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Offshore Outsourcing: A Benefit to the Global Economy

Although outsourcing is generally greeted as a negative in the country that takes advantage of it, offshore outsourcing has a positive effect on businesses and the global economy. Generally, people look at offshore outsourcing as a loss of jobs in their country, however, even if we kept those jobs open to in-country employees, that wouldn’t be the best long-term solution. Not only does offshore outsourcing help businesses cut costs and maximize profitability but it may actually help create more jobs in that country, along with providing a lower cost to the consumer and thus more disposable income to spend elsewhere.

First, the fundamental reason why companies outsource is because it helps to reduce costs. Whether it be technical/administrative support or physical labor to create a product, costs in other countries (India, China, etc.) are much cheaper than here in the US. Payroll and benefits administration are two areas that are commonly outsourced offshore. If a company were to have their own administration teams for these areas, they’d not only have to pay these employees standard wages but they’d also have to account for raises, benefits, training, insurance, retirement plans, etc. Essentially, the biggest benefits to outsourcing labor is not only the reduction in costs but the price is contracted and there isn’t much fluctuation from year to year (Smith, 2006, p. 9). On average, if a company chooses to outsource these areas, they’ll steadily save about 15% (Glade, 2006). This may not sound like much but considering it’s more beneficial for larger companies to outsource, we’re talking about figures that could range from hundreds of thousands to tens of millions of dollars.

Again, this may sound great for the business at hand that’s saving all of this money but most people disagree with offshore outsourcing because it’s not only taking away potential jobs available but in some cases, causing people to lose a job they already have. However, specific cases are showing that these lower costs and profit improvements are actually achieving the opposite and creating employment.

“Consider, for instance, Delta Airlines in 2003. Delta moved 1,000 jobs to India. By doing so, it was able to reduce costs by $25 million. It used the money to fund 1,200 new reservation and sales positions in the United States, resulting in a net job gain” (Busler, 2014).

Essentially, if businesses are able to cut costs and still produce the same quality product or services, this will enable them to keep pricing low or maybe even reduce it. This results in increased business and profits, which would cause the business to grow and increase employment needs.

The consumers themselves especially benefit from outsourcing. Nowadays, almost everyone seems to have a smartphone and although they seem to be ridiculously priced at $600-800, they would be priced even higher if produced exclusively here in the US, maybe even double at $1,200-1,600. It’s not necessarily that the US would produce a higher quality phone or use better products but more so that US labor costs more for businesses (wages, benefits, etc.), thus contributing to higher costs to produce the goods or services. This is a chain factor for the consumer because not only do they save money on goods but this also leaves extra money in their pocket to spend elsewhere, furthering more economic growth through spending.

There is an interesting theory that states as a country’s economy evolves and develops, they go from being primarily agriculturally driven, to manufacturing and then finally to services. In the United States almost 70 percent of domestic products are now a result from producing services rather than goods (Busler, 2014). Therefore, it’s safe to assume that outsourcing is likely to increase in more developed countries and shouldn’t necessarily be seen as a negative. Rather than trying to fight for more manufacturing jobs that countries are losing due to outsourcing, we should instead try to retrain the unemployed for skills in jobs dealing with services. Retraining would help to decrease unemployment rates, which then means more income per capita and increased economic growth.

 

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