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People outsource a lot in their lives, but may fail to recognize doing so. For example, a housewife sent her daughter to elementary school and decided to start working. She hired a household helper to take care of the house so that she could enter the job market and earn some money. This housewife is outsourcing, and her choice of doing so is necessary and preferable. Actually, outsourcing in daily life is unbelievably handy. “We do outsourcing in our everyday lives, such as dining out, whereby we purchase our prepared food from an external source instead of making the meal ourselves”
Citation preview
The Truth about Outsourcing
People outsource a lot in their lives, but may fail to recognize doing so. For example, a housewife sent her
daughter to elementary school and decided to start working. She hired a household helper to take care of the
house so that she could enter the job market and earn some money. This housewife is outsourcing, and her
choice of doing so is necessary and preferable. Actually, outsourcing in daily life is unbelievably handy.
“We do outsourcing in our everyday lives, such as dining out, whereby we purchase our prepared food from
an external source instead of making the meal ourselves”
In the past several years, multinational companies based in developed countries have increasingly
turned to developing countries to carry out some of their business activities. This phenomenon, loosely
called outsourcing or offshoring, is the transfer of some aspect of a company’s business activity to
another company in another country. Typical outsourced business activities include data entry,
accounting, and information technology support. Even tax returns are being processed by foreign
computer operators. These forms of outsourcing have helped create tens of thousands of jobs in some
developing countries. At the same time, however, fears have grown among workers in developed
countries that their jobs could be outsourced.
Outsourcing is not a new development in the global economy. Some author, traces its roots to whaling
fleets and floating factory ships of the late eighteenth century. Economist, the more recent example of
Motorola in the 1960s, when the company outsourced its labor-intensive assembly process to Malaysia,
Korea, and Monterrey, Mexico. As is often the motive for outsourcing, the move allowed Motorola to
compete effectively with other firms in the United States and, later, Japan.
Despite the growth in outsourcing around the world, or perhaps because of it, opposition has grown
significantly in many developed countries. In the United States, for example, the former chief executive
of Intel, Craig Barrett, believed U.S. workers face the prospect of 300 million well educated people in
India, China, and Russia who can do effectively any job that can be done in the United States.” For
opponents of outsourcing, the problem is not just low tech manufacturing jobs; more and more high-
paying, white collar service sector jobs are being outsourced as well. According to Deloitte Research,
two million financial sector jobs could be outsourced by 2013. Economists put it , “The worldwide
pool of available well-trained workers is much larger, and they are only a mouse-click away.
The paper discusses the potential costs and benefits for both categories of countries, developed and
developing. And also we would be discussing for and against the arguments from both sides, to give
you critical look.
Delta Airlines outsourced 1000 call center jobs to India in 2003, saving $25 million in the process. With
those savings, however, Delta was able to add 1,200 reservation and sales positions in the United
States. University of Chicago political scientist Daniel W. Drezner points out that 3.3 million lost jobs
translates into only 220,000 jobs lost to outsourcing per year That’s a small number compared to the
number of jobs in the overall U.S. economy: 130 million. Thus, outsourcing should affect less than 0.2
percent of employed Americans each year.
According to N. Gregory Mankiw, former chairman of the president’s Council of Economic Advisers,
outsourcing helps American companies stay profitable and improves their productivity. According to
Robert Reich, who served as labor secretary under President Bill Clinton, “Outsourcing does not reduce
the total number of jobs in America. If other countries can do something cheaper we ought to let them
do it, and concentrate on what we can do best
Catherine L. Mann of the Institute for International Economics, a Washington research group that backs
free trade, calculated that lower costs due to globalized production accounted for 10 percent to 30
percent of the decline in hardware prices during the technology boom of the second half of the 1990s,
when computer prices fell 10 percent a year. Moreover, the U.S. GDP grew by $230 billion between
1996 and 2003, thanks to outsourcing of information technology production
Interest groups that back American workers such as Rescue American Jobs, Save U.S. Jobs, and the
Coalition for National Sovereignty and Economic Patriotism are pressuring the federal government to
stem the flow of jobs overseas. If the U.S. government decided its workers needed protection and
investment in developing countries dropped, those countries would be significantly affected. Would
such a move be viewed positively or negatively in developing countries?
By the start of the 21st century, outsourcing was a household word in many countries around the world.
Most of the press reports in developed countries, however, highlighted the potential risks to jobs and
not the potential benefits to developing countries. This changed, in part, because of reporting by New
York Times columnist Thomas L. Friedman, who looked at the impact of outsourcing not only on the
advanced countries but also on the developing countries, especially India.
