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Outsourcing is any task, operation, job or process that could be performed by employees within an organization, but is instead contracted to a third party for a significant period of time. In addition, the functions that are performed by the third party can be performed on-site or off-site. Hiring a temporary employee while your secretary is on maternity leave is not outsourcing. Outsourcing is often viewed as obtaining goods or services from an outside supplier.To send out (work, for example) to an outside provider or manufacturer in order to cut costs. Outsourcing is one of the most controversial issues in business and politics. Politicians are usually against it while businessmen defend it strongly.

Reasons Companies that choose to outsource are either benefitting or addressing the following:


 * Lower Wages-the greatest reason for outsourcing is to lower company wages.The average United States employee in just about any field earns more per hour (or in yearly salary) than their Third World counterparts. For instance in 2002 the average manufacturing worker in China was only earning $.60 cents an hour; Mexicans earned a slightly higher wage at $2.46 an hour.
 * Lower Regulatory Costs-Social Security, Medicare, FICA, OSHA regulations, unemployment insurance and a whole host of other government-imposed costs make employing local workers less attractive in light of overseas talent, for whom none of these costs must be paid. Everyone knows outsourced workers command lower wages, but it is also important remembering that American workers are generally still more expensive even if the wage discrepancy is ignored.
 * Tax Benefits-The desire to minimize corporate income taxes is an undeniable impetus to outsource. Overseas countries are aware of this desire and offer generous tax incentives to companies that outsource their operations there. Whether in the form of regional tax benefits or reduced income taxes, such incentives are difficult for companies to ignore in their hiring decisions.
 * Ability to Downsize at WillOne of the biggest driving forces behind outsourcing is the desire to avoid damaging lawsuits. As the Dallas-Business Journal noted in 2007, employee lawsuits against employers are and have been rising. One of the factors at work here, according to the Journal, is that “employees are becoming more educated about employment law.” This makes life difficult for executives as regards downsizing, which is virtually never popular but is sometimes necessary from a strictly business perspective. Rather than reacting to market forces as they deem appropriate, some companies avoid downsizing due to fear of employee lawsuits. Therefore, a major financial advantage of outsourcing is the ability to upsize or downsize at will.
 * Better Performance-A common view of outsourcing holds that the work performed is obviously lower in quality than U.S. workers, but this is justified by lower costs. While this is sometimes true, it is by no means clear that it is always true. In a survey of companies that outsource, InformationWeek found that 20% of those surveyed named improved IT performance as a major reason they outsource. Many of us who have had frustrating phone calls with overseas support staffs might disagree, but the data is clear. It goes without saying that improved performance often lowers costs and/or raises revenues, creating yet another financial incentive to outsource.
 * Freeing up Resources For Core Activities-An unspoken assumption in many critiques of outsourcing is that the savings are simply gobbled up the CEO or shareholders. However, perhaps just as often, the savings freed up by outsourcing are devoted to the company’s core activities – that is, what they do best and most profitably. From an executive’s point of view, there is no reason for, say, McDonalds to spend priceless capital doing its payroll when the savings from outsourcing can buy more advertising, furnish new equipment or finance a new product launch. Far from simply enriching the company’s owners, savings from outsourcing often goes toward shoring up the company in other areas.
 * Managing Risks-Another financial edge offered by outsourcing is risk management. Outsourcing enables management to turn over to its suppliers certain classes of risks – such as demand variability and capital investments. Such risk transferrance is made difficult or impossible by working with contracted or salaried U.S. employees. For instance, if a company wants to launch a new product, it can either hire new employees in-house or utilize outsourced talent to get the job done. The in-house employees are now on payroll, and will need to be paid regardless of whether the new product sells. Ditto for their Social Security, FICA and the other government costs discussed earlier. Outsourced talent, on the other hand, can be dropped in a heartbeat if product sales do not justify continuing to pay them. This is just one example of how companies use outsourcing as a risk management tool.
 * Faster Turnaround Time-From an outsourcing perspective is that just because a company could do something in-house, it does not follow that they should do it. Nor are immediate monetary savings the only issue. Let’s say a startup wants to expand, but now needs a professional accounting or logistics system to do so. It can take a considerable amount of time to get these systems up and running in-house, between recruiting, interviewing and training the required personnel. In the meantime, the needed functions are not being performed and the company is worse off. Outsourcing sometimes offers a way out of this vexing corporate problem by offering faster turnaround times than establishing new, in-house departments or systems.
 * Accelerated Time to Market-A timeless business axiom is that the first to market often claims most of the market share. This explains yet another financial incentive to outsource: accelerated time to market. By offering access to workers who are already trained, experienced and ready to perform the exact tasks you need, outsourcing can help companies release new products faster than if it relied exclusively on in-house talent. With so much long and short-term profit riding on time to market, any advantage in this regard looms large in corporate decision making.
 * Commodification-General assumptions about outsourcing usually involve huge, household-name companies laying people off to save money. But these cases aside, it should be noted that small businesses are increasingly turning to outsourcing as well. A major reason involves “commodification”, or the ability (made possible largely by low-cost outsourced vendors) of smaller businesses to pay incrementally for services previously available only to larger businesses. In these cases, outsourcing is used not for immediate savings, but to grow at a more rapid pace than prior eras allowed.
 * Contractual Certainty-Outsourcing also offers peace of mind when contracts are entered into by the company and the outsourced provider. Rather than being limited to firing or disciplining ineffective employees in-house, outsourced providers can be made to compensate the company for its negligence, poor performance or failure to finish a job. A legally binding contract specifies the precise nature of the work, its timeline for completion and any other loose ends that may exist, but are routinely obscured or unaccounted for when working with in-house employees.

