Outsourcing: Good or Bad?

         Outsourcing is subcontracting a service or process to a third-party specialist who has economies-of-scale advantages.  Almost every company outsources some part of their business today.  But is this really saving company’s money?  It makes sense to subcontract another company to come in and take over the services that are not core parts of your business.  The most common outsourcing relates to IT, payroll, customer service, and data entry.  Basically anything that does not require face to face contact.  There are four stages to incorporating outsourcing into a company, strategic thinking, evaluation and selection, contract development, and outsourcing management.  Outsourcing doesn’t necessarily have to take place overseas, although that is where it has been proven to be the cheapest.  Costs of outsourcing includes, finding a reliable outsourcing partner, training the staff for outsourced services, managing the outsourcing process, retaining the staff and maintaining the quality of service, and transferring dependency on the outsourcing partner.  Most companies look to outsource for the cost effectiveness.  In most cases the cost generally will reduce about 30-50% if the outsourcing party is flexible and reliable to adapt to any changes that may occur in the company.  Although this has been a controversial issue as to whether it is a good idea in the long run or bad.  Some argue there is no point since wages in offshore and nearshore locations are rising.  Outsourcing is not something a business should rush into, proper evaluation and strategic thinking is a must. 

            Outsourcing is known to take place in countries like India, China, Mexico, Russia, and the Philippines.  Jobs being outsourced usually are done by lower skilled workers, and do not necessarily require any face to face contact.  Although things have changed, not only are jobs being outsourced involving low-skilled workers, even higher skilled work is being outsourced.  For example, some patient’s medical X-rays are read by someone over in India or China.  It is expected that 200,000 more jobs could be outsourced every year for the next decade.  This makes Americans feel uneasy about their job security.  Americans do not want to compete for their jobs with people offshore.  Is it even fair for these companies to outsource when thousands of people are losing their jobs as a result of it?  The answer is no, but companies are finding ways to reduce cost as much as possible, and that involves outsourcing in most cases.  For example, an IT employee in the U.S. could cost a company $100 an hour, whereas in India it could cost $20 an hour and they would work double the amount of hours.  If this is even morally right is another question.  This is why some people do not support outsourcing because they feel it is wrong to pay someone in a foreign country significantly less than they would be paid here, especially when they are putting in a lot more hours.

            Already mentioned, it takes time to decide if outsourcing is the best idea for your company.  In addition to the costs included in outsourcing noted above, there are also unspoken cost like time, travel, legal in vendor selection, time lag issues, exchange rates, and retraining of management or techies.  Most importantly the cost of the relationship between the customer and the new service provider.  Most of us have called customer service lines and gotten a male or female from India or some other foreign country where we can barely understand their language.  Usually there is a long delay before the phone is even answered.  Also, some customers are under the impression the person they are getting help from is incompetent just because they can not clearly understand them, and due to the difference in language and customs, customers may misinterpret the situation. This frustrates customers, and could very well affect the company negatively. 

            Employers are inspired to outsource not just from the cost reduction in salaries they pay, but also in taxes.  Companies who hire offshore staff do not have to pay any federal or state taxes for those staff members.  The outsourcing companies are responsible for taking care of it themselves.  This is great for businesses trying to reduce their operational cost.  Also another great deal is that outsourced staff do not ask for benefits or compensation.

            It is of the opinion of individuals whether outsourcing is a good or bad thing, but what I think is that it certainly needs to be more regulated.  Yes it has been proven to cut cost for businesses trying to further succeed, but it is also getting rid of jobs here in America that people depended on.  I don’t think outsourcing will ever end, but it could be done more fairly.