The Outsourcing of Labor to Foreign Countries

THE OUTSOURCING OF LABOR TO FOREIGN COUNTRIES 12

Outsourcing is the transfer of several facets of a company’soperation to a different company in another nation. It has been adeveloping trend globally and domestically in the recent years.Today’s enterprises function in highly competitive surroundings,which acts as the main stimulus for outsourcing. The globallycompetitive business environment compels organizations to adoptstrategies like outsourcing in order to progress being competitive.Additionally, economic globalization eases the procedure of seekingopportunities from the open global market. Communication and computertechnology has also increased labor outsourcing. Organizations areprogressively adopting outsourcing to assist them in their expansionto new markets. Initially, the manufacturing sector used outsourcingwith the objective of minimizing the expenses incurred following theGreat Depression. The trend has progressively been adopted by otherindustries, and currently almost all business industries employoutsourcing. Outsourcing has permitted American multinationals tominimize expenses and compete effectively. Whereas the increase inoutsourcing has been advantageous through taking advantage oftariffs, investment incentives from developing nations and reducedwages, it will notably liquefy the competitive benefits Americaexperiences.

Overview

Outsourcing started as early as the 1970s. At first, it merelyincluded information technology related matters, but progressivelymore companies noted it was not possible to become experts in morethan one area of business operation. This resulted in the eradicationof several operation areas within their company, areas that wereentrusted to specialists. In a survey conducted by FortuneMagazine, above 90% of organizations currently benefit fromservices provided by external providers, a trend developing furtherevery year (Koszewska, 2004). Initially, outsourcing was merelyemployed by big companies, though currently, the trend is becomingmore widespread amid small-sizes organizations, as well. Thebroadening application of outsourcing within the industrial marketarises from enhancing competitive pressure, and developingglobalization (Koszewska, 2004).

As our environment progresses to become intricate, fast and fastgrowth of technology, with the ensuing alterations in the situationsunder which any organization operates, such changes mandate thesearch for better and advent techniques that ensures organizationsare able to remain ahead of their competitors (Koszewska, 2004). Inprevious decades, success was driven by bulk, this means that anorganization that was capable to provide many services at once, wasbetter placed to one that specialized in a specific area ofoperation. However, today an organization’s success is based on theability to specialize in an area of operation. Companies are beingcompelled to determine precisely areas where they have the bestcompetitive advantage, and redefine their working structures toenhance the advantage (Koszewska, 2004).

An increasingly common manner for organizations to attempt andenhance their flexibility and produce high value is via outsourcing.The condition calls for specific determination of what line ofbusiness will result in the most benefit, in addition to a cautiousevaluation of the weak and strong points. One significant outcome ofthe procedure is a realization and re-evaluation of the actions thatare not core to the organization, if the non-core operations need tobe executed by the organization, or outsourced to third parties(Koszewska, 2004). Every organization, planning on outsourcing shouldvalidate, which tasks need to be done in-house, those that are to beexecuted via strategic partnerships, and which tasks need to becontracted out, which is outsourcing to third parties. Deciding tooutsource greatly determines the success of an organization inprospect thus, needs proper contemplation.

Advantages of Outsourcing Labor to Foreign Countries

Reducing costs is the main reason why an organization maycontemplate outsourcing labor. Work that is expensive to executein-house is outsourced to other organizations that are capable ofproviding the services at reduced prices (Kathawala, Zhang &ampShao, 2005). For instance, if a company needs to contract on urgencya specialized software engineer it becomes less expensive tooutsource the service instead of beginning the entire process oftraining one of the organization’s employees. The hired specialistwill be capable of completing the task fast, effectively and at acheaper price. Access to such expertise does not merely reducelong-term company expenses, rather provides organizations withchances of exploring advent opportunities and venture into differentwork specialization making it possible to prosper during the alteringeconomic times.

