Outsourcing is a business practice used by individuals or companies that employs third parties to perform activities that are traditionally handled by internal employees and resources [Handfield]. Many companies outsource to save on overhead and labor costs, increase efficiency/productivity, and in some cases avoid government regulations or tasks. It was not until the early 1990s that outsourcing became a formal business strategy. During this period, the company began to pay more attention to cost-saving measures to increase revenue. Traditionally, cost reduction is the main driver of outsourcing initiatives; however, today, outsourcing enables companies to gain world-class capabilities, improve company focus, specific expertise and share risk with partners [Narayanan].
Many economists believe that outsourcing is a good business strategy that allows companies to cope with globalization – market competition between prices and profits. This is one of the underlying factors that affect a company's boom or bankruptcy. However, outsourcing does not provide a competitive advantage because it cannot obtain patents or prevent others from adapting to it [Mourdaoukoutas]. For example, if a clothing company like GAP decides to outsource its apparel manufacturing to gain a competitive advantage, other competitors such as Old Navy, American Apparel and J. Crew will do the same. Today, many large companies around the world adopt this strategy. Companies like Nike outsourced all their shoes, clothing and sports equipment, while Apple outsourced its hardware manufacturing [Pearlstein].
Outsourcing has always been a controversial topic, as more and more people believe that it has inadvertently created long-term employment in the United States, although Pearlstein's research since the 1990s proves that global outsourcing has brought more employment. opportunity. United States. Due to the shift in overseas jobs, the United States has created more domestic jobs than lost jobs, although these jobs may not belong to the same sector. These findings are more focused on multinational corporations, which is consistent with economic theory that trade and specialization can increase the productivity of all stakeholders while also promoting economic growth. However, over the past decade, data from the US Department of Commerce showed that US multinationals cut 2.9 million jobs in the US and added 2.4 million jobs overseas [Pearlstein]. Pearlstein believes that the size of the company has partly affected this. Large companies like Apple that focus on export growth are still able to create new jobs in the US, work, design, marketing and finance. However, small and medium-sized companies that are strictly concerned about the US market are outsourcing US labor to foreign workers to save money and maintain market competitiveness. In some cases, outsourcing can have a negative impact on US companies. For example, US companies have found that the cost of outsourcing radio and television in Japan is lower. However, Japan is aware of how to redesign and produce its own brand of the same product. After learning this technology, Japan took over the global industry [Pearlstein].
Outsourcing affects multinational companies in different areas. For example, the service industry continues to expand overseas and overseas employment, while the manufacturing industry has actually transferred all production overseas. Many companies are currently putting pressure on suppliers to move jobs like IT services, software programming and call centers closer to home. This will help increase US employment in these areas [Pearlstein].
While outsourcing has reduced employment opportunities in the United States, it has helped to increase profits for many investors and corporate shareholders. Consumers also benefit from cheap labor and manufacturing that allow goods to be purchased at lower prices. These savings can create jobs in other sectors and companies. In the recent elections, Donald Trump pledged to bring jobs back to the United States by imposing tariffs on imports from other countries. Although this may be beneficial to US employment, the cost of goods will increase significantly. The implementation of such laws may result in the closure of many small US companies that are unable to pay appropriate wages to US employees. Another issue with outsourcing is employee loyalty. If employees know that their work will always be handed over to third-party partners, many of them will be less willing to stay. Losing certain jobs in the United States can have long-term consequences. As mentioned earlier, outsourcing to Japan, if some work can only be achieved through outsourcing, then this process will be lost to the United States. Finally, a considerable relationship between the two countries is established. If the relationship of any country is affected, the international market will also suffer losses.
Handfield, Rob. "A brief history of outsourcing." A Brief History of Outsourcing – SCM | Supply Chain Resource Cooperative [SRCC] | North Carolina State University. [SRCC] Supply Chain Resource Cooperative | Poole School of Management | North Carolina State University, June 1, 2006. website. March 22, 2017.
Mourdoukoutas, Panos. "Unexpected consequences of outsourcing." Forbes. Forbes Magazine, December 23, 2011. website. March 22, 2017.
Narayanan, Laura. "A brief history of outsourcing." Today's credit newsletter. Np, January 6, 2011. website. March 22, 2017.
Pierstein, Steven. "Outsourcing: What is the real impact? Computational work is only part of the answer." Washington Post. WP, July 1, 2012. website. March 22, 2017.Ultimate Cleaning Business Package, Click here!