The Truth about Outsourcing

People outsource a lot in their lives, but may fail to recognize doing so. For example, a housewife sent her

daughter to elementary school and decided to start working. She hired a household helper to take care of the

house so that she could enter the job market and earn some money. This housewife is outsourcing, and her

choice of doing so is necessary and preferable. Actually, outsourcing in daily life is unbelievably handy.

“We do outsourcing in our everyday lives, such as dining out, whereby we purchase our prepared food from

an external source instead of making the meal ourselves”

In the past several years, multinational companies based in developed countries have increasingly

turned to developing countries to carry out some of their business activities. This phenomenon, loosely

called outsourcing or offshoring, is the transfer of some aspect of a company’s business activity to

another company in another country. Typical outsourced business activities include data entry,

accounting, and information technology support. Even tax returns are being processed by foreign

computer operators. These forms of outsourcing have helped create tens of thousands of jobs in some

developing countries. At the same time, however, fears have grown among workers in developed

countries that their jobs could be outsourced.

Outsourcing is not a new development in the global economy. Some author, traces its roots to whaling

fleets and floating factory ships of the late eighteenth century. Economist, the more recent example of

Motorola in the 1960s, when the company outsourced its labor-intensive assembly process to Malaysia,

Korea, and Monterrey, Mexico. As is often the motive for outsourcing, the move allowed Motorola to

compete effectively with other firms in the United States and, later, Japan.

Despite the growth in outsourcing around the world, or perhaps because of it, opposition has grown

significantly in many developed countries. In the United States, for example, the former chief executive

of Intel, Craig Barrett, believed U.S. workers face the prospect of 300 million well educated people in

India, China, and Russia who can do effectively any job that can be done in the United States.” For

opponents of outsourcing, the problem is not just low tech manufacturing jobs; more and more high-

paying, white collar service sector jobs are being outsourced as well. According to Deloitte Research,

two million financial sector jobs could be outsourced by 2013. Economists put it , “The worldwide

pool of available well-trained workers is much larger, and they are only a mouse-click away.

The paper discusses the potential costs and benefits for both categories of countries, developed and

developing. And also we would be discussing for and against the arguments from both sides, to give

you critical look.

Delta Airlines outsourced 1000 call center jobs to India in 2003, saving $25 million in the process. With

those savings, however, Delta was able to add 1,200 reservation and sales positions in the United

States. University of Chicago political scientist Daniel W. Drezner points out that 3.3 million lost jobs

translates into only 220,000 jobs lost to outsourcing per year That’s a small number compared to the

number of jobs in the overall U.S. economy: 130 million. Thus, outsourcing should affect less than 0.2

percent of employed Americans each year.

According to N. Gregory Mankiw, former chairman of the president’s Council of Economic Advisers,

outsourcing helps American companies stay profitable and improves their productivity. According to

Robert Reich, who served as labor secretary under President Bill Clinton, “Outsourcing does not reduce

the total number of jobs in America. If other countries can do something cheaper we ought to let them

do it, and concentrate on what we can do best

Catherine L. Mann of the Institute for International Economics, a Washington research group that backs

free trade, calculated that lower costs due to globalized production accounted for 10 percent to 30

percent of the decline in hardware prices during the technology boom of the second half of the 1990s,

when computer prices fell 10 percent a year. Moreover, the U.S. GDP grew by $230 billion between

1996 and 2003, thanks to outsourcing of information technology production

Interest groups that back American workers such as Rescue American Jobs, Save U.S. Jobs, and the

Coalition for National Sovereignty and Economic Patriotism are pressuring the federal government to

stem the flow of jobs overseas. If the U.S. government decided its workers needed protection and

investment in developing countries dropped, those countries would be significantly affected. Would

such a move be viewed positively or negatively in developing countries?

By the start of the 21st century, outsourcing was a household word in many countries around the world.

Most of the press reports in developed countries, however, highlighted the potential risks to jobs and

not the potential benefits to developing countries. This changed, in part, because of reporting by New

York Times columnist Thomas L. Friedman, who looked at the impact of outsourcing not only on the

advanced countries but also on the developing countries, especially India.

One of the most interest findings from Friedman’s study of Indian call centers that do work primarily

for American companies is how Indian business can be good for the United States and its workers.

“How does [outsourcing] benefit the U.S.?” Friedman asked S. Nagarajan, the CEO of a company

called 24/7. The CEO replied, “Well, look around this office.” All the computers were from Compaq.