Outsourcing labor makes it possible for companies to improvecompetitive strategies suitable for the international market(Kathawala, Zhang &amp Shao, 2005). Through outsourcing, productquality is enhanced, in turn reducing production expenses that aretransferred to clients, in addition to improving general productivityof the enterprise. Competitive advantage is a basic economic model,which elucidates the importance for two parties, nations orenterprises, to trade their products and services. A major aspect indetermining competitive advantage is how easily two regions arecapable of producing different products, which will afterward, betraded. The idea of competitive advantage is the foundation for anenterprise to select products or services to specialize in theirproduction. If America is capable of manufacturing specificproducts/services at minimal expense than an overseas nation, and ifthe overseas nation can make other products/services at reducedexpense than America, both nations might benefit from trading eachother’s comparatively manufactured products/services.

Outsourcing makes it probable for organizations to enjoy improvedoperational flexibility presented in diverse manners (Kathawala,Zhang &amp Shao, 2005). One manner, is that an organization gainsaccess to a huge workforce upon demand, and does not have to bear thecosts of maintaining the workforce permanently. This implies that acompany is capable of benefiting from contract personnel and does notstress about layoffs or having to deal with an ideal personnel. Theflexibility presents organizations with liberty to adjust workforcecapability and manufacturing capacity concerning altering marketrequirements and trends. In addition, through outsourcingorganizations are better placed to deal with unpredictable happeningslike delays, work errors or alterations in management plans. Notably,flexibility enables organizations to deliver on projects in a timelymanner, to satisfy customer needs.

In support of outsourcing, it becomes possible for organizations tofree up capital funds and have more time to concentrate on corebusiness actions. Subsidiary work is performed by organizations wherelabor has been outsourced (Kathawala, Zhang &amp Shao, 2005).Companies, specifically those specializing in manufacturing arecapable of accessing up to date manufacturing technologies, as wellas equipment, without having to bear the expense of their purchaseand maintenance. Proper outsourcing associations present companieswith exceptional opportunities in accessing an array of businesspartners. For instance, Chinese companies that deal with electronicassembling are able to collaborate with electronic manufacturers fromdifferent nations, which make it possible to share one assembler andbenefit from the supply chain.

Disadvantages of Outsourcing Labor to Foreign Countries

America benefits from comparative advantage in industries requiringhighly competent labor, as well as capital investment (BusinessBasics, 2009). This highly competent labor force with greatknowhow base provides America with a better competitive edge withinthe global economy. No other nation experiences such high turnoverlevel of enterprise startups compared with American organizations.This is because the country is capable of shifting some of the laborforce to foreign nations and gains from reduced expenses distributeknowhow and ease spillovers. However, the comparative advantage alsoacts as a disadvantage for America as, Chinese and Indian economiesbenefit from the spillover due to influx of knowhow from America(Business Basics, 2009). This allows the Chinese and Indianseconomies to develop further. As a result, United States’technology competitiveness is placed at peril, because thecompetitive edge benefit fades away from American control. Inaddition, America ought to compete directly with economies that arearising in greatly specialized areas where it has previously enjoyedmonopoly. For instance, companies dealing with aerospacemanufacturing currently outsource for subassemblies in other nations.In the end, the nations from where the subassemblies are outsourcedmay begin creating their own jets because of the knowhow, technologyand training provided from American organizations. This implies thatUS aerospace manufactures lack guarantee that their intellectualproperty will be safeguarded.

Outsourcing results in the loss of control on the delivery ofservices, which could increase an organization’s liabilityexposures (Kathawala, Zhang &amp Shao, 2005). Ensuring that allorganizational operations are in-house is the sole manner ofmonitoring the quality and control procedure. Quality control has animpact on manufacture, branding as well as customer service. When acompany settles on sharing business operations with a differentcompany in another nation, it is necessary to outline an alliance,which meets the needs. Language, culture and distance are majorhurdles accompanying any decision to outsource. Selecting the correctpartner is important (Kathawala, Zhang &amp Shao, 2005). As soon asa partner is selected, a dedication to managing arrangement mayreduce cost overruns, quality regulation problems, culture andlanguage disparities, and channel conflict. In some instances,partners have totally misrepresented organizations through floodingmarkets, faking products, or exposure of technology secrets. This isbecause organizations that outsource are incapable of monitoringactivities that happen miles away in different nations.

