Outsourcing is when companies obtain a good or service from a foreign supplier, instead of using internal suppliers. There is much controversy about whether job outsourcing is beneficial or detrimental to the US economy. Some people argue, that job outsourcing is detrimental to the US economy because it causes job loss, however job outsourcing is actually beneficial to the US economy, because it creates jobs and boosts economic growth in foreign countries, it allows for product specialization and monopolization, it lets the US get goods and services at cheap prices, and provides US companies with a larger talent pool to select from.
People who argue against outsourcing claim that outsourcing enables other countries to “steal” blue-collar (industrial) jobs from US citizens. They claim that job loss causes economic hindrance because unemployed people become a handicap in the US economy. And lastly, some people claim, that outsourcing causes US economies to remain stagnant and underdeveloped because there is no more “activity” in outsourced industries.
However, outsourcing is actually beneficial to the US economy because it boosts economic growth in the US, and in other parts of the world, by providing both white (professional) and blue collar jobs to people who need them. Madison Correnti, a Financial Analyst at Applied Materials, explains how different parts of the world, including the US, benefit from outsourcing. She explains, “Outsourcing by U.S. companies to foreign countries stimulates investment by these foreign countries. This investment helps boost those countries' economies by improving their standards of living and providing jobs for the unemployed. With these economic improvements in foreign countries, this allows them to be a part of the global market by enabling them to buy more exports from the U.S” (Correnti). What looked like a loss of US jobs was actually a boost in revenue and economic growth. By stimulating other economies, the US is actually stimulating its own growth. Mark J. Perry, a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan Flint, explains the misconception about stolen jobs. He reveals, “Just like it makes economic and business sense for thousands of foreign companies to outsource jobs and production from their countries to every US state (perhaps because the US is one of their major retail markets), it also makes economic and business sense for thousands of US companies to outsource jobs and production from the US to foreign countries, perhaps also because overseas markets now represent more than 50% of retail sales for many US-based companies” (Perry). US jobs aren’t being stolen by other countries; they are being recycled throughout the world. Mark explains why the partial win-lose concept of outsourcing is not applicable in today's dynamic and interconnected world. Outsourcing is an elaborate process and isn’t simply a situation in which America either wins or loses. Multiple countries are being benefited in varying amounts. In the case of the US, retailers are able to make much greater profits, and the economy is able to prosper. The US is able to provide jobs to other countries which are in dire need of them. In the end, the US gains a financial advancement and the other countries gain a fluid economy. The long term benefit is that the US is able to build a relationship with other parts of the world, and is able to make lasting trade agreements. Business between the US and other countries will stimulate other businesses to grow, and thus will provide more jobs for the individuals who need them.
Secondly, outsourcing is favorable to the US economy, because it allows for product specialization and monopolization. George Coontz, a senior analyst at State Farm explains the concept of comparative advantage, and how this method of product making is the best for producing high-quality goods. He explains, “Comparative advantage means that if a certain country can produce a good or service more efficiently than another country, then this country possesses the comparative advantage. This country should elect to produce this good or service, while the other country should produce goods for which they have a comparative advantage. Both countries trade with each other to obtain the goods for which they have a comparative disadvantage. This promotes economic growth and prosperity.” Competition between countries in one area of expertise hinders the progress of innovation. It hurts the overall world economy because now, companies are losing valuable time and money while competing with one another. By using comparative advantage as a tool for economic prosperity, companies are able to fail fast and use their valuable resources to create quality products that can be desired by the whole world. Madison Correnti, puts the situation into simple words when stating, 'The other part of outsourcing is this: it simply says where work can be done outside better than it can be done inside, we should do it,' said by Alphonso Jackson, former U.S. Secretary of Housing and Urban Development.” Through outsourcing, specialization can spur innovation and development in technologies. Comparative advantage allows countries to specialize and gain mastery in a specific industrial sector. Comparative advantage is a win-win situation for both the US as well as other countries. Hungry US consumers can get products at cheaper prices, and countries with a large labor pool can invest in developing detailed manufacturing processes.