The basic software was from Microsoft. The phones were from Lucent. The air conditioning was by

Carrier, and even the bottled water was by Coke, because when it comes to drinking water in India,

people want a trusted brand.

On top of all this, Nagarajan added, 90 percent of the shares in 24/7 are owned by U.S. investors. This

explains why, although the United States has lost some service jobs to India, total exports from U.S.

companies to India have grown from $2.5 billion in 1990 to $4.1 billion in 2002. As Friedman puts it,

what goes around comes around, and also benefits Americans. Friedman also raised awareness of the

complexities of outsourcing, of how it is difficult to draw definitive conclusions about its costs and

benefits. For example, Friedman found that a lot of “America’s Saturday morning cartoons are drawn

by Indian animators like JadooWorks, founded several years ago here in Bangalore, India, though, did

not take these basic animation jobs from Americans.

For twenty years they had been outsourced by U.S. Movie companies, first to Japan and then to the

Philippines, Korea, Hong Kong, and Taiwan. The sophisticated, and more lucrative, pre production,

finishing and marketing of the animated films, though, always remained in America. Indian animation

companies took the business away from the other Asians by proving to be more adept at both the hand

drawing of characters and the digital painting of each frame by computer at a lower price. But here’s

where the story really gets interesting,” Friedman added. “Jadoo Works has decided to produce its own

animated epic of the life of Krishna. To write the script, though, it wanted the best storyteller it could

find and ended up outsourcing the project to an Emmy Award winning U.S. animation writer, Jeffrey

Scott for an Indian epic!. [An] Indian cartoon company isn’t just taking American jobs, it’s also making

them.”

Madhu Bhusan, an anti-globalization activist, argues that outsourcing and globalization in India are

“creating a dependence and creating a vacuum in the kind of natural organic nature of our society.”

The city, she complains, “has become the model of development, progress, of economic growth, of

everything . and economic conditions in which village life becomes unsustainable.” What’s more, the

idealized view of globalized lives masked the sense of cultural loss prevalent in so many villages

throughout India. K. L. Kumar also seeks the preservation of traditional life in India. “Let the industry

economies live, but leave us alone. Don’t make us want to live like you.”

Real life examples:

One morning friend of mine spoke with me about to get an X-ray of his spine for medical care, and the

hospital offered him two options for further medical analysis. The first option could diagnose the spinal

ailment within a half hour, because the doctor in the hospital would check the photo; this service would

have cost $98. The second option guaranteed that he would have the result within two business days,

and it only cost $15, because his X-ray would be sent to India electronically. After learning that the

doctors in India had equivalent professional skills and qualifications as his American doctor, the man

decided to pay $15 without any hesitation. He received his medical analysis later that afternoon, a

response from one of the Indian doctors. This vivid story illustrates how fascinating outsourcing is to

consumers and businesses: it is all about utilizing a more economic way to get things done.

In the book, Your Call Is (Not So) Important, the writer Emily Yellin called Office Depot’s U.S. 800

number about a delivery problem. She was first connected to Pablo living in Argentina. Then was

connected to Natalie in the Dominican Republic; finally, Andrea in the Philippines solved her problem.

She was amazed by the fact that one U.S. company outsources its customer services all over the world,

and her experience effectively demonstrates the popularity of outsourcing.

In a report from Forrester Research, Inc, about $136 billion in wages would move overseas by 2015.

These daunting statistics are the indicator of what the U.S. is like and will be like with the growing

outsourcing: millions of jobs that are involved in every profession are going to be outsourced and

billions of dollars are going to flow out of the country.

Professor Tony Quinn thinks that the workers who are laid off because their jobs are shifted to India,

China or countries alike should not take responsibility on their own; instead, the society should be

responsible for them. Some people may think those laid-off workers cannot save themselves because

they tend to be the least educated people in the work force.

However, Louis Uchitelle argues that “Education is without doubt a good thing. But there are not

enough good jobs for the college educated, and neither the private sector nor government offers much

help” (Uchitelle). So education may not determine whether one loses his job or not, and uneducated

people should not be blamed for their lack of education. Moreover, Doug Henwood points out in his

article, Toward A Progressive View On Outsourcing, that “Our treatment of the unemployed and

displaced is scandalously cruel.”. Moreover, one stark example is Bangladesh employs less educated

peoples in call center jobs, because they can work more hours with less salary, compare to educated

pupils, because now a days there demands are higher when it comes to employing in call centres.

