its car manufacturing plant in northern |
| from Japan and Korea. As the prosperity level | | | | Canada instead of Southern and Central America. |
| grow in these countries and work force became | | | | The reason the aptitude level of the Canadian |
| relatively costly then before the companies | | | | workforce is higher than the American. The |
| moved to South East Asian countries like | | | | answer is simple when foreign investment is |
| Indonesia, Vietnam and Thailand. In the mean time | | | | shying away because we are not investing in |
| China developed its infrastructure and made it a | | | | health care and educational benefits for average |
| more competitive place then by spreading their | | | | Americans then it will foul to cry that we are |
| basket Wal-Mart moved to China. Today as a | | | | loosing jobs to off-shoring. First and foremost |
| company Wal-Mart is the biggest trading partner | | | | thing is to put our house in order.Agriculture |
| of China and it actually exceeds some countries | | | | SectorAgricultural tariffs were reduced to zero |
| total foreign trade with China.- More control over | | | | for half of American exports to mexico. The |
| business outcomes - It may have started as cost | | | | other half will be eliminated by 2009. On grains, |
| reducing activity but today outsourcing is providing | | | | dairy, and poultry, NAFTA eliminated Mexico's |
| business executives a better scope to shape | | | | licensing requirements. The opening contrast to |
| company's future. According to one of the recent | | | | Mexican flooding the US market with its product it |
| survey of more than 800 health care, | | | | provides avenue for US food companies to |
| manufacturing , retail and travel executives in the | | | | develop business processes to subsidy flushed |
| US and Europe by consulting company Accenture | | | | Western European farmers.Overall |
| (Advantages of outsourcing 2004) , 86% said | | | | scenarioCompare to its NAFTA partners U.S. |
| outsourcing provides them more and more | | | | domestic exports to have increased |
| control over business results in a variety of | | | | dramatically-with real growth of 95.2% to Mexico |
| strategic areas, the most important being the | | | | and 41% to Canada-growth in imports of 195.3% |
| ability to plan. "Industry leaders today view | | | | from Mexico and 61.1% from Canada |
| outsourcing as a prescription for change versus an | | | | overwhelmingly surpass export |
| antidote to rising costs," says John Rollins, a | | | | growthConclusionHow this outsourcing will influence |
| partner in Accenture's products operating | | | | the long term prospects of US econmy is still to |
| group(Advantages of outsourcing 2004). More and | | | | be seen but to put things in context, with or |
| more companies are outsourcing so that they can | | | | without outsourcing economies shed and creates |
| focus on their core competencies. Companies like | | | | new jobs every year especially American |
| Nike don't even manufacture a single shoe or | | | | economy which is the most robust economy in |
| garment. It outsources all these activities from its | | | | the world. Every years millions of American |
| dedicated third party factories in South East Asia, | | | | change or leave their jobs due to technological |
| China and South Asia. The Nike headquarters in | | | | invention like ATM machines which reduce the |
| US only focuses its energy on developing new | | | | number of banking executives needed, process |
| design and sharpening its marketing | | | | redundancy like need for type writers etc. Job |
| juggernaut.Disadvantages of Outsourcing- Political | | | | outsourcing is also not one way traffic, one |
| Risks - This is one of the most evident risks | | | | countries outsourcing is other countries in-sourcing. |
| which a company has to face if it decides to | | | | In the manufacturing sector the US economy |
| outsource. The most hotbeds of the outsourcing | | | | may be facing trade deficit but in service sector it |
| revolution today carry a various level of political | | | | has trade surplus.Globalization is bringing new |
| risk with them. For example - China is governed | | | | opportunities and challenges for companies and |
| by a communist country, even though | | | | employees, it is also putting stress on |
| government proclaims to adhere to World Trade | | | | governments to provide its citizen better |
| Organization laws but one can never be sure in a | | | | education, improved health care and an overall |
| communist country as the government can over | | | | better standard of living. Outsourcing is developing |
| change a law overnight to benefit its own people. | | | | new markets for American products as these |
| Other countries like Ireland, India, and Philippines | | | | countries which are having rising per capita income |
| etc at some point or other are marred by | | | | and changing lifestyle.Outsourcing is a win win |
| violence and other such activities.- Growing | | | | situation for both parties right now, all the |
| dependence on the third party contractors - As | | | | protectionist are trying today is kill the American |
| the company dependence on the third party | | | | spirit of freedom and innovation. We became the |
| increases the relative cost of business also start | | | | largest economy in the world not because we |
| increasing as the third party will start asking | | | | were protected but because we opened our |
| better share.- Difficult to innovate - as the | | | | doors to foreign capital. Foreigners invested their |
| companies are dependent on third parties, it | | | | hard earned money here and created jobs. Today |
| leaves lesser scope for a business to innovate | | | | we have similar opportunity to alleviate poverty |
| business operations and get better than | | | | from some of the poorest countries in the world. |
| competitors. If the company wants to focus on a | | | | Just to put a test ask the Bangladeshi women |
| specific training and other such aspects, the third | | | | who makes T-shirt for GAP and Wal-Mart. |
| party will try to resist as it will put a hold on his | | | | Government and corporate America must |
| business prospects with other business | | | | understand that they have a bigger responsibility |
| clients.Outsourcing hotbeds in the worldYou | | | | that goes beyond boosting up the bottom line or |
| mention the name of China and India in the | | | | fattening top management's collective |
| community these days and one will receive a | | | | wallet.Kendra Parker is one of the leading writer |
| serious gaze as if these countries are taking away | | | | on outsourcing, she has published numerous |
| the prosperity and jobs of average American. | | | | papers in various magazines. she regularly writes |
| The most common reference I heard about is | | | | term papers for business and outsourcing section. |