The tendency of high-level companies resorting to offshoring and outsourcing practice, by which the removal of jobs as well as tasks from one country to another is implied, can be observed in the 21st century. It is usually made from high-cost countries to low-cost countries with the much lower average wages. Offshoring should not be confused with outsourcing. The last one involves a third party, say, some external organization, to contract certain aspects of work while offshoring does not resort to mediator’s help but simply shifts the location of some business activities abroad. Nowadays, about 30 million jobs that make a bit more than one fifth of the whole workforce of US are considered vulnerable to offshoring. The US policies concerning tax and immigration issues even speed up this process. However, one of the main reasons for offshore practice is that it helps to reduce costs by substituting US workers with the ones from overseas. Customers nowadays are not surprised that some support staff worker with the strong accent will answer their phone call. Such king of foreign workforce employment is very attractive for a number of countries, but this way of doing business has a long list of advantages and disadvantages for the economy of the USA, the same as for the companies that opt for these new practices.
According to Ron Hira, an assistant professor of public policy and the co-author of Outsourcing America, India has been considered the major winning country from US offshoring, whose progress other developing countries are trying to embrace (2008). Hira sees India’s accomplishment in “its large English-speaking educated workforce, its large diaspora living in the United States and the U.K., and its specialization in IT” (2008). Jeff Postma, a principal in Organization and Transformation Practice of A.T. Kearney, is of the same opinion, claiming that “ “soft” calls with significant customer interaction may go to the Philippines, bilinguals may go to Latin America, but technical calls – or those with more challenging solutions (think mid-stage collections) – may still be better routed to India” (Postma et al.). But at the same time he says that India starts losing the status of the most attractive for all offshoring efforts country, and the other basic offshoring areas, “mainly the Philippines, Poland, Romania, and Mexico” are growing in popularity (2013).
From the very start, it was a rather controversial question whether the effect of outsourcing and offshoring on the American economic life will be positive or negative. The McKinsey Global Institute made a presentation “Offshoring: Is It a Win-Win Game?” in which it investigated the benefits of foreign workforce employment and advocated overseas jobs. It was stated that “Offshoring creates wealth for U.S. companies and consumers and therefore for the United States as a whole: that is why companies choose to follow this course” (Farrel et al.). The report provided four reasons to prove that statement. First, the cost savings will help to keep US companies competitive in the world economy and can result in increasing national earnings. Second, the money spent offshore adds to export and thus, revenues for the US economy. Third, the companies of the US providers that serve in offshoring markets will repatriate their earnings back to the United States. Fourth, offshoring will act as an accelerator for generating new jobs that will also bring additional income. In contrast to this report, Ron Hira adduces his arguments against offshoring. He stated that only in 2003 315,000 jobs were moved offshore, which had an adverse effect on families of redundant workers, let alone wages that went away with these jobs and increased to $136 billion in 2015. In its turn, the London School of Economics Center for Economic Performance, after examining 58 US manufacturing industries came to a conclusion that “offshoring tends to increase productivity and reduce costs, which can prompt firms to expand domestic hiring enough to offset the jobs lost to workers overseas.” (Khimm). All in all, this comparatively new economic wonder is a challenge for the US economy, and perhaps, there should be a question not only of its crucial influences but also of the social adjustment to such massive changes.
When outsourcing and offshoring were gaining momentum at the beginning of the 2000s, this idea seemed like perfect for the companies that outsource or hire foreign workers for a number of reasons. First and foremost, such companies try to cut the expenses by decreasing the wages of the workers in other countries, for whom labor costs are lower than in the USA. Moreover, the employers do not have to pay for health insurance, social security, and other expenses, which are inevitable with American employees. Another advantage is the fact that when a company offers jobs to the locals, it provides not only job opportunities but also improves diplomatic relations and even reduces the immigration problem. Another small but no less important benefit is that offshoring enables the companies to provide 24/7 customer support service that enhances the reputation of the company’s being customer care oriented.
There are companies that try to cut costs while maintaining the quality of their services. A decreased regulation and lower wages make outsourcing seem appealing to such organizations. However, it is rather questionable whether this strategy is able to make offshoring rewarding for every business, because it has many shortcomings. The main argument against offshoring’s practice is that it might not be profitable for a company if the company spends even more money on the training programs and supervision of the overseas workers than it saves from lower wages. Another example: the price of products made abroad can be lower, but the cost of shipping may not be as cheap. Apart from this, there is another offshoring drawback that is related to the quality control problems. It is not an easy task to make sure that the product or service was produced according to the company’s standards when it is not created in place. To ensure that the product was made according to the company’s standards is not that easy when the product was made locally. The special report “Outsourcing and Offshoring” in The Economist magazine expanded this idea, claiming that “Moving production a long way off and separating it from research and development risks harming a firm’s long-term ability to innovate” (Special Report, 2013). The absence of attention to the important factors like language and cultural barriers and customer focus loss can also lead to the reduction of effectiveness. In fear of such failures, companies resort to reshoring, also known as “inshoring”, the return of the elements of the production back to the country of origin, or simply to nearshoring – transferring work to another party in a nearby country.
Get a Price Quote
To summarize, it is necessary to say that offshoring and outsourcing are more beneficial for the countries like India and Philippines than for America as they allow creating new workplaces. However, despite the fact that offshoring and outsourcing brought some losses to the US economy, it is an irreversible step that the USA should take and adjust to catch up with the developments in the world economic trends. In addition, since not every company was able to perform this business strategy because of the above reasons, they should think carefully and weight all pros and cons before shifting their operations to other countries. Otherwise, it could lead to the phenomena called reshoring and nearshoring and increase money loss. Nevertheless, offshoring will grow rapidly in the future and can have a significant effect on the economy of the US and the whole world.