Proportional Outsourcing

Although offshore outsourcing is a concept commonly identified with the Western world, the highly-criticized business practice serves as a prevalent issue in the 21st century across the globe. Outsourcing is considered unfavorable by many, predominantly due to its association with job loss. Canada, Australia, Singapore and the United States are among the world’s top outsourcing countries. As a result, outsourcing has contributed to an increase in unemployment in many of these nation states. The Australian corporation, Telstra, has singularly moved 10,000 of its 38,000 jobs overseas, leaving thousands of Australians unemployed. Since Canada began offshoring call-center jobs to India in the 1900’s, the telecommunications industry has reclined 10 percent. Not to mention, the United States alone saw an elimination of one million jobs from the workforce between 1999 and 2010 solely as the result of outsourcing.

However, offshore outsourcing has provoked many negative effects on the receiving end as well, specifically in regards to environmental regulations. Since the signing of NAFTA, Mexico has greatly relaxed their environmental standards to be a competitive recipient of foreign jobs against China. As well, given the tax holidays that IT divisions receive in India, many North American industrial companies have rerouted their income through their IT departments while outsourcing the industrial work to India. As a result, India has been subject to an increase in pollution. Aside from environmental upheaval, India has also become the home of call centers for many corporations. Although this is not disadvantageous to the Indian people, the language barrier has proved ineffective for many companies, ensuing a decline in customer satisfaction. These disadvantages to outsourcing are among many others such as the discouragement of innovation at the state of origin and a drop in the number of people majoring in high-technological studies.

Still, many proponents of outsourcing contend its benefits such as the low costs of manufacturing externally. This ultimately allows for higher wages in other non-manufacturing positions internally. As well, it is claimed that outsourcing serves as a resourceful way to capitalize on modern technology by easily contacting talent across the world that is not readily available at home. Therefore, as the number of businesses taking part in outsourcing grows daily, it is necessary to promote global policy that considers the benefits of the practice while introducing regulations to prevent further negative economic and environmental repercussions. Various bills have been proposed in recent years to attempt to regulate the outsourcing process. The two bills put forth by the United States, the “Stop Outsourcing and Create American Jobs Act of 2010” and the “Bring Jobs Home Act”, were refused by the U.S. Congress. Both bills sought to phase out outsourcing to ameliorate domestic issues such as unemployment and tax evasion. Still, the U.S. has yet to propose a bill that seeks a solution for all global participants.

Conversely, the E.U. “Services Directive in the Internal Market” was passed to embrace a more inclusive approach, considering both the sender and the receiver in the outsourcing process. The purpose of the law was to “liberalize freedom of establishment of E.U. enterprises and trade in services among E.U. Member States.” The directive facilitates the process for an enterprise incorporated in one E.U. state to operate in another by simplifying the procedures and formalities involved in outsourcing. However, it is accompanied by many standards and principles. For one, it requires a nondiscriminatory process for all nation states as to eliminate the possibility of antitrust. The “proportionality” principle also requires that local legislation on outsourcing must comply with minimal set standards in the Services Directive. This is favorable because the directive calls for a high level of consumer protection for businesses and individuals who serve as Service Recipients. The law further obliges all Member States to remain subject to their own labor laws while operating in foreign countries. Overall, the law removes adamant legal and administrative barriers to encourage outsourcing while still providing regulations in consideration of all participating parties.

If applied on an international level, the solutions developed by the European Union could eliminate many issues associated with outsourcing worldwide. Requiring companies to comply with their own domestic laws abroad would reduce extraneous outsourcing because corporations would no longer move operations overseas for the sole purpose of tax evasion or low environmental standards. This serves as a win-win situation because it would prevent companies from curtailing environmental standards abroad, as with Mexico, and it would concurrently maintain some employment back home. Likewise, the implementation of a comparable “proportionality” principle would prohibit companies from applying their own relaxed domestic codes in foreign nations with stricter laws. In this way, minimal standards would prevent issues as in the case, Sumitomo Shoji Am v. Avagliano, in which a Japanese subsidiary attempted to evade U.S. discrimination laws by calling upon Japan’s lower set standards. Provisions of the like could be employed in multiple ways transnationally, as with FCN Treaties or other forms of international legislation. As it stands, many companies worldwide are taking advantage of the minimally-regulated outsourcing process. While living in a time when globalization is rapidly expanding, it is crucial to connect with foreign nation states through outsourcing. But at the same time, regulations must be applied to prevent a manipulation of the system.