It is impossible to ignore the language barriers arising fromoutsourcing labor to overseas nations (Kathawala, Zhang &amp Shao,2005). Countries have their different ways of communicatingespecially when relating professionally. For international businessto become successful, an organization endeavoring to outsource mustpay consideration to the different language and methods ofcommunication, especially in nations where the official language isnot English. Language barriers make it impossible for organizationsto communicate effectively what services they want provided and how(Kathawala, Zhang &amp Shao, 2005). It could also turn out to bemore costly for the outsourcing company because of the time wasted inlearning about another culture. The business sectors largely affectedby language barrier in outsourcing are the system analysis anddesign, specifically for making application-oriented products. It ispertinent that local experts taking part in overseas contracts areproficient in the outsourcing organization’s language.

Outsourcing results in eliminating jobs from America. Employeesworking for organizations that intend to outsource are compelled toeither quit their jobs or relocate to nations where the labor istransferred (Coontz, 2004). In cases where personnel decide to quit,outsourcing is associated with job loss. In most instances,organizations do not provide the option of relocating to theirpersonnel. This is because it can prove to be more expensive totransfer personnel as compared to sourcing personnel from theoutsourced nations. Even in incidents where organizations shift laborwith their workers, it becomes more costly as they have to bear thecost of training their personnel how to cope with the differentculture, language and communication problems they will encounter(Coontz, 2004). In addition, relocated employees need training andorientation on the business operations of the new nations, whichmeans time and money, is spent. This explains why many outsourcingorganizations have opted to source labor from the outsourced nations.In the end, more and more jobs will shift from America to othernations, enhancing the unemployment challenge in US.

As the economy progresses to evolve, the kinds of service jobs,which will remain in America, will be personal service employmentrequiring one-on-one communication (Business Basics, 2009).Similarly, more impersonal service employment, such as customerservice work, information technology and medical services will betransferred overseas. The trends will have an impact on salaries asemployment is reallocated. In addition, as technology progresses toadvance, the kind of service jobs, which are possible to offshore,will progress to alter. As a result, economists have raised theirapprehension that America’s capability to compete, specifically inrelation to research and development becomes challenged.

For America to ensure a competitive edge, it will require to maintaincritical research, as well as development works onshore. Forinstance, there will be a progressive requirement for properlyeducated engineers. India and China have a huge supply of entry-levelengineers, and most American based organizations will progress tooutsource engineering employment to these nations (BusinessBasics, 2009). Similarly, other organization are tapping to thetalent pool through bringing individuals from China and India tolabor in technology sectors of American based organizations.Conversely, US personnel lack specific benefits, which can assist inretaining the highly competent work. The benefits involve theircommunication expertise, comprehension of the market, schooling,training as well as creativity.

As has been the case with diverse job types, developments intechnology might relocate specific personal service work intoimpersonal service positions, which are possible to deliverelectronically all over the globe (Business Basics, 2009). Forinstance, just as radiology work has been subjected to outsourcing,different sectors in the health care service delivery, like medicallab technicians, might also face outsourcing. The US currently has acompetitive advantage in the sector of financial service delivery(Business Basics, 2009). However, advances in technology posethe peril of outsourcing in the sector as well. It is possible toprovide financial services over the internet, which could provecheaper for American organizations, thus prompting them to outsource.This in turn results in the possible loss of jobs for Americanspresently employed in the financial services sector.

