Outsourcing. In the. United States? BY: Rashid Salameh. Cameron Moulton. Brian Appel

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1 Outsourcing In the United States? BY: Rashid Salameh Cameron Moulton Brian Appel

2 What really is outsourcing, and what can it do for a company in the United States? It s a means of business going on throughout the world currently, which will be clearly identified by showcasing what outsourcing does for a company operating in the United States and outside of the U.S. In simplest terms, outsourcing is subcontracting with another person or company to do a certain function. These functions or services come in different forms such as technology services or business processes. These services along with the pros and cons of outsourcing and what companies primarily outsource their work to will be covered. First, in order to understand whether or not a company will benefit or suffer from outsourcing, you must be aware of the components of outsourcing. The functions outsourced are primarily day to day operations that do not require the company s full time employees to do. Functions performed can be from any part of the world using any language and time, which is why it is imperative for a company to choose wisely when selecting an outsourcing location. When coming to a decision whether to outsource or not a company will weigh its overall benefits; lowering production costs, using resources accordingly, directing main focus to most important aspects of the company, and creating a better use of labor. Outsourcing is intended to generate greater productivity. As outsourcing has grown globally it has taken on some added operations such as offshoring, which is the transfer of an organizational function to another country not to be confused with outsourcing. A few other operations include nearshoring involving countries such as Mexico and Canada. Noshoring is a combination of offshoring and nearshoring which uses local resources. Finally, rightshoring is a cost effective way to do business without offshoring. All operations simply just deal with changing of locations. Companies are under intense pressure to design and manufacture new products due to market demand. This is forcing companies to invest more money into the research and

3 development teams to take some of the added pressure off with restrictions to money. If budget cuts are not made then it forces a company to outsource some of the research and development or other functions of the organization. When dealing with research and design issues a company will look towards key factors such as: New product design does not work Project time Staff member leaving Quality concerns Competitive Response The edge that Research and Development are looking for is having experts in the field to complete functions. By outsourcing, a company is able to choose from an array of outlets that have the greatest knowledge and expertise. This is one of the main driving factors for a company looking to outsource. Firms are generally concerned with providing consumer benefits, making their products hard to replicate, and the capability to be sought by many markets. These factors are what a company will stress to employees as its core business processes. Outsourcing has been around since the 1980 s and became well known during the 2004 presidential campaign where John Kerry was very concerned for the work force of the U.S. It was a very controversial debate that was based on the need to raise taxes on companies that get a free pass from paying the appropriate amount of taxes. The other issue involves the U.S taxing revenues earned outside the U.S. It is believed that in order for the U.S to become more attractive to other countries it must get rid of the heavy taxing that is implied to other countries. A company that is in search of outsourcing its functions in all of the above mentioned forms needs to now be evaluated in order to determine its benefits over its consequences. The

4 primary reason why outsourcing is so important is because it generates trade between other countries and therefore develops a strong economy for the U.S. It is taking away jobs that are of less importance and creating competition for American employees. It could be stimulating a more creative way of thinking by Americans due to the need to think outside of the box. In the corporate industry, the issue of outsourcing comes up in a lot of discussions. People argue that it is the only way to survive within global competition is by sending their work elsewhere, and by doing that cuts the operational costs to half of what they would usually spend. On the other hand, people argue that by sending work to these other nations, we are hurting our own economy by depriving the opportunity of work to our own people. It is true that outsourcing may be a harmful to the economy, but there are also positive aspects to this way of thinking. I ll be discussing the pros and cons of outsourcing. Many service companies started creating jobs overseas to gain access to foreign markets. Some domestic businesses hired specialized workers located overseas to because of the U.S. limits on immigration. When these American employers can t get those workers to come over here, they have to send the work to them. Corporate companies became comfortable of taking advantage of low costs on the domestic and foreign scale. By looking at these matters in a broader perspective shows that the age of economic separation has passed and now we re in an era of a global marketplace. The important thing is that many companies are focusing their efforts on their core competence since the lower skilled jobs are being outsourced. Also, many American corporations came to appreciate how higher productivity of U.S. workers wage differentials and other costs of operating overseas. So they quickly liked the idea of outsourcing right away. Outsourcing helps a company put its foot in the door in the competitive global

5 marketplace. Outsourcing can allow a business to provide 24/7 coverage, especially for consumers who need around-the-clock support. There is also the negative side to outsourcing. It is said that one-half of the outsourcing developments that are stationed overseas are terminated do to a variety of reasons. Some new developing countries that are doing the work for the U.S. companies encounter financial difficulties that could have been seen with much research and could have been possibly avoided. Another reason might be is it becomes too costly to outsource to those developing nations and outsourcing is no longer an option to them. Local highways and public transportations in these countries may not be adequate for these workers and may make it hard for them to make it to work. Some overseas companies acknowledge the problem that their workers are having and are trying to fix that problem by busing their employers to and from work as an alternative. Also, they might have blackouts very often since electricity may not be available and reliable as in the United States. Some American companies are paying much more for the rent for their outsourcing company s building in their country than what they would in the United States. The reason is that the cost of upgrading poor system standards overseas to the U.S. standards is draining the funds from their company. Another reason why outsourcing is not favorable in the U.S. is that a lot of people lose their jobs in the process when a domestic company decides to outsource. Over the years, far more new jobs are created in the United States then are outsourced. The global marketplace shows that every company out there in some degree outsources their work to another company in order to keep up with their leading competitors. Why would a company spend their time developing and manufacturing a product/ service when they can just send it over to another company to do the exact same work for half of the cost and just as good

6 quality as they would of have? Companies outsource so that they ll focus on the higher skilled jobs that they re doing and lets the lower skilled jobs to somebody else.

Chapter One. Globalization

Chapter One. Globalization Chapter One Globalization Opening Case: The Globalization of Health Care 1-3 There is a shortage of radiologists in the United States and demand for their services is growing twice as fast as the rate