Most people will have you believed that outsourcing jobs to another country will take away American jobs and lead to economic and social difficulties. Many research studies however point to something contrary. Vinod K. Jain, PhD at the Robert H. Smith School of Business, University of Maryland and Kamlesh Jain, PhD at the India-US World Affairs Institute, D.C. published a study titled ‘How America Benefits from Economic Engagement with India’ in June 2010.
The authors noted that a number of Indian companies have been investing steadily even as American companies are accused of offshoring jobs to India. Indeed, outsourcing and offshoring is never a one-way relationship. Instead, the outsourcing destination usually contributes by investing money, manpower and talent in the client nation. Both Republican and Democrat politicians have often used outsourcing as a scapegoat to win the hearts of people and they may certainly believe that they are right too. The idea of purchasing talent, goods and being ‘self sufficient’ is a collectivist tendency that does not go well with an individualistic and entrepreneurial culture like America’s.
Here are many reasons why outsourcing is important for America economy:
Outsourcing benefits American Economy
It is a myth when people say that outsourcing jobs to other countries harms economy. Of course, on the surface it looks like valuable jobs are being exported abroad while unemployment numbers increase back home. Most of the jobs that are outsourced help create higher paying jobs in North America. Economic stagnancy which often results from people doing the same thing all over again can be avoided when jobs that are repetitive and cumbersome are outsourced. Of course, companies spend less on outsourced jobs and end up making more money and pay more taxes. That alone helps to boost American, Canadian or British economies.
Outsourcing can improve employment conditions in America
Many jobs that are outsourced often require a lot of hard work. This hard work necessarily does not mean high incomes at the end of the month either. Instead, one has to look at jobs as they were, before the advent of IT outsourcing. IT jobs were rare and few and most computer engineers often were not paid as well as they are today. Thus, when these jobs were outsourced abroad, only a small percentage of the jobs were outsourced. Instead, many middle level and senior level jobs were created in order to manage, supervise and train those offshore workers. These jobs ultimately continue to benefit Americans today.
If one were to ask the question how these jobs may improve actual working conditions in the U.S., the answers can be varied and diverse. When low paying but demanding jobs are outsourced to low cost countries, corporations have more time and resources in their hands to train their employees. Employees who earlier had to work more number of hours for a lesser salary can often look forward to increased incentives, opportunities to train themselves in new skills an build their career paths in a more opportunistic manner than otherwise.
Employees who work in companies that outsource demanding jobs often enjoy more leisure time, avoid hazardous work environments and have better relationships with their managers.
American companies gain access to affordable talent
Technical education in offshoring destinations is inexpensive. Countries like India, China, Philippines, and Bulgaria tend to veer towards the left and heavily subsidize education. What might cost $100,000 for an undergraduate degree in computer science may cost only a few thousand dollars in these countries. Consequently, there are more technical graduates in Eastern Europe, South Asia and China than in the West. There is also a tendency to favor technical education as opposed to a liberal arts education. This of course results in a group of youngsters who make great employees. Hiring someone who has had graduate education in the U.S. will be significantly more expensive than hiring someone from India or Philippines. This reality is often painted negatively but it not only helps companies that hire these employees, but also onshore employees who can put their liberal arts education to better use.
More unemployed people in America can start their own businesses
The argument against outsourcing goes like this: jobs that are desperately needed in the U.S. are sent to offshore destinations and that results in unemployment. In reality, there are no conclusive studies that point against outsourcing. Instead, there is a stronger likelihood that highly demanding but low paying jobs are offshored, making room for American unemployed to try newer avenues for creating wealth. That naturally veers towards forming companies and starting own businesses. Entrepreneurial spirit among the unemployed must be encouraged as there is a wealth of talent in offshore destinations that these new entrepreneurs (previously unemployed) can make use of. What may seem like a nemesis can actually prove to be an opportunity to create more wealth and jobs.
Outsourcing increases innovation
There is nothing more important than being able to create something new and unique. In order to create something new, there has to be room for innovation. When companies, employees and entrepreneurs worry about technical skills, operational tasks and other high-demand issues, they often lose out on innovation. By outsourcing these high demand jobs abroad, entrepreneurs and corporations can invest more time and money into research and development. Innovation helps corporations to increase wealth, employment opportunities and ensure a better ROI in the long run.
Controlling capital costs
There are other less obvious benefits to outsourcing. A New York Times article pointed out that outsourcing tasks may help in controlling capital costs. This in return attracts more investment and a firm looks more attractive to stakeholders. By controlling capital costs, a company can ensure that significant draining of funds is avoided and available resources are made use of appropriately. The article also points out that outsourcing can increase efficiency within an organization, especially if it is a small or medium sized business.
American economy is really fragile at the moment but outsourcing high demand jobs which are low-paying can increase wealth in an indirect manner. Moreover, outsourcing is not a new concept. As long as there have been national entities, there has always been an export and import of services, which included professional services. We all know about the successful Swiss banks, to which banking needs were outsourced to from a very long time. Only, people did not think of that as ‘outsourcing’. Now, we know what that is.
Outsourcing’s advantages outweigh disadvantages
There are a number of advantages and disadvantages of outsourcing jobs. The advantages certainly outweigh the disadvantages. There is nothing more important that making room and time for concentrating and focusing on core business activities. If one retains highly demanding but less productive jobs within an organization, it works against the company. As Mitt Romney once put it, corporations are people too. That statement proved to be a little too controversial but there is a grain of truth in what he said. Corporations are like people. When they are overworked and get distracted from what they should be focusing on, productivity goes down. That naturally affects performance of a corporation or enterprise, just like a person’s performance under duress suffers.
What is the take home?
What corporations and enterprises must bear in mind is that they should analyze their own organization before making value judgments. If a corporation is stuffy, feels overworked and if there is no time and space for innovation, it is already time to outsource non-core functions. If a small company thinks it can manage on its own, it can make use of talent that it didn’t know was useful it. By speaking to an outsourcing or IT agency, companies both small and large can discover new ways to innovate.
At the end of the day, a company, big or small, is answerable to its own employees, its investors and to itself. If the money is not coming and if the growth is stagnant, it is time to consider alternative strategies, one of which is outsourcing. Outsourcing can breathe new life into a company and help it to grow, succeed and make more profits. Each time a company that is located in the U.S. makes money, American economy improves too, directly and indirectly. All these factors have a snowball effect and America generally benefits from outsourcing. Though it is a controversial statement to make, most companies agree that they cannot afford to lose out on outsourcing model and it is certainly here to stay.