Steps to ensuring Successful Outsourcing of Labor

Despite the many disadvantages linked to outsourcing, it is possiblefor organizations to benefit. Several steps need to be taken intoconsideration to guarantee that outsourcing avails enhanced businessperformance, and ensures that organizations progress to have acompetitive advantage. These steps include, strategic assessment andplanning, choosing the providers and management of the relationshipamid the outsourcing country and nations where services are shifted.

Strategic assessment and planning – Assessment of the advantages ofoutsourcing is a long and significant assessment procedure.Organizations must undertake a long-term outlook of outsourcing,which involves a clear comprehension of the vision, value chain,company structure and core competencies (Embleton &amp Wright,1998). This involves determining what business functions are not coreto the organization and how they will be outsourced. When anorganization maintains the operation of its core businesses, itbecomes possible to remain in control of the entire businessoperation. As previously noted in the disadvantages of outsourcing,it could result in business’ losing control of their operation.However, this arises from the lack of strategic assessment of how theentire outsourcing process is to be executed. Of specificsignificance is what business functions will remain under the controlof the outsourcing company. It is also important to plan how parties,business or nations will operate. This eliminates any challenges thatmay arise in prospect like coordination of outsourced businesses.Planning involves an assessment of the perils, creating a projectteam, involving advisers if need arises and setting objectives priorto outsourcing.

Choosing providers and negotiation of terms is another step. Prior tooutsourcing, an organization ought to be certain which nations andcompanies they will select to provide the outsourced services. Inprovider selection, focus is on getting a trustworthy service withoutraising the expenses presently incurred executing the job in-house(Embleton &amp Wright, 1998). When the work being outsourced is ofcrucial significance to the organization, like in logistics, it isnecessary the organization seeks and chooses a provider they cancollaborate in complementing their own enterprises. The organizationought to determine the criteria, which are most significant in aprovider. Though some criteria can be quantifiable or intangible,there ought to be a checklist of relevant items to guarantee the bestprovider is chosen. This ensures that the outsourcer and providershare the same business objectives and prospects hence, eliminatingthe possibility of the business ventures not succeeding. The stepbegins by describing the contributions needed from the provider. Theoutsourcing company needs to comprehend what is valuable, like lowcosts thus, will seek providers ready to provide outsourced servicesat reduced expenses. Negotiation of terms entails an organizationconsenting on a fair price with the provider. Negotiation ensuresservices and metrics are carefully defined and consented on, prior toprice negotiations happening. Before undertaking the decision tooutsource, the organization and provider should be aware that withina free market, price arises from competition and negotiationexpertise.

Management of the relationship amid the outsourcing country andnations where services are shifted – this involves communicationand preparation of personnel for the changes. Change management,communication as well as training are key determinants of success inoutsourcing. Since outsourcing can become a major aspect of there-engineering procedure in an organization, it has numerous humanresource and organizational structure impacts, which ought to bemanaged cautiously for the implementation of outsourcing to becometriumphant (Embleton &amp Wright, 1998). Management ought to spendample time and efforts choosing and hiring the appropriate provider.This is because outsourcing is a lengthy procedure, whose successwill be determined by the relationship between the outsourcingorganization and provider. Prior to commencing operations, bothparties should establish how they would be communicating, howoperations will run among other factors to ensure they progress towork in unison.

References

Business Basics. (2009). Offshoring, International business,1-5.

Coontz, G. (2004). Opinion: The benefits and costs of outsourcingjobs. The Park Place Economist, 12(1), 16-17.

Embleton, P. R &amp Wright, P. C. (1998). A practical guide tosuccessful outsourcing. Empowerment in Organizations, 6(3),94-106.

Kathawala, Y., Zhang, R &amp Shao, J. (2005). Global outsourcing andits impacts on organizations: problems and issues. InternationalJournal Services Operations Management, 1(2), 185- 202.

Koszewska, M. (2004). Outsourcing as a modern management strategy.Prospects for its development in the protective clothing market.AUTEX Research Journal, 4(4), 228-231.