The Pros and Cons of Outsourcing - Article Example

The Pros and Cons of Outsourcing Businesses are built to make profit. That translates to greater income expectations and less expenses. Businessmen are always on the lookout for ways and means to achieve both. One solution recently discovered was outsourcing. Outsourcing is when a company subcontracts its business, or a portion thereof, or of a specific business task to a to another company service provider, usually outside a companys own country. It is implemented as a cost-saving measure. It is not something new but it has caught the attention of people since it was grown immensely in the past few years. A lot of issues were raised by the working class, who were directly affected by it. It is a concern that happens not only in America but also in European countries. Here in the United States, it is becoming a controversial issue because prospective financial gains benefit foreigners from other countries instead of Americans. Employees are losing their jobs due to management decisions of employing cheaper labor from underdeveloped countries. However, employers are also arguing that productivity gains outweigh job losses and may be accompanied by an increase in high skilled jobs. A relatively new field, outsourcing has not been fully studied. Its long term effects have not been fully researched. But definitely, its short term effects are seen and experienced by industries and the people involved. Are the workers’ concerns about possible job losses with the company’s engagement with outsourcing valid? Does it really pose a threat to the economy? Are the companies being too greedy about profits and are not considering long-term effects to the economy? Or is it also possible in the future, jobs lost in one company creates other job in a completely different company? These are just a few questions that arise from the outbreak of outsourcing in the United States. Outsourcing is foreseen to grow tremendously in the coming few years with an increasing number of companies planning to outsource both low-end and high-end jobs to offshore destinations. A number of companies have started offering more outsourcing services creating a variety of clients/ workers to choose from. In the beginning, outsourcing was seen as a way of cutting operational cost. Today it is seen as a strategic management option. “It aids companies to achieve their business objectives through operational excellence and a better market position. In order for companies to focus on their core competencies, all companies today outsource one or more of their operations. In order to compete in the global economy companies need to focus their resources on their core operations.” (Cyber Futuristics, 2004) Indeed at first glance, there are positive and negative effects of outsourcing. Some positive effects can include concentration on core business areas, world-class technology at lower rates, skilled manpower at affordable prices, increased productivity, competitive advantage and tax benefits, cost reduction, growth strategy, competitive pressure, access to qualified personnel, industry practice, improved levels of service, business process redesign, changing the rules of the game, increased speed to market, system redundancy, and access to new markets. (Cyber Futuristics, 2004) The short term benefits gained through outsourcing are “ability to focus resources and attention on core business processes, reduced human resource management costs, access as needed to specialized resources, refinement of risk management, project management, and service delivery abilities, implementation of demand management and service delivery disciplines, more accurate process management and support operations.” (Cyber Futuristics, 2004) and “typical long-term benefits include more predictable results-based budgeting for the outsourced function over the period of a certain outsourcing agreement, joint and interactive problem solving and creativity, superior management of the business operations portfolio, better management, contracting, and outsourcing integration skills.” (Cyber Futuristics, 2004) Tappler also found out that “for foreign-owned exporting plants, increased international outsourcing of both services and materials is associated with higher productivity. Results demonstrate that outsourcing can provide considerable financial gains both directly and indirectly and can be leveraged across a broad set of customer business functions. Collectively, the results of this study prove that outsourcing has the following benefits: optimizing opportunity cost by maximizing ROI and minimizing TCO; reducing overall magnitude of lost productivity; lowering staffing requirements and labor costs while increasing ability to support more employees and focus on new projects; ensuring information availability needed to meet key, current customer requirements.; mitigating business risk across a broad range of business functions; supporting small and medium-sized enterprises that have limited budgets and resources but need to have access to information 24 x 7.” (Tappler, 2003) The negative effects of outsourcing can be “decreased quality, increase in time-to-market, poorer customer service, hidden costs, loss of control, unreliable vendors and negative long-term effects on business.”