The most widely cited projections for off shoring which estimated in a November 202 report that 3.3

million service-industry jobs would go offshore by 2015. That looks like a big number, but it needs to

be put in perspective. In January the U.S. had 108 million service jobs. According to the Bureau of

Labor Statistics, the economy should add 22 million jobs between 2000 and 2010. So the best estimates

we have are that the outsourcing total equals about one in thirty of today’s jobs, or one in ten of the

next decade’s new jobs. (Henwood)

By outsourcing routine tasks to foreign workers, U.S. workers are able to focus on higher value jobs.

U.S. computer engineers do less routine programming and more systems design. U.S. accountants do

less cost tabulation and more cost analysis. (Schiller)

Too big to fail- Out Sourcing and Re-Outsourcing:

A study by Oxford Economics estimates that it employs 1.2 million people, and creates or supports a

further 2.3 million jobs. According to the research, the current outsourced market for public services

has an annual turnover of 82bn pounds, representing around 24 per cent spend on public services in the

UK.

And it matters because outsourced public services have an impact on the entire economy, in terms of

wage levels, benefit demands and spending power. It matters because these services are vital to UK

social fabric and have knock-on effects – effects that can help or hinder not only the people they serve,

but their friends and relatives.

And a report released by Social Enterprise UK, the national membership body for social enterprise, has

produced some stark conclusions about how the face of our public services has changed.

Serco, operates prisons and young offenders institutions. Transport services like the Docklands Light

Railway and Barclays Cycle Hire. Leisure services. Management for hospitals and pathology services.

Waste collection for local authorities. Education services for local authorities.

In the early years of outsourcing, the commissioners at local and national level lacked experience and

confidence, so they went with the biggest firms, whom they felt they could trust. Rather than tear up

these contracts.

This is the situation today: in March this year, the UK Border Agency issued contracts worth £1.7bn for

asylum seeker services (including accommodation). All eight contracts went to three companies: G4S,

Serco and Clearel. Outsourced companies, nearly a quarter of the £3.3bn contracts for the Work

Programme went to one company (Ingeus). And cuts within the public sector have reduced the volume

and skill of commissioners, meaning that they will choose to “buy safe” more often than not. This lack

of genuine competition, as we’ll see, removes the main incentive to provide quality of service.

It’s also forcing smaller charities and social enterprises out of the market. Many are making

redundancies and turning away from public service markets in order to survive, just when they are

needed most. They cite procurement policy as one of the biggest barriers to their sustainability. One

enterprise which went bust as a result of signing up to the Work Programme. It wasn’t the only one -

earlier this year Groundwork South West also went into administration.

Peter Holbrook, CEO of Social Enterprise UK, discusses “We’ve seen companies go to the wall, or

being sidelined, and of course it makes every one's nervous. These days you increasingly have to work

with a private contractor. It means small charities are getting crumbs from the table” This is the

problem with the payment-by-results (PBR) system. Payments for these hard-to-reach jobless cases

may be some time coming, if they come at all. Not-for-profit organizations, having failed by definition

to build in a layer of profit to their business model, don’t have the capital reserves to wait for results.

Essentially, they find themselves out-maneuvered by the bigger companies that sub-contract to them.

And this matters because.

This is market failure, pure and simple.

The public does know about due to the Olympic fiasco: G4S. But the report has a lengthy section about

a sector of the industry which hasn’t received quite so much coverage: childcare’s services. It’s an area

that was highlighted by the recent scandals, but this element of the story was somewhat buried by the

other details.

It used to be the case that charities would bid for council contracts to care for vulnerable children, and

would cross-subsidies themselves from fund raising and other means to do so. It was never going to

last: private equity firms gradually took over. The report says: “Sovereign and 3i are the big contenders,

but it is hard to pinpoint which firm owns what; their waters seem to be in perpetual motion, as they

buy one another and take one another over, and offload assets.”

These companies operate by buying up cheap housing stock around the country, to which vulnerable

children can be shunted. Two London boroughs now have no children’s homes at all. There are 101

homes in Lancashire alone, even though Lancashire has a population of less than 1.5 million. London

has 130 homes, for a population of 7.8 million.