Furthermore, outsourcing is beneficial to the US economy, because it allows the US to get goods and services at cheap prices. With the US’s growing demand for cheap goods, outsourcing can be a major benefit for companies looking to make huge profits. George Coontz further, explains the phenomena of comparative advantage, and how it ties in with outsourcing. He explains, “Outsourcing is an example of a real-life application of comparative advantage. Many developing countries have a surplus of labor, and therefore, the cost of this labor is low. Consequently, companies elect to utilize this low-cost labor by outsourcing labor-intensive jobs, such as call centers, to these countries.” The US is able to acquire goods at cheaper prices and other areas of the world benefit from employment (Coontz). But how much benefit does the US actually receive? Satwik Seshasai, a the Chief Technology Officer for NextDocs, and Amar Gupta, a Professor of Entrepreneurship/MIS and Senior Director for Research and Business Development reveal that “Of the approximately $1.45-$1.47 of value derived from every dollar spent offshore, U.S. firms receive $1.12-$1.14, while foreign firms receive only 33 cents of the value. Further, … Outsourcing provides an aggregate benefit to the U.S. economy of $16.8 billion” (Seshai and Gupta). Through an economic lense, companies are able to get value for money. By outsourcing US jobs, companies are able to spend less on wages, and more on innovation. They are able to lower the costs of their products because they don’t have to include the labor costs in their retail prices. Because they can offer goods at cheaper prices, US companies can be more competitive in the world economy. Overall, the US economy is able to stand self-sustained and is able to provide jobs and quality products to its citizens’.
Lastly, outsourcing is advantageous to the US economy because it lets US companies have access to a larger talent pool. As Elizabeth G. Chambers et. al, Board Director and Advisor of C-Level Marketing Strategy, and Growth Leader at Financial Services and Digital Businesses, explains, “Better talent is worth fighting for. At senior levels of an organization, the ability to adapt, to make decisions quickly in situations of high uncertainty, and to steer through wrenching change is critical. But at a time when the need for superior talent is increasing, big US companies are finding it difficult to attract and retain good people. Executives and experts point to a severe and worsening shortage of the people needed to run divisions and manage critical functions, let alone lead companies.” Outsourcing white-collar jobs don't cause a loss of blue collar jobs in the US, so this type of outsourcing does not directly hurt the US economy. But where can US companies find these white-collar specialists? Zafar Iqbal and Aasim Munir Dad who is Faculty in Administrative Sciences, and have Ph.D.’s at the School of Business & Management at the University of Gloucestershire, point us in the right direction. They explain that “ ‘Global Talent’ motivates firms to gain and maintain competitive advantage and offshore talent is cost effective as well… There are 22 million graduates available in India for both public and private companies including 1.2 million engineering graduates, 600,000 doctors and the number of graduates produced in India are about 200,000 every year” (Iqbal and Munir Dad). By outsourcing white-collar jobs, US companies get talented and hardworking individuals. Not only are these talented workers hired at lower prices, but they also are not causing blue collar jobs to be lost, (jobs which the US is in need of). Outsourcing white collar jobs benefits the US because allows for diversity and growth in companies. US multinational companies (companies which function in multiple nations) are not only able to provide for the US but for the entire world's needs’.
In conclusion, the US should continue to promote and allow outsourcing. Not only does the US get huge financial benefits, but other countries economies’ are stimulated during the process. The US gets access to cheap labor and cheap manufactured goods, while people in need of blue-collar jobs, get jobs. Outsourcing is a win-win situation for both the US as well as other countries. It is a tool which enables US companies to access larger talent pools and it lets the US specialize and monopolize certain sectors of the industries. Because US blue-collared jobs are being lost due to outsourcing, US multinational companies should limit the number of jobs they outsource, so American individuals can be employed. US companies should also try to prioritize the employment of US citizens so that the local US economy can flourish in conjunction with the larger world economy. The next time you hear the title, “US jobs Being Stolen,” take a moment to consider the other positive benefits that outsourcing provides to the US.
- Coontz '04, George. 'Opinion: The Benefits and Costs of Outsourcing Jobs.' digitalcommons.iwu.edu. The Park Place Economist: 2008.
- Correnti, Madison. “Outsourcing Overseas and its Effect on the US. Economy.” ncbfaa.org. National Custom Brokers and Forwarders Association of America, Inc.
- G. Chambers, Elizabeth. Foulon, Mark. Handfield-Jones, Helen. M. Hankin, Steven. G Michaels III, Edward. “The war for talent.” mckinseyquarterly.com. The Online Journal of McKinsey & Co: 29 Aug. 2007.
- Iqbal, Zafar. Munir Dad, Aasim. “Outsourcing: A Review of Trends, Winners & Losers and Future Directions.” ijbssnet.com. International Journal of Business and Social Science: July 2013.
- Perry, Mark. “We hear about US jobs outsourced overseas (‘stolen’) but what about the 7.1M insourced jobs we ‘steal’ from abroad?” aei.org. AEIdeas: 9 Nov. 2018 .
- Seshasai, Satwik. Gupta, Amar. “Global Outsourcing of Professional Services.” ebusiness.mit.edu Mit Sloan: January 2004.