3 thoughts on “Proportional Outsourcing

  1. Alex Vovk

    Elizabeth Donald’s blog post “Proportional Outsourcing” briefly examines hotly debated and polarizing practices of outsourcing and off-shoring. It is nearly impossible to adequately and fully examine the topic of outsourcing and all the causes and effects associated with it in a relatively short blog post or a comment on it. There have been numerous books and articles written on the subject, scientific research and studies conducted by top management consulting firms, variety of seminars and workshops offered, countless projects have been undertaken, some that have resulted in successful outcomes and some that have failed despite the best intentions and planning. If you enter “outsourcing” in Google search, it will return 83,000,000 results in under a second.

    Outsourcing is praised by some and despised by many. It is the practice that many companies have implemented and on which they rely heavily to keep the costs down. The best answer to a question of whether outsourcing is beneficial would be – “it depends”. It depends on variety of variables, such as the type of industry being outsourced, environmental impact of the practice, societal changes resulting from the displacement of jobs and processes, and economic factors, to name just a few. The main reason outsourcing is hated is not difficult to identify, since its immediate and the most painful result to those affected by it is the loss of jobs, factories, and even entire industry segments.

    Globalization created an environment where the competition for jobs comes not only from domestic markets, but internationally. As anyone who took a beginner course in Economics knows, when the supply goes up, the demand necessarily goes down. When a pool of qualified workers a company can choose from expands to include not only the local workforce, but the global, especially from countries where the cost of doing business is much cheaper, the outflow of jobs and the decline in salaries are to be expected. Some of the other negatives of the outsourcing and off-shoring include intellectual property and privacy issues due to the differences in laws, rules, and regulations between countries; delays in the delivery of projects due to time zone differences, communication lags, miscommunication stemming from potential language or cultural barriers; inaccuracies in implementation or production requiring fixes, updates, reassessments, and remediation, and so on. Not the least of the negatives is low morale of the employees who see their colleagues getting replaced by cheaper foreign labor or by automation and thinking that their positions may become obsolete in the next outsourcing wave. Instead of valued employees who have a stake in the company and contribute to its success, workers in the industries subject to outsourcing may feel like they are a liability or just a commodity, an easily replaceable part of a big impersonal entity driven only by profits and concerned only with reducing costs. Compared to their parents and grandparents, who very often spent their entire careers working for one company and enjoyed the benefits, loyalty, and prestige of seniority, modern workers often feel disenfranchised. This resentment of outsourcing cascades to the families and friends, affecting the younger generation of students who often make difficult choices regarding their fields of study based on the prevailing employment trends. Lastly, outsourcing reduces the countries’ tax revenue s, increases deficits, and drives the unemployment rate higher.

    The other side of the coin concerns numerous benefits of outsourcing. It allows business owners and managers to utilize foreign contractors as opposed to more expensive part-time and full-time employees. If done correctly and effectively, outsourcing can result in better productivity and reduced payroll, taxes, benefits, and administration costs. Constantly improving technology makes it easier for managers, entrepreneurs, and business owners to stay in touch, collaborate with their overseas partners, and monitor the progress of the projects.
    Carefully considering pros and cons, companies should engage in responsible and balanced off-shoring and outsourcing by adopting labor and quality standards which would create decent wages, working conditions, and environmental protections.

