Last Updated 10 Aug 2020

Outsourcing: Bane or boon?

Category Outsourcing
Words 549 (2 pages)
Views 275

Curtis avers that if a company hires an employee, an engineer, for example, the company would spend more money than if it hired ten engineers from another country, say from India. These cost-cutting measures of US companies generated a snowball of opposition as the outsourcing trend began to encroach on the high-end information technology (IT) and the service sector of the economy (Friedman). This development caps years of the efforts of the outsourcing era into the US specialized sector. The protest of these service providers, once isolated and untouched by the outsourcing trend, is continuing at full speed, with no signs of letting up (Cook & Nyhan, 2004). The argument over the issue of outsourcing continues to heat up. Two protagonists in the center of the “battle”, so to speak, are Nobel Prize recipient and economics professor Paul Samuelson and Columbia University economics professor Jagdish Bhagwati. The 89-year-old Samuelson (2004) argues that the competitive advantage that was lost is considered as permanent to low labor rate countries like China and India.

The arguments of Samuelson seem to oppose the data culled by a prominent information technology consulting outfit, Forrester Research. Bhagwati (2004) does acknowledge that the current outsourcing trend will result in some amount of temporary shifting of low-level jobs but affirms that the concept will have provided enough gains to the economy of the United States by way of less expensive imports and stronger export markets. The data from Forrester Research, as mentioned earlier, would lend credence to the Columbia economics professor. On the job area, the data approximates about 400,000 jobs in the United States had been moved overseas. By the year 2015, the amount of US jobs that move abroad will hot an estimated 3. 3 million. In this light, the annual turnover in the time p would just hit about 200,000 employment opportunities lost to the outsourcing market. This is a minuscule number compared to the normal job cycle of 7 million people gaining and losing jobs. So who exactly enjoys the benefits of outsourcing? First of all, the US companies that practice outsourcing. Outsourcing affords American companies a less expensive mode of production, therefore stimulating the manufacture of goods imported into the country. Let's say that a businessman is planning to put up a new venture of making pencils. On an in-house manufacturing basis, the cost of the pencils would come up to a retail market value of five cents.

The company accountant confides to the businessman on the erasers costs two cents or about 40 percent of the total cost of the pencil. But another company can produce the same eraser for half the price that the businessman pays to make them himself. In a report by the Mckinsey Global Institute, it states that the net return in terms of savings of foreign outsourcing activities by US companies amounts from 45 to 55 percent, with an additional income from the sale of American software and hardware. Offshore activities also reduced the prices of products normally produced locally. According to the Institute of International Economics, it reported a drop in the cost of personal computers in the 1990s when the manufacturers of the chips used in the computers moved their operations overseas. The move resulted in a decrease of about 10 to 30 percent of the prices.

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