Elsevier

Business Horizons

Volume 48, Issue 4, July–August 2005, Pages 311-315
Business Horizons

Outsourcing: Pros and cons

https://doi.org/10.1016/j.bushor.2004.11.001Get rights and content

Abstract

Overseas outsourcing of jobs is far more complicated than is generally understood. Pressures to outsource range from better-serving overseas markets to increasing the competitiveness of American business. Outsourcing—domestic and international—responds to management's desire to focus the firm's in-house activities on its core competence. A negative side to outsourcing results from companies doing so simply because “everybody is doing it.” They may be surprised by accompanying factors such as unexpected costs and complications, as well. Governmental policymakers need to realize that foreign companies outsource more business services to the United States than American firms send overseas.

Section snippets

The complexities of outsourcing

Overseas outsourcing of jobs has quickly become a controversial national issue. Some see outsourcing as a way of maintaining or increasing a company's competitiveness. Many others view outsourcing in a far more negative light, focusing on jobs lost.

Clearly, outsourcing is not a subject that can be effectively dealt with on a bumper sticker or via 30-second sound bites. Let us start with a little background before we ponder on any firm conclusions. Outsourcing involves far more complicated

Why do companies outsource?

Many service companies started creating jobs overseas to gain access to foreign markets. They had to audit, consult, and repair where customers were located, rather than telling those same overseas customers that they had to come here. Moreover, many foreign markets have been growing quickly, while some domestic areas have become relatively saturated, or at least mature.

The age of economic isolationism has long since passed. Approximately 60% of the revenue of American information technology

The limits to and dangers of outsourcing

A word of warning, however, is necessary in the face of current business enthusiasm for overseas workers. Companies who outsource just because “everybody is doing it” may be surprised by unexpected costs and complications. About one-half of the outsourcing arrangements entered into end up being terminated, for a variety of reasons. Some new overseas vendors encounter financial difficulties, or are acquired by other firms with different procedures and priorities (Lutchen, 2004).

Businesses that

What happens to the company's employees?

The effect of outsourcing on U.S. employment is far more complicated than it first appears. The visible part, or the tip of the iceberg, is widely known and recognizable: some U.S. employees lose their jobs or get shifted to less desirable positions. Although the iceberg may have had a very large tip in recent years, serious analysis of the issue must encompass the entirety of the iceberg.

The total employment effect of outsourcing is much larger than what appears at first glance. Far more U.S.

What is the net effect on the United States?

On reflection, most service jobs cannot be outsourced. Personal contact is vital in virtually all business activities. It takes domestic companies to tailor new products and services to the needs of local customers (Drezner, 2004). Most of the people we work with regularly remain close by; we normally do not take long trips to see our doctor or dentist or lawyer or accountant. Much less do we go to New Delhi or Manila for those purposes.

One of the great strengths of the American economy is that

What should we do?

Do those who advocate laws against American business outsourcing really believe that foreign governments would not retaliate? It is likely that these same people have never given thought to the fact that, in a global marketplace, companies all over the world are outsourcing. The United States is both the world's largest exporter, as well as the world's largest importer. In other words, we have the largest stake in maintaining open markets, both at home and abroad.

As in many other forms of

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There are more references available in the full text version of this article.

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This manuscript was accepted under the editorship of Dennis W. Organ.

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