Tesina: Outsourcing in the United States of America

Outsourcing affects The United States Economy, it doesn’t affect company workers or high executive managers, but employees are affected directly with the constant fear of losing their jobs. The main disadvantage of outsourcing creates offshoring which include massive layoff (unemployment) and the main advantage is cost and efficiently savings. This paper will try to prove that the economy of the United States is being affected by outsourcing. 2. -Introduccion In the following paper analyzes The United States of America (U. S.

) this work is to perform an extensive research with reliable informational sources, using different types of methodologies that helps analyze and deliberating if our theory is right or wrong. The development of this paper includes some of the definitions of “Outsourcing” and the different types that exist; entering over the topic will discuss the pros and cons. It also investigate which types of industries are using this type of strategy and the Top 10 U. S. companies where it is used, also offshoring other significant strategy concerning the subject that will help us to have a more extensive knowledge and to make a deeper analysis.

Assuming that our theory is correct, it will analyze how it affects the economy and what kind of “Outsourcing” is the most damaging to the economy of the U. S. using these can help investigate whether the US has decreased/increased or remained at a stable level over the past 10 years, with unemployment rates and if it has to do with outsourcing 2. 1. – Outsourcing definition: As defined in the Webster dictionary outsourcing states the definition as paying another company to provide services which a company might otherwise have employed its own staff to perform. 2. 2-Diferent types of outsourcing

In BPO (Business Process Outsourcing), a particular process ortask is outsourced. A BPO work is either back office related or front office work. By front office functions are customer oriented work like marketing, answering calls, technical support and so on, whereas internal work like billing and purchase come in the back office category. KPO (Knowledge Process Outsourcing) calls for work that needs higher levels of involvement from the worker. The worker has to employ advanced levels of research, analytical and technical skills and has to make decisions of a higher order than BPO work.

The most important type of outsourcing the one we want to base our work if offshorring , we can find the definition in the business dictionary as Work done for a company by people in another country that it’s done at a cheaper cost. Outside of costs, offshore outsourcing may be used to complete tasks that the company may not be equipped to handle; it’s also used to have cheaper productions and service costs. Call centers are a popular service that is often outsourced to other countries. Offshore outsourcing is a factor for the U. S.

for increasing unemployment due to the lack or elimination of jobs. 2. 3-Advantajes of outsourcing -Swiftness and Expertise: this is one of the most valuable advantages of the outsourcing because you are hiring people that are experts in their field and count with the equipment needed to accomplish their work effectively and efficiently. Examples of this are vendors, programmers, and technicians. -Concentrating on core processes rather than the supporting ones: this is one of the most common reasons to outsource. When a company hires the services

of a professional to do something in which the company has no experience, the company can concentrate on the core processes and become more competitive. -Risk-sharing: this factor could be the difference between the failure or the success of a company. The reason is that when a company outsourcing shifts certain responsibilities to the outsourced part, the level of risk decreases because they plan your risk-mitigating factors better. -Reduced Operational and Recruitment costs: this is another big advantage of outsourcing.

When a company hires the services of another company, the company avoids all the recruitment processes and the cost involved in it. 2. 4-Disadvantages of outsourcing – Risk of exposing confidential data: there is always a latent danger that the company that you hired to be in charge of, for example, the payroll or recruitment services, may expose confidential company information to an external part. – Synchronizing the deliverables: these problems may occur when the outsourced company do not fulfill with the quality standards that the company used to have before they hired the services of that company.

– Hidden costs: when a company uses the outsourcing, there are almost all the times, hidden cost that are not well defined by the parts involved in the contract, and most of the times a misunderstanding error of this kind may cause the breakup of the organizational relationship that already exists among the companies. – Lack of customer focus: most of the times the outsourced vendor do not care about the relationship between the company that hired its services and its clients. 3. – Content 3. 1- Areas where the outsourcing is mostly used. 1.

Information Technology Outsourcing (IOT): it is when a company hires another company specialized in computer related works, such as programming, to develop the software that the company will use 2. Human Resource Outsourcing: it is when a company decides to hire a company to take charge of the hiring process and the payroll management 3. Call Center Outsourcing: it is one of the most used outsourcing forms; serve to companies to delegate the customer service to another company to specialize on the core business activities of the company. 4.

Accounting Outsourcing: it is used when a company does not want to take charge of its own accounting and finances activities and hire a company that is professional in the field to do it. 5. Marketing Outsourcing: it is very common especially in the small and medium enterprise; usually these companies cannot have its own marketing department so they hire a company to make all the marketing processes 3. 2- Outsourcing through time in the U. S. The Notable Timelines in the History of Outsourcing in America 1970s Was around the 1970s, when the concept of outsourcing appeared in the United States history.

This was the era of the beginnings of the computer technologies, in development of which presented a likely tool for outsourcing the processing of company payrolls. During that time, there were several companies who could provide such services in states or cities where advancements in computerization were taking place. 1980s As technology kept on advancing, the 1970s through the 1980s saw several manufacturing companies sending off their raw materials to other countries, not because of expertise but mainly because of economic benefits.