One of the most interest findings from Friedman’s study of Indian call centers that do work primarily
for American companies is how Indian business can be good for the United States and its workers.
“How does [outsourcing] benefit the U.S.?” Friedman asked S. Nagarajan, the CEO of a company
called 24/7. The CEO replied, “Well, look around this office.” All the computers were from Compaq.
The basic software was from Microsoft. The phones were from Lucent. The air conditioning was by
Carrier, and even the bottled water was by Coke, because when it comes to drinking water in India,
people want a trusted brand.
On top of all this, Nagarajan added, 90 percent of the shares in 24/7 are owned by U.S. investors. This
explains why, although the United States has lost some service jobs to India, total exports from U.S.
companies to India have grown from $2.5 billion in 1990 to $4.1 billion in 2002. As Friedman puts it,
what goes around comes around, and also benefits Americans. Friedman also raised awareness of the
complexities of outsourcing, of how it is difficult to draw definitive conclusions about its costs and
benefits. For example, Friedman found that a lot of “America’s Saturday morning cartoons are drawn
by Indian animators like JadooWorks, founded several years ago here in Bangalore, India, though, did
not take these basic animation jobs from Americans.
For twenty years they had been outsourced by U.S. Movie companies, first to Japan and then to the
Philippines, Korea, Hong Kong, and Taiwan. The sophisticated, and more lucrative, pre production,
finishing and marketing of the animated films, though, always remained in America. Indian animation
companies took the business away from the other Asians by proving to be more adept at both the hand
drawing of characters and the digital painting of each frame by computer at a lower price. But here’s
where the story really gets interesting,” Friedman added. “Jadoo Works has decided to produce its own
animated epic of the life of Krishna. To write the script, though, it wanted the best storyteller it could
find and ended up outsourcing the project to an Emmy Award winning U.S. animation writer, Jeffrey
Scott for an Indian epic!. [An] Indian cartoon company isn’t just taking American jobs, it’s also making
them.”
Madhu Bhusan, an anti-globalization activist, argues that outsourcing and globalization in India are
“creating a dependence and creating a vacuum in the kind of natural organic nature of our society.”
The city, she complains, “has become the model of development, progress, of economic growth, of
everything . and economic conditions in which village life becomes unsustainable.” What’s more, the
idealized view of globalized lives masked the sense of cultural loss prevalent in so many villages
throughout India. K. L. Kumar also seeks the preservation of traditional life in India. “Let the industry
economies live, but leave us alone. Don’t make us want to live like you.”
Real life examples:
One morning friend of mine spoke with me about to get an X-ray of his spine for medical care, and the
hospital offered him two options for further medical analysis. The first option could diagnose the spinal
ailment within a half hour, because the doctor in the hospital would check the photo; this service would
have cost $98. The second option guaranteed that he would have the result within two business days,
and it only cost $15, because his X-ray would be sent to India electronically. After learning that the
doctors in India had equivalent professional skills and qualifications as his American doctor, the man
decided to pay $15 without any hesitation. He received his medical analysis later that afternoon, a
response from one of the Indian doctors. This vivid story illustrates how fascinating outsourcing is to
consumers and businesses: it is all about utilizing a more economic way to get things done.
In the book, Your Call Is (Not So) Important, the writer Emily Yellin called Office Depot’s U.S. 800
number about a delivery problem. She was first connected to Pablo living in Argentina. Then was
connected to Natalie in the Dominican Republic; finally, Andrea in the Philippines solved her problem.
She was amazed by the fact that one U.S. company outsources its customer services all over the world,
and her experience effectively demonstrates the popularity of outsourcing.
In a report from Forrester Research, Inc, about $136 billion in wages would move overseas by 2015.
These daunting statistics are the indicator of what the U.S. is like and will be like with the growing
outsourcing: millions of jobs that are involved in every profession are going to be outsourced and
billions of dollars are going to flow out of the country.
Professor Tony Quinn thinks that the workers who are laid off because their jobs are shifted to India,
China or countries alike should not take responsibility on their own; instead, the society should be
responsible for them. Some people may think those laid-off workers cannot save themselves because
they tend to be the least educated people in the work force.
