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Outsourcing, however, has little net impact of U.S. job loss. Forrester Research has predicted that between 2000 and 2015, 3.3 million white-collar jobs including 1.7 million back-office positions and 473,000 IT jobs will move overseas. That's 3.3 million gross over a 15 year period-an average of 55,000 jobs outsourced per quarter, or only 0.71 % of all jobs lost per quarter. America loses an average of 7.7 million jobs every three months.
International outsourcing is not really new, because global causes the altering of resources for comparative advantage in businesses. The United States has always imported the goods that if produced domestically, would have cost more. In the same token, we sell and manufacture the goods that would have been more expensive for other countries to supply themselves. It would make more sense for the U.S. to use its scarce natural and human resources to manufacture high-end computer chips, advanced software, and airplanes which are of greater value than use them to make or do things of lesser value or less complex like, shoes, bags, call centers, or telemarketing. The world reaps enormous benefits from comparative advantage; letting countries specialize in what they do best and most cheaply. This type of system do not just increase efficiency and achieve economies of scale (both to which lead to a drop in costs), but it leads to even more ground-breaking technological changes in products and processes. It is a win-win situation globally, that provides gains in consumption, production and exchange. When imports are cheaper, it means that incomes can be extended to buy even more goods and services. People's purchasing power is improved due to real income being increased by trade. Gains in production also results in countries manufacturing only the commodities that allow them to earn the most profit.
In India, we can vividly see what outsourcing promises for many of their impoverished people. In this postindustrial era, natural and physical capital as This is what's happening to those nations that are filled with a workforce that are very educated but are very poor in natural resources and financial capital. These countries will be able to forego the natural processes and of industrial development and benefit from their human capital for global trade. Outsourcing that emerged from technological advances has emerged a new global market from what used to be services that were "non-tradable.
There are disadvantages to outsourcing which include linguistic barriers. Functions like call centers that are off shored may lead to low quality call handling due to linguistic features such as accents, phrases, or word use, that can be very different and hard to understand. There are, however, many countries that in fact encourage their folks to become skilled at foreign languages which help outsourcing processes a great deal. One such country is India, where many institutions that do extremely well in instructing foreign languages. As a matter of fact, all the call centers there have required accent education for the workers before starting to make actual calls.
Critics of outsourcing argue that an in-house employee may have a better understanding and knowledge of the company and its business than a third party. They would also argue that an outside vendor cannot match the service levels and responsiveness that can be offered in-house, mainly because unlike employees, outsiders are not subject to the same management control and direction. That knowledge, however, is not built overtime. The same kind of knowledge can be built by anyservice provider, so long as a structured knowledge transfer occurs between the business and the service provider. In addition, there are also concerns with outside vendors regarding data confidentiality, strategic applications and provisions for disaster recovery, but a thorough Service Level Agreement should iron out those types of details.
There is a high turnover for outsourcing vendors because their jobs are highly monotonous making people dislike their jobs after awhile, and this leads to a question whether the quality of their service also suffers. Staff turnover, however, is also an issue that businesses still deal with even with in-house employees. It is a common problem and therefore cannot be blamed by outsourcing.
Outsourcing has been blamed as the reason for the growth of unemployment in countries that off shore processes. But that is not the whole story. Outsourcing has increased profitability for businesses which gets plunked right back into the economy. This more than justifies a better effect than the negative impact of growth in unemployment.
Research was done on large financial institutions that stated 80 percent of those who lost their jobs as a result of outsourcing transferred to another position or employment within the same company. When Delta Airlines in 2003, outsourced to India 1,000 call-center jobs, the $25 million they saved allowed them to add 1,200 reservations and sales positions in the U.S. When IBM outsourced 3000 I.T. jobs, they created 4,500 positions at the same time. Microsoft and Oracle did the same when they increased outsourcing but also increasing domestic employment.
It is important to note that jobs insourced, or jobs coming in to the United States from overseas, are growing at a much faster rate than the jobs lost overseas. The Organization for International Investment reports that the number of manufacturing jobs insourced to the United States grew by 82%, while the number outsourced overseas grew by only 23%. Furthermore, these jobs that are insourced are usually paying higher than those jobs outsourced. For every dollar outsourced to India the U.S. economy receives between $1.12 and $1.14.
If we look at outsourcing of manufacturing jobs, it may seem that manufacturing jobs in the U.S. are transferring to poor nations like China. The fact, however, is that many nations, including China, are losing manufacturing jobs worldwide. The U.S. are not the only ones experiencing reduction in manufacturing jobs. American manufacturing employment dropped 11 percent between 1995 and 2002-the same average global decline. China has actually seen an even worse decline. In the same period, they lost 15 percent of its industrial jobs. When we consider mutual advantages, consumers in the U.S. benefit from outsourcing through their gains in consumption. Leaner cost structure makes U.S. producers more competitive in global markets, which ultimately create more jobs.