Since direct labor costs represented a large portion of manufacturing overhead, harnessing the labor force of third world developing countries presented a better option. Soon enough, before the 1980s ended, the trend in outsourcing transcended from payroll, to HR functions, to manufacturing, and eventually to Information Technology (IT). Eastman Kodak was the first company to pay heed to an IT outsourcing firm’s advisement. 1990s – 2000 Advancing technologies saw the creation of self-service dashboards, which eliminated the occurrence of errors and discrepancies.

As the 20th century neared to a close, the Y2K scare about the collapse of major computer systems gave rise to the need for technologies that could update computer systems in just a flash. In fact, the Y2K scare was considered as phenomenal in its effect, because it also brought the advent of the Internet. The beginnings of the 21st century saw the boom in technological developments which brought the history of outsourcing to greater heights. Unfortunately, not enough American students were into the technological education scene at a time that technology was booming.

In fact, the highest jobs in demand were for IT specialists, but only a few American candidates were considered as highly qualified. Candidates had to meet technological advancements that were becoming more and more complicated. Accordingly, during that era, there were more Asians who were pursuing science and technological courses. The educational trends in the US are likewise outlined into timelines. 2001 Only 5% of American students graduated with engineering degrees while 46% percent were Chinese. 60% of those who graduated with PhD degrees in

Electrical Engineering were of foreign origins. 2002 An estimated 590,000 foreign students were enrolled in US colleges and universities and 20% of these numbers were Indian and Chinese students. The proportion of their American counterpart was placed only at 5%. 2003 The proportion of high school students who pursued engineering degrees dropped to only 2%. This was said to be due to the increasing number of American students who could not meet the math and science prerequisites, based on the standards of global demand for high technology.

Education seemed to be the foremost driving factor that led American firms to rely on the technological talents and skills of Foreign Service providers. To date, however, the lack of technological skills and talents in the American sector has abated, as awareness about the demand for high technological concepts became evident. 3. 3- Companies that currently implement outsourcing in the U. S. The list of companies that currently use outsourcing in any of its variations this is any type of outsourcing implementation is a large list to include in this paper, so we’ll include the main companies that use these services.

United States is using outsourcing to reduce cost of production, shipping cost and to reduce wages for employees who could seem as a good strategy for a company, but the economy and the money is not being increased ore created inside the United States so it created unemployment. In The Wall Street Journal we can find reports that today that in America isn’t doing its part to help bring America out of its economic problems there are facing.

The paper surveyed employment data by some of the nation’s largest corporations — General Electric, Caterpillar, Microsoft, Wal-Mart, Chevron, Cisco, Intel, Stanley Works, Merck, United Technologies, and Oracle — and found that they cut their workforces by 2. 9 million people over the last decade while hiring 2. 4 million people overseas. The paper notes that this is actually a sharp reversal from trends in the late 1990s, when these major companies were creating more jobs in the United States than overseas.

Yet by 2001, things took a turn for the worse, and these corporations have been adding more jobs abroad than at home, as is illustrated here: As you can see from the chart, the economic recession has had little impact on Corporate America. Which means that, in 2009, representatives of many of the nation’s most powerful corporations attended the “2009 Strategic Outsourcing Conference” to talk about how to send American jobs overseas. Conference organizers polled the more than 70 senior executives who attended the conference about the behavior of their companies in response to the recession.

The majority said their companies increased outsourcing in response to the downturn, with only 9 percent saying they terminated some outsourcing agreements: The executives found that the top reason for companies to outsource was to “reduce operating costs” (46 percent of respondents). Only 12 percent of respondents said their reason for outsourcing was “access to world class capabilities. ” This means companies are outsourcing to save themselves money, not make better products. Unfortunately, for some of these companies, sending American jobs overseas isn’t enough.

They also want to bring the profits back into the United States with as little tax liability as possible. We can see here that The United States is using outsourcing to reduce cost of production, shipping cost and to reduce wages for employees which could seem as a good strategy for a company, but the economy and the money is not being increased ore created inside the united states so it created unemployment. NOTE: Please see notes for a link that directs to the List of Companies in the US that implement outsourcing. 3. 4- Most common outsourcing in the U. S.

The Offshoring is the most common outsourcing in the U. S. , especially on the industry of Information technologies. One of the most outsourced countries by U. S. is India that has emerged as the dominant player in offshoring, particularly in software work. It’s basically the relocation by a company of a process of the company from one country to another. It normally is an operational process the one relocated, for example manufacturing, supporting processes, and such. This practice has been tracked back to the 1960? s, frequently; it is used in order to reduce labor expenses.

India is definitely the most popular destination for offshoring not just for the U. S. but worldwide, with almost 40% of the jobs sent there, researchers predict that this may change. According to U. S. based strategic advisory and research firm The Hackett Group, sending jobs to India will begin to decline starting 2014. They argue that it is critical for India to develop alternative sources of demand to maintain the growth of their business service industries. 3. 5- Fluctuant outsourcing in the last 10 years in the U. S.

