Outsourcing seems to be a highly misunderstood concept because of its implications in a country outsourcing work and a country receiving such work. In some developed countries, especially in the light of the world financial crisis, it is perceived as evil and a cause for unemployment. In contrast, it is considered good and a welcome development in Third World countries. However, outsourcing is a very neutral concept. Negative or positive attributions to it seem to be a result of an inaccurate perception and understanding of the concept.
Outsourcing Defined
In a more globalized environment, outsourcing has been closely associated with work that are usually done locally being subcontracted elsewhere in the world. Actually, that is not what outsourcing originally or technically means. It is simply a process of assigning or farming out work out of the company. Outsourcing does not necessarily mean that a company has subcontract work to service providers in another country; it could actually just farm out work to other local companies even its own subsidiary.
The whole concept of outsourcing seems to be being confused with the concepts of offshoring and globalization. So, outsourcing is being used in this paper as referring to work outsourced into a foreign country.
Business Process Outsourcing
Business process outsourcing is perhaps the most common form of outsourcings. An entrepreneurial company for instance that does not want to maintain or cannot afford to maintain an accounting or information and technology (IT) department may opt to outsource these operations. Usually, such operations are outsourced locally. Globalization and new technology has allowed for instance that such outsourcing be done at a foreign country. Efficiency is the chief reason for outsourcing. Work is done faster, cheaper and often at better quality when outsourced especially to foreign countries. Lower cost or wages is one reason for companies outsourcing. However, it is not low wages per se that is the reason; it is the relative productivity per unit cost that is the more important reason.
Globalization and Offshoring
Traditionally, offshoring refers to entire operations being transferred to another country. This is practically done by many multinational or transnational companies that build manufacturing plants in other countries. These plants operate to serve the market where it is located. Some of these plants may not even be serving those local markets. Instead, they produce products to serve the consumers of their countries of origin.
In today’s global environment, offshoring has come to refer to any outsourcing job—in particular, a business process operation—to a foreign country. One of the most familiar form of this kind of offshoring or outsourcing is related to customer services or the call centers. Such services give consumers an impression that work is actually being done locally. A customer in the US can call a company for help and talk to a supposed employee of the company. However, that customer service person may not really be an employee of the company nor anywhere located in the country. The person could actually be working for a service provider located in India, Ireland or the Philippines. This is both a form of outsourcing and offshoring. Tasks are outsourced to a service provider in another country.
All of these seems to have been made possible by globalization. Countries in the world have come to agreement for freer trade of products and services.
All these developments seem to have also been accelerated by new media and technology. Things can be accomplished in almost real time. For instance, the whole idea of the offshore call center could not have been possible without new communications technology. It is important to note however that certain BPOs could still be done (like manufacturing) even without new technology or even the idea of globalization. They have been in existence before as mentioned.
Education and Quality of Available Workers
Outsourcing and offshoring is not merely the result of low wages in other countries. The problems leading companies to decide to outsource or offshore may be because there are not any qualified workers available in a country.
In the documentary Waiting for “Superman”, Bill Gates explains that there are actually a lot of job openings in the software development and other technology fields. Unfortunately, in the US or nearby developed countries, there are not enough graduates to fill those positions. The companies in Silicone Valley have work to finish to remain competitive. They need people to do these jobs. Since there are not enough people to do the work, they only have two alternative actions to take: (1) Bring in qualified foreigners to fill those vacant positions; or (2) Outsource or offshore.
Bill Gates projects that about half of these vacant positions would not be filled by graduates in the US in the next several years. Wages is not the reason. There are simply not enough qualified people to do the job. He emphasizes that students should try to enter courses related to engineering, sciences and technology. Unfortunately, there are not enough people going into these fields.
In a global context, the companies that Bill Gates is referring to will have to survive and compete in the market. Given the deficiency in an economy to provide the necessary quality of labor, companies will have not choice but to outsource or offshore.
Benefits of Outsourcing and Offshoring
As earlier mentioned, there would be two perspectives in viewing the whole idea of outsourcing and offshoring. It can be viewed as evil on the part of a developed country with rising unemployment. In contrast, it can be viewed as a very welcome development especially in Third World countries accepting all those outsourcing jobs or offshoring manufacturing facilities. Little is written about this side of the issue. Understandably, it is still a positive development. One however can infer from developments that it could have profound impact on the global economy.
Outsourcing still has clear benefits to developed countries offshoring work to other countries. Again, it is a matter of survival. Companies are better off alive rather than dead. They will continue to have economic contributions that would benefit the country. They will be able to provide consumers with lower priced products that can compete against those imported from other countries. They will also be able to continue paying taxes that would help the government. At the same time, they will still be able to maintain certain jobs in the country. After all, not everything could be outsourced and these companies will still have to maintain some operations in the country.
Conclusion
Outsourcing seems to be a neutral concept. Definitely, it should not be blamed for any loss of jobs in developed countries. It is an option that businesses will have to consider. It is also a development that people today cannot ignore nor attempt to do away with. It will permanently be there unless new options emerge.
In the end, outsourcing can actually be good for any economy, depending on how it is is utilized. It helps companies or entire industries survive. This in turn ensures that companies continue to survive and continue to contribute to the entire economy’s survival.
Outsourcing is not a problem. People’s attitudes, skills and corresponding productivity may be the root of whatever unemployment problems a country may have.
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