Free trade, free labor, and free capital is necessary for economic growth, new jobs, and higher living standards. The 2004 Index of Economic Freedom conducted a study that confirmed a strong, positive relationship between economic freedom and per capita GDP. It stated that nations that take on policies that challenge economic freedom, like protecting jobs of a few from outsourcing, tend to delay economic growth, which leads to fewer jobs.
12 percent of U.S. IT companies outsource. The net job losses in I.T. are not due to outsourcing, but due to the dotcom collapse and the business cycle. And even so the losses are not large. There was a 6 percent growth of mathematical and computer related employment between 1999 and 2003-71 percent higher than in 1994 [peaking at 74% in 2000.] Net mathematical/computer related employment is expected to grow even more at 35 percent in the next 10 years.
The U.S. is a net exporter of services; overall the rest of the world outsourced $64.8 billion net to the U.S in 2002. The U.S. trade surplus specifically in I.T. services increased from $2.1 billion p.a. in 1995 to $4.2 billion p.a. in 2002. From 1983 to 2000 the number of jobs outsourced from the U.S. grew by 3.5 million, whilst the number of jobs outsourced from other nations into the U.S. grew by 4.0 million.
The beneficiaries of outsourcing that have increased productivity are not just the companies that outsource, but also the companies that use their products. Dell Computer The offshoring of Dell Computer's IT hardware production to factories in China, for example, has contributed to a drop in hardware prices between 10 and 30 percent. This has allowed more areas of IT in the U.S. economy to benefit from increased productivity. This drop of 10-30 percent has supplied approximately $230 billion into American economy between 1995 and 2002.
Outsourcing of IT will also contribute to drops in software prices and also lead to better quality software. The lower costs in customer service will allow higher development and research budgets, and better quality control with offshore companies specializing in testing code. The global demand for American produced IT hardware and software will increase due to outsourcing of IT services.
To try and save money, businesses downsize and restructure their staff. Outsourcing provides a lower cost structure. The savings in costs as a result of outsourcing allows U.S. companies to become much more competitive. In a recent survey done by the Outsourcing Institute, companies reported that through outsourcing, there is an average of 9 percent in costs. They have also reported that outsourcing has also allowed these companies to be able to operate 24 hours.
IT skills can become obsolete very quickly because software is replaced and updated in a rapid pace. By the time full time staff is invested and trained, the technology may not be state-of-the-art any longer. The very essence of specialization allows providers to present extensive worldwide, world-class resources to meet customers' needs. Every company has limits on the resources that are available to them; vendors are another free resource for other purposes.
Companies need to have flexibility to adapt to a business environment that is ever changing, so their IT functions must be able to quickly respond to changing demands. Vendors can usually access extensive resources, skills, and capabilities, but there are only limited capabilities for internal IT staff.
Layoffs and transfers of existing employees are often results of outsourcing to the IT vendor. This type of displacement can very much reduce morale and fear employment security even with talented staff. Most often, however, companies hire outsourced staff with the understanding that their employment is impermanent. Thus, it is easy to add to the workforce or drop people without putting at risk the reputation of the company as a stable employer. The use of outsourced workers protects regular employees from fluctuations in demand and allows employers to develop stronger relationships with its regular personnel than would otherwise be possible.
Outsourcing lets the company focus on broader business issues, leaving the operational details to outside experts. It relieves management of the issues that take up huge amounts of their resources and attention and redirects those resources to other things that yield bigger returns in providing for the customer.
Outsourcing major IT functions will keep growing at a rapid rate. Its pace suggest that this management practice is not just a passing fad and that, outsourcing IT provides many advantages. For many that have been successful at outsourcing various IT functions, the question is not "Should we outsource?" but, rather, "How much should we outsource?"
In conclusion, I believe that outsourcing is beneficial to all nations, not just economically, but also theological ethics arrives at the same conclusion: even though international trade must go through its normal course, beneficiaries of outsourcing should help the displaced workers transition and find their new place in the economy. International trade helps to satisfy some human needs effectively at the same time drawing out collaborative work through the division of labor. We cannot say we want to put outsourcing to an end just because we are losing local jobs; outsourcing has enormous advantages the impact it has on poor people's lives around the world. It offers an exceptional opportunity to help people caught up in poverty. The best and most continuing form of assistance developed countries like the U.S. can give to poor nations is not direct grants or handouts, but in open markets. The worldwide economy can be bountiful to us all. The ethical compulsion that make us help the poor of the world by opening our markets also oblige us in assisting the displaced workers find another place in the economy. Our sense of duty toward poor nations and displaced domestic workers are not two separate issues. Both can be accomplished together, but that's if we are all willing to sacrifice for each other's well-being.