Is outsourcing good or bad

Is outsourcing good or bad?

 

Outsourcing is generally thought of as the process of shipping jobs outside the U.S. to contractors in other countries where costs are much lower than ours.  But, the term actually means any contracting with “another company to provide services that might otherwise be performed by in-house employees — inside the U.S. as well as in other countries.  Many large companies now outsource jobs such as call center services, e-mail services, and payroll,” that are not necessarily outside the U.S.  (wisegeek.com/what-is-outsourcing.htm)

In fact, outsourcing is not new.  It has always been a part of the process of successfully operating a company by concentrating on doing what it does best.  Two well known examples illustrate the point:

 

• Ross Perot built a very large enterprise processing data for a variety of major clients, including General Motors and the federal government, among others.  His business grew to the point that GM acquired the company in 1984 in a $2.4 billion stock deal, and

• The automobile manufacturing industry always has made extensive use of outside contractors for a wide range of parts and assemblies they could not produce at less cost for themselves, such as wheels, tires, engines, etc.

 

The idea that outsourcing is bad gained currency after the adoption of the North American Free Trade Agreement, which was and continues to be strongly opposed by unions.  It has become a political issue, with critics claiming that it has accelerated the loss of U.S. manufacturing and led to the outsourcing of many jobs that were once considered secure, such as backroom call centers and software programming.  Just about everyone has a story about calling for a computer-related problem or a product that did not work as advertised, such as a small appliance, and finally hanging up the phone in a fit of pique because they were unable to deal with someone in India who simply could not communicate effectively enough to answer customers’ questions or resolve their problems.

One of my sons is a senior executive with a large textbook publishing house in New York that contracted with a firm in India to handle certain aspects of their product development.  However, he found that the process of trying to communicate effectively with Indian employees who, although they spoke English quite well, could not think in English, especially American English, caused too many problems.

 

Many foreign manufacturers, such as auto companies, have now established manufacturing facilities in the U.S. to be close to our market.  And even India is now exporting jobs.  For example, Infosys, the Indian technology giant, has back offices in America — staffed by Americans who are trained in India.

For those who argue that outsourcing causes entire factories to be shipped south of the border or elsewhere around the world, displacing American workers in the process, the unfortunate reality is that it is here to stay. 

However, in the long run it is a good thing.  The classic example is the demise of the buggy whip manufacturing industry, which went out of existence with the advent of the automobile. It’s a simple fact of life in today’s commercial environment, and there’s no going back to the “good old days.”

No one really wants or expects to return to the good old horse and buggy days just to preserve buggy whip manufacturing jobs.

We live in an increasingly interdependent world, in which using outside suppliers and sub-contractors to help keep costs down benefits everyone.