(Cyber Futuristics, 2004) “By the latest count, America is losing more than 2,000 jobs a day, across every field -- from manufacturing to engineering and software design positions -- due to outsourcing. (Bryant, 2004) Other negative effects of outsourcing may include loss of managerial control, and threat to security and confidentiality. (Tappler, 2003) The most prominent disadvantage of outsourcing is the loss of jobs of natives. In some cases, it is because of some company’s greed for more profit. But let us not also forger the other side why the companies are resulting to outsourcing. There is a double-edged view on price and job. People expect the best quality of service or goods at the lowest price possible and workers are to be compensated well. Due to the first concern, companies are pushed to lower their production cost hence they resort to outsourcing, which then cause loss of jobs. The connection is not obviously seen yet it is logical to say so. There’s probably something about this situation that companies and the society must agree upon. (Bryant, 2004) The positive effects of outsourcing are readily seen. The fear of some negative effects of outsourcing is yet to be seen and may be considered as just that – fears. “A survey indicates that less than 10% of American workers lose jobs due to American Job outsourcing which makes the picture clear that the problem is somewhere else.” (Cyber Futuristics, 2004) Government officials are also making efforts to mitigate the effects of outsourcing. “Washington Democratic Rep. Adam Smith is pushing a bill that would allow service workers whose jobs go overseas to claim retraining and income assistance currently reserved for displaced manufacturing workers.” Cook, J. and Nyhann, (2007) Every new change creates ambivalence -the hope of a promising possibility and the fear of failed expectations. Let us not be too fearful and get left behind. Manufacturing companies don’t want to be left behind: everyone else is moving offshore too! Careful evaluation of the situation can prevent disastrous results. We are in a time of transition. At present, it is not comfortable being unsure of what outsourcing will lead our economy in the future. Researchers are confident that outsourcing is a positive influence in the American Economy. “Research organizations and economists are of the opinion that business process outsourcing titles is here to stay and is going to see a major boom. The general economy though is highly speculative of the developing trends and feels otherwise. Organization that research business process outsourcing are of the strong opinion that the loss of existing jobs will give rise to newer and better jobs in the US and UK economy. They say that the jobs will be knowledge based and will hold a creative view.” (Cyber Futuristics, 2004) Small manufacturing towns need not suffer closure. But it could be seen as an opportunity to grow and develop these towns to compete in production with bigger markets in mind. If we are confident with our products, we can make a way to make our products compete globally. The government should offer help with small manufacturers and make them even stronger. Although some national jobs may be lost in the outsourcing process, other jobs will then be filled generating additional jobs for the people and a boost to the economy. It is not detrimental that people will point out the negative effects of changes in the economy. Careful analysis and calculation are important to ensure a better future. Changes should be considered well and should not be dismissed outright for it may be for the benefit of all. References Bersin, J. (2005). Business Process Outsourcing Pros & Cons. Chief learning Office. Retrieved April 16, 2007 from http://clomedia.com/content/templates/clo_article.asp?articleid=910&zoneid=67 Bryant, B. (2004) Offshore Outsourcing Affects American Workers. Wesconsin Technology Netwrok. Retrieved April 16, 2007 from http://wistechnology.com/article.php?id=603 Cook, J. and Nyhann, (2007). Outsourcing. Seattle Post-Intelligencer Reporters. Retrieved April16, 2007 http://wistechnology.com/article.php?id=603 Cyber Futuristics(India) Pvt. Ltd. Retrived April 16, 2007. from http://www.cyfuture.com/benefits-of-outsourcing.htm Engardio, E. Arbdt, M., Foust, D., (2006). The Future Of Outsourcing, How its transforming whole industries and changing the way we work. BusinessWeek Online. Retrieved April 16, 2007 from www.businessweek.com/magazine/content/06_05/b3969401.htm MLOGS at (2006, March12) Business Outsourcing Forum. Message posted to www.managementlogs.com/business_outsourcing.html Mitropolitski, S. (2004). Business outsourcing threatens also Europe. International Real State Digest. Retrieved April 16, 2007 from www.ired.com/news/mkt/outsourcing.htm Tappler, D., (2003). Outsourcing Business Continuity Needs: Ensuring Information Availability While Ensuring ROI. IDC White Paper.Retrived April 16, 2007 from ww.availability.sungard.com/NR/rdonlyres/B7278A30-21A4-4764-88A0-E011777CFF41/0/IDCwhitepaper.pdf Read More