It’s not hard to see how the practice of moving children around can exacerbate the problem. Once a

child is removed from its own local authority, it loses contact with its team of social workers, its

grandparents, neighbors and others who might be able to spot the signs of abuse. One girl at the center

of the Rochdale case was moved from Essex and placed in a one-to-one home, where she was the only

resident. She never woke up with the same staff member in the home who had been there when she

went to sleep.

Almost all the jobs being advertised by private care firms are at the UK minimum wage. This isn’t a

living wage, as we all know. The staff are paid by the minute and aren’t paid traveling time. A care

worker for a private company is interviewed. She was paid 14 pence per minute, and traveled from

appointment to appointment on buses: “An average day that I was doing at the time, and this wasn’t

very long because I couldn’t afford to keep it going, I’d start at 9, do 45 minutes with one person,

another 45 minutes at 10, a half hour at 12, a break, a quarter hour at 4, another 15 minutes at 4.30, a

half hour at 5 and another hour from 8 til 9. So that’s a 12-hour day for 4 hours’ money.”

Companies are making offers to contractors that aren’t mathematically possible if they’re providing

jobs with a minimum wage, national insurance contributions, a pension scheme and training. Savings in

one area invariably mean higher costs elsewhere: “No local authority should make that deal: even just

on the pragmatic basis that it will be their own residents who are on the receiving end of that low wage,

their own housing benefit department making up the carer’s rent shortfall, their own health and

children’s services that come under strain when poverty is rife.” We’re seeing a degradation of service

for short term profit gains.

“The public face of the company is all very welcoming. They’re always very hazy around money. It’s all, ‘Don’t you worry, there’ll be lots and lots of work for you’. We were all on zero-hours contracts, so basically they weren’t obliged to give us any work. There are hundreds of people out there working like this, I’d meet people all the time, for jobs that required two carers, and I never met anybody who was being paid any differently. I know the hours for tax credits have changed now, but most people were on housing benefit.”

This also means there’s a large section of the workforce that isn’t preparing for old age and retirement:

a problem that will also have to be dealt with further down the line. It’s no surprise staff turnover is

high, and this feeds into the quality of care. £529,770 that was lost from staff fraud or abuse from the

Flexible New Deal. Or the clinical failures that saw London hospitals being forced to lend money to

Serco. Or the chaos that followed the privatization of our court translation services.

Or A4E’s company director payments, which saw the CEO Emma Harrison pay herself £8.6m, in a

year when fewer than 4 in every 100 unemployed people seen by the firm managed to secure jobs for

longer than 13 weeks. But cases like these show that its getting all the downsides of privatization, the

stripping away of money through profits, above all, and none of the upsides, because there isn’t

genuine competition.

Enterprises reinvest the money they make in service improvements. Private companies don’t: for every

level of sub-contracting, profits are taken out in the form of shareholder dividends. The total amount of

money being taken out of the social economy as a result is hard to quantify.

Money which has been allocated by Government to communities and issues that need it is being

stripped away. Here’s one example: “Private equity companies work to extract as much financial value

as they can from the companies they take over, in a relatively short time frame.

One of the ways they do this is through sale-and-leaseback deals on residential care homes for children

and adults. This leads to extreme volatility in a market where stability is a fundamental requirement.”

But perhaps the most galling thing is that nearly half the money raised by this practice doesn’t even

stay in the UK. 2010 report by the Office for National Statistics showed that more than 40 per cent of

shares in UK companies are held by overseas investors: this had increased by almost 25 per cent in just

two years.

Although there has been a loud uproar over the upswing in outsourcing, some experts argue that it may

not be all that bad. Companies sometimes need to cut costs in order to stay in business, especially in a

recession period, and outsourcing manufacturing and non-core business activities has allowed many

companies to do that. If outsourcing allows a company to cut costs and produce goods more cheaply,

thereby remaining a healthier business and passing on savings to consumers, is it not acceptable for a

company to outsource jobs? That is the idea behind comparative advantage.

Interestingly, according to an article in Blumberg Businessweek, the United States is now one of the

fastest-growing countries as a destination for outsourcing. Online contracting, in which workers are

hired for short-term assignments and work via the Internet, is one of the fastest-growing fields for

outsourcing. American workers, with their technical expertise and widely-available Internet

infrastructure, are highly desired. Freelancing, which was expected to shrink because of the recession,

has actually increased as more stable full-time jobs with corporations dry up. The Internet allows firms

to select contractors from all over the globe and hire whoever has the skills to fit the project. It turns

out that wage differentials between American and Indian workers are less than $6 per hour on average,

and that U.S. workers receive generally higher ratings for their work. This is yet another instance of the

Internet smoothing over barriers and connecting the world. Increasingly, Thomas Friedman may be

right: the world is growing “flat.”

