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