Pros and Cons of Outsourcing

Introduction2

Definition of outsourcing2

History of Outsourcing2

Description of the Problem3

Difference between Off-shoring and Domestic Outsourcing3

Consequences of Outsourcing4

Advantages of outsourcing4

Focusing on Core Competencies4

Entering foreign markets5

Economic Benefits of outsourcing5

Sharing of Business Risks6

Disadvantages of Outsourcing6

Quality Issues7

Loss of American Jobs7

Legal Issues8

Hidden Costs8

Supreme Court Rulings8

California State Supreme Court's Decision8

United States Supreme Court Ruling on Obamacare and its impact on Outsourcing9

Data Analysis9

Conclusion10

References12

Pros and Cons of Outsourcing

Introduction

The issue of outsourcing jobs is the subject of passionate debate these days. The debate is especially intense in the developed first world countries that are experiencing a flight of jobs to developing countries. The workers in the developing countries are willing to work on much lower wages than their counterparts in the developed countries. This has resulted in the loss of jobs for many Americans. In this paper, the pros and cons of outsourcing on outsourcing jobs out of the United States shall be discussed.

Definition of outsourcing

According to (Investopedia, 2013), outsourcing is a process by which companies allocate some of their operations to outside businesses in order to reduce their costs. In practice, outsourcing is a useful cost reduction strategy.

Companies also use outsourcing to achieve comparative advantage, whereby they can out source some of their work and save money which can be spent on other internal business processes.

History of Outsourcing

According to (Weidenbaum, 2005), the practice of outsourcing began not only with companies seeking to reduce operational costs but also to enter into foreign markets. According to (Drezner, 2004), outsourcing in USA has followed a pattern in which domestic outsourcing started with urban businesses outsourcing jobs to rural-area based companies who worked at cheaper wages.

If history is read it can be found that, after the Civil war, many textile factories from the north started to move businesses to the South. The rationale being, those workers in the South were willing to work at lower wages than the unionized workers in the north. A century later the same businesses outsourced their operations to countries such as China who were able to achieve specified production targets at much lower costs (Constitutional Rights Foundation, 2005).

Description of the Problem

According to (Weidenbaum, 2005), although outsourcing is a polarizing issue, it must be noted that almost 60% of the revenue of American IT companies is generated from overseas outsourcing. Many companies have relocated their plants and offices to foreign countries causing millions of employees to be laid off.

Difference between Off-shoring and Domestic Outsourcing

In the 2012 election campaign, the Democrats accused Gov. Mitt Romney of investing in companies that lead the way in outsourcing' jobs to other countries (Thomas, 2012). The Romney campaign team replied that the reports against Mitt Romney had failed to make a distinction between off-shoring and domestic outsourcing.

Differentiating between domestic outsourcing and off-shoring is important to gauge the effect of outsourcing on US economy. Consequently it will also help in making a decision between the pros and cons of outsourcing.

According to (Oxford Consulting Group, 2013), that most companies are unaware of the difference between these two ...