  2. Matthew Flanagan

    The topic of outsourcing is very complicated and whenever it is brought up, people get very emotional about it. Most people believe that outsourcing is equivalent to the plague in business. It kills off thousands of jobs for people in many advanced countries. America has lost over 1 million jobs since 1999. The fact is that labor expenses are the largest among most companies. Labor is a very expensive necessity to most businesses and it is by far the biggest expense in most cases, especially in America where people need to have health benefits and a set number of days off. It is not like that in other countries. Countries like China and Mexico have no such fair labor practices. They get paid pennies on the hour and get practically no time off and no benefits. This is why it is so cheap to outsource. And shipping costs are relatively cheap compared to the amount of money being saved by outsourcing.
    All of us know someone who got laid off due to outsourcing. My own father lost his job at Lucent Technologies in the early 2000s because all of the telecom and tech companies were outsourcing. I remember my dad telling me how they offered him a higher paying position if he moved to china to work there. Obviously he rejected it. However, many people did not. Even throughout my experience with outsourcing, I do not believe that it is a terrible thing. Outsourcing increases profitability in companies. Another reason why outsourcing is not terrible is because without it, many processes would be automated instead of done by man. Automation would be expensive to implement, but it would save millions over time. If there was no outsourcing, labor expenses would eventually become too expensive, then companies would begin to automate everything, then there would be even less jobs and there would be zero opportunity anywhere else.
    Theoretically, outsourcing can also be a means of innovation. When people get laid off because of outsourcing, they are left with all of their bills to pay and no way to pay them. Some people get demolished, and others decide to make the best of it. Some people may take their layoff as an opportunity to start their own business and make their own living. This would also create more jobs, replacing those lost due to outsourcing. Outsourcing may also create innovation in a company that does the outsourcing. Outsourcing exposes different products to new markets, cultures, and environments. Management in another country may help innovate and improve products.
    Unlike the typical belief, Outsourcing is not the end of an economy. Outsourcing can not only be good for aa company, but it may also lighten the blow of natural economic advancement. Improving technology makes it possible to automate most processes that can be done by humans. If it was not for outsourcing, all of the jobs lost by outsourcing wouldn’t be taken by someone in china, but they would ne nonexistent. There would also be a negative backlash in the logistics business because there would also be no need to ship products to china and back. This would cause hundreds of thousands of lost jobs. Soon, outsourcing will be replaces by automation and everyone will be saying how terrible it is to be replaced by a robot instead of a man in china.

  3. Sandeep Mishra

    Outsourcing has been an issue for many years as it reduces jobs in one area of the world and increases jobs in other areas to achieve the goal of reducing costs. I agree with the author that outsourcing laws have to be targeted to keep a check and balance in place when it comes to tax and employment. This means that there has to be a common laws between country A and country B to make sure the companies from country A have to follow laws in country B and country B has to put in place laws an tax structures that keeps companies from finding loop holes in tax and moving their practices out of their domestic counties. This becomes tricky as many of these countries that get the outsourcing business benefit from the outsourcing and will not create laws that demotivates these companies from operating in their country increasing jobs in their own country and getting tax revenues from these companies.
    I think that education and information has created a issue for outsourcing as many outsourced employees have understood the amount it cost employers in their home countries and have required to reach that amount as they feel they are entitled to it, therefore eliminating the huge gap between domestic employees vs. outsourced employees in terms of saving cost. Companies are starting to slowly move back to their domestic counties due to these lower cost savings. I think that the more domestic employees you have, increases the domestic citizens job ratio and therefore increases the spending in that domestic country where they are buying your companies products. Basically saying that the more companies return to the domestic countries, they will support a stronger system of citizens spending more because they now have jobs, therefore increasing the whole industry as a whole and increasing the money flow. If we outsource jobs, it prevents citizens of the domestic country from having jobs therefore they can not spend money on your products. People in the domestic country will have money to spend even if your margins are high you will still have buyers as they can afford it rather than constantly trying to bring down cost and margins to satisfy those same buyers and buyers in other third world countries where many of these jobs are moving to can not afford so that will not help your company in the long run.


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