Outsourcing is one of the most enthusiastically talked about business developments at the moment, cutting across all sectors. Recent research showed that in 2001 the US market for outsourcing grew by almost 20%, at a time when the rest of the information technology services market was struggling. Continuing growth is forecast for the US outsourcing market. The acquisition of management consultancies by IT services firms is one indication that IT outsourcing is becoming a commodity, and that the future is in business process outsourcing, where transformational change will be required.

Outsourcing is seen as a possible solution to a range of business challenges including cutting costs, creating capacity, improving service and introducing new technology. It can offer the additional benefits of reductions in fixed assets, in the current decision or declining IT budgets, outsourcing is also seen as a way for companies to generate money quickly to invest in new technology solutions. 3. 6- Rates of unemployment caused by outsourcing The first three causes of unemployment in the United States are principally financial crisis.

There are however other unemployment causes and consequences that have originated as a result of business practices. Outsourcing is one such practice where work is allocated to companies which are based in less developed economies, to benefit from cheaper labor hours outside the country (offshoring). This practice has led to loss of job opportunities. When seasonal and vacation-related mass layoffs are excluded, the proportion of workers who lost their jobs due to overseas outsourcing rises to about 2. 5 out of 100. Another 9,985 workers lost their jobs because the work moved to a different location within America.

In the first three months of the year, 4,633 U. S. workers were laid off because their jobs were moved to a foreign country. That represents less than 2 percent of the mass layoffs that totaled 239,361 during that period. The reports show that outsourcing had a huge impact on whether work sites were permanently shut-down or just temporarily closed. Fifty-one percent of mass layoffs caused by outsourcing were permanent closures of the work site, compared to just 17 percent of total layoffs. 3. 8- Standpoint of outsourcing negative/positive.

It is true that Outsourcing jobs creates a large population of “under-employed,” a population who doesn’t see much of any benefits from their employers. Outsourcing jobs creates a stronger middle class in other countries which the American economy benefits from. Salaries increase because low paying jobs is outsourced leaving Americans with high paying jobs, but how much Americans would have the benefit of obtaining a high paying job. Outsourcing is not a major factor of the number of Americans who are unemployed, or a factor that causes Americans to take lower paying jobs.

The economy of the United States is strong because of its openness in the globalized world. Outsourcing jobs results in the increase of productivity in businesses. Moving jobs to developing countries increases work hours as well as increase in amount of work done by each employee, but not for American employees, it goes to oversees workers and lower paying jobs. Some believe that jobs that are outsourced to developing countries are not replaced, and that outsourcing causes the jobs that are left in America to receive lower salaries and lack benefits that they would receive if outsourcing was not happening.

Outsourcing puts people out of jobs and creates this population of “underemployed. ” The middle class is severely affected by outsourcing because hiring people in developing countries will always be cheaper for businesses. Moving jobs overseas increases labor supply which decreases salaries over the entire country. 4. -Conclusion The Hypothesis that was based at the beginning of this paper said that outsourcing affects The United States Economy, it doesn’t affect company workers or high executive managers, but employees are affected directly with the constant fear of losing their jobs.

The main disadvantage of outsourcing creates offshoring which include massive layoff (unemployment) and the main advantage is cost and efficiently savings. The conclusion of this paper states that the presented hypothesis is correct; outsourcing does affect the US Economy. In this paper we found out that companies use more and more outsourcing in their services, the most common type of outsourcing is offshoring, it helps the economy of the country where the US companies’ decide to that their production or their services but the jobs that could be part of US employees are given to cheaper employees all around the world.

5. – Notes This link directs to a list of all the companies that currently use outsourcing as part of their business plan. http://www. cnn. com/CNN/Programs/lou. dobbs. tonight/popups/exporting. america/content. html 6. – Bibliography ThinkProgress Economy (2012) CHART: Top ‘U. S. ’ Corporations Outsourced More Than 2. 4 Million American Jobs Over The Last Decade http://thinkprogress. org/economy/2011/04/19/159555/us-corporations-outsourced-americans/ Sinderman, M. 1995. Outsourcing gains speed in corporate world. National Real Estate Investor (Aug. ) 37:42-50. http://www. cnn. com/CNN/Programs/lou. dobbs.

tonight/popups/exporting. america/content. html Mullin, R. 2006. Managing the outsourced enterprise. Journal of Business Strategy Outsourcing Center (2012) What is Outsourcing? It’s Our Past, Present and Future | Article http://www. outsourcing-center. com/ Outsourcing statistics (2012) http://www. statisticbrain. com/outsourcing-statistics-by-country/ Flatworld Solutions (2012) The Advantages and Disadvantages of Outsourcing http://www. flatworldsolutions. com/articles/advantages-disadvantages-outsourcing. php Bright Hub (2012) History of Outsourcing http://www. brighthub. com/office/human-resources/articles/100143. aspx