However, Louis Uchitelle argues that “Education is without doubt a good thing. But there are not
enough good jobs for the college educated, and neither the private sector nor government offers much
help” (Uchitelle). So education may not determine whether one loses his job or not, and uneducated
people should not be blamed for their lack of education. Moreover, Doug Henwood points out in his
article, Toward A Progressive View On Outsourcing, that “Our treatment of the unemployed and
displaced is scandalously cruel.”. Moreover, one stark example is Bangladesh employs less educated
peoples in call center jobs, because they can work more hours with less salary, compare to educated
pupils, because now a days there demands are higher when it comes to employing in call centres.
The most widely cited projections for off shoring which estimated in a November 202 report that 3.3
million service-industry jobs would go offshore by 2015. That looks like a big number, but it needs to
be put in perspective. In January the U.S. had 108 million service jobs. According to the Bureau of
Labor Statistics, the economy should add 22 million jobs between 2000 and 2010. So the best estimates
we have are that the outsourcing total equals about one in thirty of today’s jobs, or one in ten of the
next decade’s new jobs. (Henwood)
By outsourcing routine tasks to foreign workers, U.S. workers are able to focus on higher value jobs.
U.S. computer engineers do less routine programming and more systems design. U.S. accountants do
less cost tabulation and more cost analysis. (Schiller)
Too big to fail- Out Sourcing and Re-Outsourcing:
A study by Oxford Economics estimates that it employs 1.2 million people, and creates or supports a
further 2.3 million jobs. According to the research, the current outsourced market for public services
has an annual turnover of 82bn pounds, representing around 24 per cent spend on public services in the
UK.
And it matters because outsourced public services have an impact on the entire economy, in terms of
wage levels, benefit demands and spending power. It matters because these services are vital to UK
social fabric and have knock-on effects – effects that can help or hinder not only the people they serve,
but their friends and relatives.
And a report released by Social Enterprise UK, the national membership body for social enterprise, has
produced some stark conclusions about how the face of our public services has changed.
Serco, operates prisons and young offenders institutions. Transport services like the Docklands Light
Railway and Barclays Cycle Hire. Leisure services. Management for hospitals and pathology services.
Waste collection for local authorities. Education services for local authorities.
In the early years of outsourcing, the commissioners at local and national level lacked experience and
confidence, so they went with the biggest firms, whom they felt they could trust. Rather than tear up
these contracts.
This is the situation today: in March this year, the UK Border Agency issued contracts worth £1.7bn for
asylum seeker services (including accommodation). All eight contracts went to three companies: G4S,
Serco and Clearel. Outsourced companies, nearly a quarter of the £3.3bn contracts for the Work
Programme went to one company (Ingeus). And cuts within the public sector have reduced the volume
and skill of commissioners, meaning that they will choose to “buy safe” more often than not. This lack
of genuine competition, as we’ll see, removes the main incentive to provide quality of service.
It’s also forcing smaller charities and social enterprises out of the market. Many are making
redundancies and turning away from public service markets in order to survive, just when they are
needed most. They cite procurement policy as one of the biggest barriers to their sustainability. One
enterprise which went bust as a result of signing up to the Work Programme. It wasn’t the only one -
earlier this year Groundwork South West also went into administration.
Peter Holbrook, CEO of Social Enterprise UK, discusses “We’ve seen companies go to the wall, or
being sidelined, and of course it makes every one's nervous. These days you increasingly have to work
with a private contractor. It means small charities are getting crumbs from the table” This is the
problem with the payment-by-results (PBR) system. Payments for these hard-to-reach jobless cases
may be some time coming, if they come at all. Not-for-profit organizations, having failed by definition
to build in a layer of profit to their business model, don’t have the capital reserves to wait for results.
Essentially, they find themselves out-maneuvered by the bigger companies that sub-contract to them.
And this matters because.
This is market failure, pure and simple.
The public does know about due to the Olympic fiasco: G4S. But the report has a lengthy section about
a sector of the industry which hasn’t received quite so much coverage: childcare’s services. It’s an area
that was highlighted by the recent scandals, but this element of the story was somewhat buried by the
other details.
It used to be the case that charities would bid for council contracts to care for vulnerable children, and
would cross-subsidies themselves from fund raising and other means to do so. It was never going to
last: private equity firms gradually took over. The report says: “Sovereign and 3i are the big contenders,
but it is hard to pinpoint which firm owns what; their waters seem to be in perpetual motion, as they
buy one another and take one another over, and offload assets.”
These companies operate by buying up cheap housing stock around the country, to which vulnerable
children can be shunted. Two London boroughs now have no children’s homes at all. There are 101
homes in Lancashire alone, even though Lancashire has a population of less than 1.5 million. London
has 130 homes, for a population of 7.8 million.
