The Phenomenon of Outsourcing - Essay Example

Outsourcing has always been a part of all enterprises, except to the degree to which it is resorted to. From raw materials to semi-finished components, from consulting to detail engineering, and from direct sales to distributor/retailer networks – there have been avenues for outsourcing as a part of the strategic management of operations. The new twist to this has been the phenomenal growth of outsourcing from overseas resources as opposed to conventional local outsourcing, resulting in significant job losses at home and public outcry.

Business surpluses or profits seek avenues of investment with high returns. Multinational firms in developed nations with high surpluses and operating in saturated markets look to developing and underdeveloped nations with high populations for investments. The latter countries, on the other hand, have the problem of high unemployment or surplus labor and low wage structure. These factors result in overseas investments, actively supported by the globalization process. In the process, the benefit of low-cost production not just for the overseas market but for the home market itself becomes evident, leading to cascading effect of closing local production and relying more on outsourced production.

Loss of jobs for locals is a sensitive issue for politicians and the public spirit. President Obama’s famous statement, ‘Say no to Bangalore and yes to Buffalo’ reflects the chasm between political and business compulsions. Multinationals like Nokia, IBM, Microsoft, Wal-Mart, General Motors, and Levy have set up production facilities overseas with local employees while even in the US thousands of jobs in the technology industry are contracted to foreign workers (CNN.com; Rai, New York Times, Feb.22, 2004; Rugman & Collinson, 2009, pp.30&31). The debate surrounding the ‘sweatshops’ of Asian countries with both the supporters and opponents holding out valid arguments, is another angle to the phenomenon of outsourcing. In the ultimate analysis, outsourcing has to be viewed as a trade-off between high-cost local manufacture vs. low-priced but standard quality foreign-made products vs. job losses at home vs. expanding demand and markets, etc. (NYT, July 6, 2002; NYT, September 9, 2000).

Outsourcing as is happening now is a result of the changing business strategies and public policies. The policy of globalization opened up overseas markets and avenues for investment. A consequence of this process has been the movement of capital as well as labor across national borders, serving the ultimate business objectives of growth with profitability and reaching product services to customers at the lowest possible prices. It is perhaps too early to pass judgment on the merits/demerits of outsourcing since much can be said on both sides.