Impacts of Outsourcing to the U.S. Economy
With the economic downturn, more and more companies consider outsourcing their data processing centers aboard. In fact, the total amount of IT offshore outsourcing increased from $75 billion to $76 billion in 2009. Forrester analyst Andrew Bartels also predicts that this amount will reach $79 billion by the end of 2010. The true meaning of the term outsource has yet to be officially agreed upon, however in simple terms, outsourcing means to use contract normal internal business activities to an external source. As a matter of fact, average people also outsource in everyday life, things like eating out in restaurants, doing our laundry in a laundromat, or purchasing ready-to-serve food. Unlike these simple tasks in our daily lives, outsourcing is a controversial term in the global economy because of its impacts. While creating many economic benefits, outsourcing to other countries also brings potential American economic disaster.
A survey was conducted by the Enterprise System in 2006, the primary reason for domestic companies to outsource is to control cost. Generally speaking, labor is one of the largest cost drivers in any type of business. According to ITTA, highly skilled and educated labor is much cheaper in other developing countries, such as India and China than in the United States. As a result of outsourcing, companies can save between 30 to 70 percent in labor. For example, according to Payscale.com, the wage for an average software engineer in the United States is $120 per hour, whereas the wage in India is only $18. Also, the average annual salary for programmers in the United States is between $50,000 to $60,000 compared to $8,000 to $10,000 in India. Besides the savings on wages, companies also reduce their employee benefits, such as pay leave, insurance, and so on. The Bureau of Labor Statistics reported in September 2010 that employee benefits accounted for 29.4 percent of the total employee cost.
Another reason for outsourcing is to "gain access to IT resources unavailable internally". Some companies stated that there is a shortage of technically trained workers in the United States which drives them to seek talent overseas. Major technology companies, like Microsoft, Intel, Google, IBM, are expanding even shifting its workforce especially customer service to other countries. Since India is one of the countries that have large public sector telecommunications networks, companies hire cheap, highly skilled and English-speaking laborers in the call centers as technical support and customer service. While reducing the labor cost, companies are also able to provide 24/7 customer service due to the leveraging of the time zone differential.
Of course, some people will argue that the consequences of offshore outsourcing outweigh the benefits. Some companies only focus on how to reduce the cost, yet ignore their social responsibilities. They seem to ignore the whole economic chain. Numerous jobs are being moved aboard therefore causing a higher unemployment rate in the United States. According to the Bureau of Labor Statistics, from 2001 to 2003, more than 5.3 million jobs were displaced, which most likely is the result of outsourcing. John McCarthy of Forrester Research, Inc predicted that "approximately 3.3 million white-collar jobs and $136 billion in wages will move overseas by 2015". Since Americans are out of work, they no longer pay income taxes and potentially draw unemployment compensation or social services provided by the U.S. government.
As mentioned previously, one of the reasons for outsourcing to a foreign country is to use available resources of third party that are not accessible internally. Truth to be told, 9.6 percent of people in the United States are unemployed as of September 2010. The unemployment rate in the United States is the highest among 10 other countries: Canada, Australia, Japan, France, Germany, Italy, Netherlands, Sweden, and United Kingdom. Although having the highest unemployment rate in the U.S., some domestic companies are either not hiring in the United States or downsizing their domestic workforce.
The other concern that American citizens have is the privacy. Besides IT, a lot of credit card companies, checks processing centers, and even financial institutions also shift the workforce aboard. In many developing countries, there is no data protection law which sets the rules for sharing sensitive information. Vamsee Tirukkala, the cofounder and executive vice president of an offshore consulting company said:" India has intellectual property and other security laws, but policing is not very effective. Every company says they have BS77099 certification, which means no one can get a fly through the security door, but theft still occurs".
It is impossible to eliminate the business outsourcing process. The effects that it brings to the U.S. economy can be either positive or negative. However, the degree on how it impacts really depends on the U.S. corporations. If companies do not set a quota of outsourcing amount, then apparently, the U.S. unemployment rate will grow continuously which will ultimately affect the corporations themselves. While reducing cost, the corporations should also consider the citizens, aka consumers. Do not cause the corporations own country losses and help others gain.
A survey was conducted by the Enterprise System in 2006, the primary reason for domestic companies to outsource is to control cost. Generally speaking, labor is one of the largest cost drivers in any type of business. According to ITTA, highly skilled and educated labor is much cheaper in other developing countries, such as India and China than in the United States. As a result of outsourcing, companies can save between 30 to 70 percent in labor. For example, according to Payscale.com, the wage for an average software engineer in the United States is $120 per hour, whereas the wage in India is only $18. Also, the average annual salary for programmers in the United States is between $50,000 to $60,000 compared to $8,000 to $10,000 in India. Besides the savings on wages, companies also reduce their employee benefits, such as pay leave, insurance, and so on. The Bureau of Labor Statistics reported in September 2010 that employee benefits accounted for 29.4 percent of the total employee cost.
Another reason for outsourcing is to "gain access to IT resources unavailable internally". Some companies stated that there is a shortage of technically trained workers in the United States which drives them to seek talent overseas. Major technology companies, like Microsoft, Intel, Google, IBM, are expanding even shifting its workforce especially customer service to other countries. Since India is one of the countries that have large public sector telecommunications networks, companies hire cheap, highly skilled and English-speaking laborers in the call centers as technical support and customer service. While reducing the labor cost, companies are also able to provide 24/7 customer service due to the leveraging of the time zone differential.
Of course, some people will argue that the consequences of offshore outsourcing outweigh the benefits. Some companies only focus on how to reduce the cost, yet ignore their social responsibilities. They seem to ignore the whole economic chain. Numerous jobs are being moved aboard therefore causing a higher unemployment rate in the United States. According to the Bureau of Labor Statistics, from 2001 to 2003, more than 5.3 million jobs were displaced, which most likely is the result of outsourcing. John McCarthy of Forrester Research, Inc predicted that "approximately 3.3 million white-collar jobs and $136 billion in wages will move overseas by 2015". Since Americans are out of work, they no longer pay income taxes and potentially draw unemployment compensation or social services provided by the U.S. government.
As mentioned previously, one of the reasons for outsourcing to a foreign country is to use available resources of third party that are not accessible internally. Truth to be told, 9.6 percent of people in the United States are unemployed as of September 2010. The unemployment rate in the United States is the highest among 10 other countries: Canada, Australia, Japan, France, Germany, Italy, Netherlands, Sweden, and United Kingdom. Although having the highest unemployment rate in the U.S., some domestic companies are either not hiring in the United States or downsizing their domestic workforce.
The other concern that American citizens have is the privacy. Besides IT, a lot of credit card companies, checks processing centers, and even financial institutions also shift the workforce aboard. In many developing countries, there is no data protection law which sets the rules for sharing sensitive information. Vamsee Tirukkala, the cofounder and executive vice president of an offshore consulting company said:" India has intellectual property and other security laws, but policing is not very effective. Every company says they have BS77099 certification, which means no one can get a fly through the security door, but theft still occurs".
It is impossible to eliminate the business outsourcing process. The effects that it brings to the U.S. economy can be either positive or negative. However, the degree on how it impacts really depends on the U.S. corporations. If companies do not set a quota of outsourcing amount, then apparently, the U.S. unemployment rate will grow continuously which will ultimately affect the corporations themselves. While reducing cost, the corporations should also consider the citizens, aka consumers. Do not cause the corporations own country losses and help others gain.