One of the biggest advantages can be lower personnel costs. By outsourcing job duties to non-

employees, a business does not have to pay consistent wages or offer additional employee benefits. The

company may pay lower taxes because independent contractors, the people who complete the

outsourced projects, pay their own withholding, social security, and other taxes. This can add up to

substantial savings. Also International outsourcing is driven by the business demand for wanting to

provide a 24/7 customer service culture which benefit and satisfies local consumers.

I think Outsourcing is a good business strategy. Apart from the cost reduction factor, other benefits

utilize a company’s resources focusing on management efforts and helping to save time. The

outsourcing of IT jobs would benefits the U.S. economy therefore; it is a good business strategy. As

well as it helps nations mired in poverty by lifting the economy, but whether it does so in the best

possible way is questionable. Meanwhile, in the U.S. Consumers

Benefits from low costs, higher standards and timeliness at a developing economy’s expense. It creates

higher profits, delivers cheaper products, and enhances response time. Although there is a high amount

of jobs will be lost. New jobs are expected to be added. Outsourcing would affect less than 0.2 percent

of employed American which it would be the cost of improving productivity. Moreover, by outsourcing

routine tasks to foreign workers, U.S. workers are able to focus on higher value jobs. U.S. computer

engineers do less routine programming and more systems design. U.S. accountants do less cost

tabulation and more cost analysis. (Schiller).

I think whatever the case maybe Outsourcing rightly or wrongly is here to stay for very long time.

When Public Entities goes Private.

Press option one, Press option two, Press the hash key more times than one care to remember. Passed from one department to another, via Manchester and Mumbai.

Battling like this with three different companies on automated phone lines for countless hours since.

But three months on, still have to get them fixed the main electricity box.

The shocking indifference to customers and individuals by large modern corporations and Government

services is commonplace. They treat customers as though they are a mob to be kept at bay

Customers are forced to call to ask what is happening will take the slightest bit of responsibility for

sorting it out. In order to get a simple thing that used to be called ‘service’, customer are been locked in

a bureaucratic battle of epic proportions with disinterested call-center staff who would test the patience

of Job

This call is being recorded for quality and training purposes

One would have more respect for them if they admitted: ‘This call is being recorded because we are so

useless we may need our lawyers to pour over the transcript if you sue us for the horrifically bad

service you are about to get.’.

It seems barely credible, for example, that when you ring a company to remove channels from your

satellite TV package, the waiting time is so long you invariably give up. But when you ring to add

channels and increase your monthly subscription you get straight up. Moreover, they often don’t

mention the contract period of channels. So, when you rung them to terminate the channel. You will

hear something like. 'The channel was part of the package your are enjoying. And if you terminate the

channel and thus contract you will get X amount penalty. Thus, you don’t have an option but to keep

the channel and watched the reality show what you don’t understand in the first place.

Outsourced companies smartly changed the name from “service” to “Customer Experience”. One

public entity, I worked has the services to provide what they called divisions. For example if you call

an agents to change the GPRS phone package. Agent put you on long hold as if they are trying to tell

you to make your self nice cup of tea or coffee. Un-hold the person, “Sir Mam, we are unable to do to

because you need to pay the last month bill. Therefore, I will transfer the call to Billing department.

The relevant department sitting next to the agent, they were chatting when agent put the customer on

hold”.

http://danielsethics.mgt.unm.edu/pdf/Outsourcing%20DI.pdf

http://www.pwc.com/en_US/us/asset-management/investment-management/publications/assets/offshoring_highlights.pdf

http://telus.com/en_CA/content/pdf/FFE/Is_Outsourcing_IT_Good_For_Your_Business.pdf

https://bakhrebaha.files.wordpress.com/2011/04/outsourcing.pdf

http://college.cengage.com/polisci/duncan/world_politics_sce/1e/assets/students/case/duncan_1e_case_ch13.pdf

http://college.cengage.com/polisci/duncan/world_politics_sce/1e/assets/students/case/duncan_1e_case_ch13.pdf

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