It’s not hard to see how the practice of moving children around can exacerbate the problem. Once a
child is removed from its own local authority, it loses contact with its team of social workers, its
grandparents, neighbors and others who might be able to spot the signs of abuse. One girl at the center
of the Rochdale case was moved from Essex and placed in a one-to-one home, where she was the only
resident. She never woke up with the same staff member in the home who had been there when she
went to sleep.
Almost all the jobs being advertised by private care firms are at the UK minimum wage. This isn’t a
living wage, as we all know. The staff are paid by the minute and aren’t paid traveling time. A care
worker for a private company is interviewed. She was paid 14 pence per minute, and traveled from
appointment to appointment on buses: “An average day that I was doing at the time, and this wasn’t
very long because I couldn’t afford to keep it going, I’d start at 9, do 45 minutes with one person,
another 45 minutes at 10, a half hour at 12, a break, a quarter hour at 4, another 15 minutes at 4.30, a
half hour at 5 and another hour from 8 til 9. So that’s a 12-hour day for 4 hours’ money.”
Companies are making offers to contractors that aren’t mathematically possible if they’re providing
jobs with a minimum wage, national insurance contributions, a pension scheme and training. Savings in
one area invariably mean higher costs elsewhere: “No local authority should make that deal: even just
on the pragmatic basis that it will be their own residents who are on the receiving end of that low wage,
their own housing benefit department making up the carer’s rent shortfall, their own health and
children’s services that come under strain when poverty is rife.” We’re seeing a degradation of service
for short term profit gains.
“The public face of the company is all very welcoming. They’re always very hazy around money. It’s all, ‘Don’t you worry, there’ll be lots and lots of work for you’. We were all on zero-hours contracts, so basically they weren’t obliged to give us any work. There are hundreds of people out there working like this, I’d meet people all the time, for jobs that required two carers, and I never met anybody who was being paid any differently. I know the hours for tax credits have changed now, but most people were on housing benefit.”
This also means there’s a large section of the workforce that isn’t preparing for old age and retirement:
a problem that will also have to be dealt with further down the line. It’s no surprise staff turnover is
high, and this feeds into the quality of care. £529,770 that was lost from staff fraud or abuse from the
Flexible New Deal. Or the clinical failures that saw London hospitals being forced to lend money to
Serco. Or the chaos that followed the privatization of our court translation services.
Or A4E’s company director payments, which saw the CEO Emma Harrison pay herself £8.6m, in a
year when fewer than 4 in every 100 unemployed people seen by the firm managed to secure jobs for
longer than 13 weeks. But cases like these show that its getting all the downsides of privatization, the
stripping away of money through profits, above all, and none of the upsides, because there isn’t
genuine competition.
Enterprises reinvest the money they make in service improvements. Private companies don’t: for every
level of sub-contracting, profits are taken out in the form of shareholder dividends. The total amount of
money being taken out of the social economy as a result is hard to quantify.
Money which has been allocated by Government to communities and issues that need it is being
stripped away. Here’s one example: “Private equity companies work to extract as much financial value
as they can from the companies they take over, in a relatively short time frame.
One of the ways they do this is through sale-and-leaseback deals on residential care homes for children
and adults. This leads to extreme volatility in a market where stability is a fundamental requirement.”
But perhaps the most galling thing is that nearly half the money raised by this practice doesn’t even
stay in the UK. 2010 report by the Office for National Statistics showed that more than 40 per cent of
shares in UK companies are held by overseas investors: this had increased by almost 25 per cent in just
two years.
Although there has been a loud uproar over the upswing in outsourcing, some experts argue that it may
not be all that bad. Companies sometimes need to cut costs in order to stay in business, especially in a
recession period, and outsourcing manufacturing and non-core business activities has allowed many
companies to do that. If outsourcing allows a company to cut costs and produce goods more cheaply,
thereby remaining a healthier business and passing on savings to consumers, is it not acceptable for a
company to outsource jobs? That is the idea behind comparative advantage.
Interestingly, according to an article in Blumberg Businessweek, the United States is now one of the
fastest-growing countries as a destination for outsourcing. Online contracting, in which workers are
hired for short-term assignments and work via the Internet, is one of the fastest-growing fields for
outsourcing. American workers, with their technical expertise and widely-available Internet
infrastructure, are highly desired. Freelancing, which was expected to shrink because of the recession,
has actually increased as more stable full-time jobs with corporations dry up. The Internet allows firms
to select contractors from all over the globe and hire whoever has the skills to fit the project. It turns
out that wage differentials between American and Indian workers are less than $6 per hour on average,
and that U.S. workers receive generally higher ratings for their work. This is yet another instance of the
Internet smoothing over barriers and connecting the world. Increasingly, Thomas Friedman may be
right: the world is growing “flat.”
