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We may define outsourcing as the way to contract a variety of functions to some outside providers. These outside providers may take charge of the tasks such as programming, telecommunication management, disaster recovery, facilities management and data entry. The basic aim of outsourcing is to minimize the cost and move ahead in the competition with more efficient processes. The company can concentrate on its core business whereas it can outsource the other processes such as information technology. The offshore outsourcing not only lets the company to focus on its core organizational mission, but also contribute towards the growth of the company and profitable fiscal performance too (Duggal et.al, 2007, p.1).
Beginning of Offshore Outsourcing
The development in the field of outsourcing was visible from 1970s. However as the year 200 approached, the companies and users started realizing the problem of Y2K. US had shortage of IT labor force that can go in different countries and fix the expensive softwares that were about to face the year 2000 software problems. Not having sufficient labor at home, theUSoutsourced these major tasks to various countries to counter the Y2K bug (Duggal et.al, 2007, p.1).
TheUScompanies were really overwhelmed by the magic of outsourcing in solving the issue of Y2K. Thus they decided to expand their offshore outsourcing to various countries such asMiddle East,Australia,India,Japan,Singapore, Europe andCanada. These countries were given the tasks of processing health care claims, email support, transaction processing, accounting and finance functions, and call centers (Duggal et.al, 2007, p.2).
Mankiw, President Bush's chief economic advisor, said in February 2004 that "Outsourcing" Will prove "a plus for the economy in the long run", and was simply "a new way of doing international trade" We can now term offshore outsourcing as a new way of doing business. It is so because outsourcing has created new visions, new ground rule, new players and definitely new long run outcomes. The most anticipated effect of outsourcing is on the employment. Would outsourcing be hampering and deteriorating the employment opportunities or would it be contributing favorably towards the job gains inUnited States(Kiker, 2004, n.p).
Degree of outsourcing
The media reports in 2004 concluded that US is facing sever problem of job losses because more and more jobs are being offshore, and if the trend continues, then US will be having a very level if unemployment. However, the authorities responded by saying thatÂ the media has inflated the amount of job loss comparatively to the proportion of their economic magnitude, and its effect on the Us labor market. the prediction of 3.4 million job losses inUnited Statesby 2015 is relatively very small to the prediction of BLS that 160 million jobs would exist by 2015. This 3.4 million is even smaller if we compare it with the 35 million jobs gained over the past years (Mankiw et.al, 2005, p.25).
Outsourcing: Savior of US firms
Most of the people object that offshore outsourcing actually works negatively towards the job market of US. However, on critical analysis we would find that a company that is facing continues increment in cost of production has two solutions. Either it can shut down the business as the company is unable to meet its cost and cannot produce products at a competitive price. Another way is to hire workers from outside world at a lower price. This ultimately reduces the cost of production and the company is able to expand its operations and further job opportunities within US. The firm sustains it growth and is able to continue its operations due to outsourcing workforce. This means that outsourcing has actually saved the jobs inUSmarket rather then negatively affecting it (Mankiw et.al, 2005, p.29).
Cost benefit analysis
In 2003, McKinsey global Institute carried out a research in which it analyzed the cost-benefit ratio for one dollar of outsourcing by US toIndia. As per the analysis, McKinsey concluded that theUSinvestors or customer were able to save $0.58. This saving resulted due to the lowering of the cost of production. The overseas affiliates were able to transfer $0.04 in the form of profits to theUSparent companies. The labor reemployment valuation resulted to approximately $0.45 to $0.47. TheUSalso saw gains in imports worth $0.58. For every dollar of work outsourced toIndia, the total gain that came from offshore outsourcing to US was in between $1.12 to $1.14. This meant that, offshore outsourcing is not only beneficial for US in terms of labor market but also for the overall economic growth as well. The overall economic growth of US will help the companies in expanding their business and opening new job opportunities in local as well as foreign business units too (Mankiw et.al, 2005, p.43).
In the end, we can conclude that offshore outsourcing has been proved as job creator for theUSlabor market in the long run. US would be able to generate more employment opportunities in relation with its job loss.
Mankiw, N, Gregory. Swagel, Phillip. (2005). The Politics and Economics of Offshore
Outsourcing. American Enterprise Institute for Public Policy Research. 39, 43.
Kiker, D. (2004). Bush ECONOMIC ADVisor: Outsourcing OK. CBS News:
Sudesh M. Duggal, M, Duggal. Simkonis, Carl. (2007). Offshore Outsourcing: New Spin
or Same Old Business? NorthernKentuckyUniversity,Highland Heights,KY,USA. 1, 2.