Pin It

Offshore Outsourcing Trends

chezfat | Jan 18, 2010 |

0 Comments | Rating: 0

Generations of past saw foreign workers migrate to the United States to experience The American Dream. These workers took the jobs from their eras which were at the bottom of the barrel. They were the only jobs of their era that they were capable of doing. Today in the form of offshore outsourcing we are experiencing the same concepts in action. The only difference is that these modern migrants do not have to leave their native countries and these new workers are often highly educated. Offshore outsourcing has arrived.

These people are more efficient at doing certain tasks and America has embraced this concept just as we have done for traditional migrants for tens and hundreds of years. Our modern economy must now learn to take advantage of this new highly efficient bottom feeding called offshore outsourcing and begin engineering the new economies of tomorrow, the new economies that we will develop here at home.

Offshore Outsourcing

Offshore outsourcing is a phenomenon that has been creeping up on American society and business for years. Especially since the bursting of the tech bubble American corporations have placed more and more emphasis on cutting costs and the logical step they have all taken is through the cutting of their expenditures through the outsourcing of many jobs. These jobs were those that weighed companies down with the necessary yet tedious tasks that commanded top dollar in the United States but could be accomplished by similarly educated workers overseas for a fraction of the cost. For corporations, offshore outsourcing can be attractive because it frees them from making huge investments which they may not need to maintain in the future and can even help with starting business operations because global outsourcing can make raising capital for startup an easier step in the process.

Because of this outsourcing employment is not necessarily a shunned business maneuver but it certainly is controversial. Many of our leading companies have relied on offshore outsourcing to continue expanding business and in some cases to even keep their businesses afloat. In the early years of the new millennium the United States economy weathered a recession and a bursting of tech bubble which brought so much wealth to American households. Now these same companies have maintained growth on the back of international labor. This has caused the economic recovery of our country to be very weak as job growth and wage growth has been anemic for nearly a decade. I argue that investment our education and infrastructure is the way to take advantage of outsourcing and to lead us once again to rapid increases in prosperity.

Increase Shareholder Wealth

The most widely known and accepted principle of business is the establishments purpose to increase shareholder wealth. Thusly, management will seek this goal in all business contract construction and will consider this goal in all decision making. This is significant to understanding the concept of outsourcing especially in the current millennia because it is the very slowing of this increase in wealth that has caused companies to look for areas to recoup this growth and keep their online business strategy intact.

In decades past, requirements have been implemented on business to increase health and safety standards, adhere to labor laws and ethical considerations, and generally increase the quality of their output. In the mean time as domestic companies implemented these practices into their business models they fought to increase shareholder wealth until the dawn of the internet began to take place in the 1990's. That decade saw one of the largest booms in productivity and technological innovation that the country had ever seen and shareholder wealth appreciated dramatically.

Unfortunately for these companies, however, as the internet bubble burst and productivity remained high due to newly developed tech and communications advances, companies suddenly were given the option of expanding this wealth through the labor of the greatly educated labor pool of the world's emerging markets via offshore outsourcing. Labor was cheap and these people could do the same work of locals due to the tech advances of the 90's. Call centers, data processing, and factories led the charge to overseas employment markets followed soon thereafter by white-collared jobs such as financial analysts, accountants, and architects. All of these maneuvers despite the obvious cross cultural communication barriers, have cut costs as shareholders have increasingly required it… but at the cost of the individual American worker.

Affect of Outsourcing on Society

The American worker has obviously taken the brunt of the outsourcing of jobs overseas to cheaper labor. It is obvious in blue-collar industries such as manufacturing but it is also as significant and possibly less noticeable in white collared jobs such as tech, communications, and finance. The recession of 2001 left behind the remnants of all the productivity of the 90's and none of the enthusiasm or expectations. It also left behind the demands of the individual consumer whom became accustomed to the pleasures of modern living. Analysts were expecting a 25%-35% increase in electronics manufacturing services products in 2001 despite the slowdown in the economy at that time. Why? Even though overall demand may slow for tech products, financial pressure will increase on the likes of Hewlett-Packard, Lucent, and Motorola to cut costs.

And costs were cut as we now have the hindsight to see it. Every electronic item has been seemingly manufactured in Asia as most call centers seemingly route through India. Consumers received what they desired, the same standard of living but at a lower cost. Offshore outsourcing made that possible. What they also got however, was belabored job growth for years to come and increased debt spending based on habits that were formed during the boom years. Currently we as a country are now faced with geographic regions that are in near economic collapse as all of their industrial jobs have been moved over seas and the same seems to be happening for lower end white collar jobs even today.

These individuals reaped short-term economic gain through the practice of outsourcing and for a few years this looked to be a successful business strategy but now they are currently experiencing the long-term effect of watching their jobs migrate overseas. The unfortunate side to this is that the retraining of these individuals is hard because they are now competing for jobs with equally highly skilled, highly educated foreign workers and there is not much option left for them.

Outsourcing on the Economy

Much like the short-term economic gain of outsourcing experienced by individuals, the economy as a whole benefited initially due to early adopters of the offshore outsourcing practices of corporate America. Blue chip companies were able to cut costs and pass on those costs cuts to a consumer base which was experiencing flat wage growth and stagnating job growth. The recession of 2001 was relatively mild and corporate America regained a sense of strength that was based on earnings rather than expectations of earnings. With real estate booming due to loose lending standards and cost cutting due to outsourcing the retail market recovered.

But as many good things come to an end our "Golden Age" is seemingly coming to an end. The real estate bubble burst and the great home ATM dried up. Lending standards are now tighter than ever, and this has caused retail expenditures to slow. Further complicating the situation is the booming economies of Asia and the developing economies that were positively affected by the offshore outsourcing migration. These economies have expanded and now require more of our planet's natural resources than they ever had before. This has caused the prices of our goods which had been in decline to reverse course and rise. Currently we are experiencing a time of unchecked outsourcing and it appears that it will continue to force our economy into further decline.