One of the biggest advantages can be lower personnel costs. By outsourcing job duties to non-
employees, a business does not have to pay consistent wages or offer additional employee benefits. The
company may pay lower taxes because independent contractors, the people who complete the
outsourced projects, pay their own withholding, social security, and other taxes. This can add up to
substantial savings. Also International outsourcing is driven by the business demand for wanting to
provide a 24/7 customer service culture which benefit and satisfies local consumers.
I think Outsourcing is a good business strategy. Apart from the cost reduction factor, other benefits
utilize a company’s resources focusing on management efforts and helping to save time. The
outsourcing of IT jobs would benefits the U.S. economy therefore; it is a good business strategy. As
well as it helps nations mired in poverty by lifting the economy, but whether it does so in the best
possible way is questionable. Meanwhile, in the U.S. Consumers
Benefits from low costs, higher standards and timeliness at a developing economy’s expense. It creates
higher profits, delivers cheaper products, and enhances response time. Although there is a high amount
of jobs will be lost. New jobs are expected to be added. Outsourcing would affect less than 0.2 percent
of employed American which it would be the cost of improving productivity. Moreover, by outsourcing
routine tasks to foreign workers, U.S. workers are able to focus on higher value jobs. U.S. computer
engineers do less routine programming and more systems design. U.S. accountants do less cost
tabulation and more cost analysis. (Schiller).
I think whatever the case maybe Outsourcing rightly or wrongly is here to stay for very long time.
When Public Entities goes Private.
Press option one, Press option two, Press the hash key more times than one care to remember. Passed from one department to another, via Manchester and Mumbai.
Battling like this with three different companies on automated phone lines for countless hours since.
But three months on, still have to get them fixed the main electricity box.
The shocking indifference to customers and individuals by large modern corporations and Government
services is commonplace. They treat customers as though they are a mob to be kept at bay
Customers are forced to call to ask what is happening will take the slightest bit of responsibility for
sorting it out. In order to get a simple thing that used to be called ‘service’, customer are been locked in
a bureaucratic battle of epic proportions with disinterested call-center staff who would test the patience
of Job
This call is being recorded for quality and training purposes
One would have more respect for them if they admitted: ‘This call is being recorded because we are so
useless we may need our lawyers to pour over the transcript if you sue us for the horrifically bad
service you are about to get.’.
It seems barely credible, for example, that when you ring a company to remove channels from your
satellite TV package, the waiting time is so long you invariably give up. But when you ring to add
channels and increase your monthly subscription you get straight up. Moreover, they often don’t
mention the contract period of channels. So, when you rung them to terminate the channel. You will
hear something like. 'The channel was part of the package your are enjoying. And if you terminate the
channel and thus contract you will get X amount penalty. Thus, you don’t have an option but to keep
the channel and watched the reality show what you don’t understand in the first place.
Outsourced companies smartly changed the name from “service” to “Customer Experience”. One
public entity, I worked has the services to provide what they called divisions. For example if you call
an agents to change the GPRS phone package. Agent put you on long hold as if they are trying to tell
you to make your self nice cup of tea or coffee. Un-hold the person, “Sir Mam, we are unable to do to
because you need to pay the last month bill. Therefore, I will transfer the call to Billing department.
The relevant department sitting next to the agent, they were chatting when agent put the customer on
hold”.
http://danielsethics.mgt.unm.edu/pdf/Outsourcing%20DI.pdf
http://www.pwc.com/en_US/us/asset-management/investment-management/publications/assets/offshoring_highlights.pdf
http://telus.com/en_CA/content/pdf/FFE/Is_Outsourcing_IT_Good_For_Your_Business.pdf
https://bakhrebaha.files.wordpress.com/2011/04/outsourcing.pdf
http://college.cengage.com/polisci/duncan/world_politics_sce/1e/assets/students/case/duncan_1e_case_ch13.pdf
http://college.cengage.com/polisci/duncan/world_politics_sce/1e/assets/students/case/duncan_1e_case_ch13.pdf
http://www.colby-sawyer.edu/assets/pdf/Offshore-Outsourcing.pdf
https://www.ico.gov.uk/upload/documents/library/data_protection/detailed_specialist_guides/outsourcing_gpn_version_2.1_080409.pdf