The History of Outsourcing When people started living together in villages, as opposed to smaller family groups, they also started producing food and goods. These items were traded within their home communities first, and over time the practice expanded to include trading with other villages, regions, and countries. Since people weren't able to produce all the items they needed to survive for themselves, you could consider this trading as being an early form of outsourcing. Industrial Revolution The Industrial Revolution changed the way companies did business. During this period, company owners started to outsource some services, as opposed to keeping them in house. Independent architecture, engineering, and insurance companies started opening their doors to serve multiple clients. Most often, they were located in the same city as the companies they were performing services for. Outsourcing Manufacturing Over time, manufacturing companies discovered that they could outsource the production of consumer goods, such as clothing items, shoes, and toys. By the 1970s, many consumer electronics products were manufactured overseas. Companies looked to workers in foreign countries to work in factories due to lower labor costs. Once company owners were confident they could outsource manufacturing functions and shipping costs to get the goods to market decreased, more of them decided to outsource this portion of their business to other countries. Outsourcing for Payroll Services Computer companies were the first ones to start outsourcing their payroll services. By the time the 1980s rolled around, other services, including billing, accounting, and word processing started to be outsourced more often by businesses looking to keep costs manageable. Outsourcing Today Now, the outsourcing of many business functions is quite common. Call center companies are kept busy from a steady stream of clients looking to outsource these duties. When a customer calls an insurance company's 800 number with a question or a concern, he or she will likely be speaking with someone who is working for a separate company, even though that person has been trained to handle customer service duties. Outsourcing Today Not all outsourcing involves foreign workers. Many people work as independent contractors providing services to businesses of all sizes. Outsourcing is a growing trend that is not likely to slow down in the future. The days when someone worked for one employer for all of their working life is becoming a thing of the past, and more more employees may be finding that they are being replaced by outsourced workers. Some individuals may find that they are laid off from the company they work for, and are then hired back to that some company as a contract.

Reasons why people are against outsourcing:

There are two main arguments against outsourcing; the first is that outsourcing has lead to the drainage of jobs that belong to the American middle class, the second arguments argues that those jobs outsourced leads to poorer quality in goods and services produced.

Outsourcing leads to a loss of American jobs and a declining standard of living. According to the Bureau of Economic Analysis, already about 10 million jobs have been sent overseas since 2001 (Source). This trend has helped to fuel the high unemployment rates seen in the last few years which leads to a decreased standard of living in the United States. This situation is getting worse as we are seeing an increase in the number of white-collar jobs being sent overseas. Jobs within the service sectors were previously perceived as being safe from international competition unlike the blue-collar jobs which have been outsourced for years. However, all this is now changing as the face nature of outsourcing is shifting to include these industries as well. In 2003 the United States ran a trade deficit in advanced technology products and services for the first time on record. In 1997 the United States had a trade surplus in these same goods of $60 billion (Source).

The economic damage done to American workers in the form of fewer well-paying jobs is supposedly offset by the financial advantages coming back to consumers in the form of lower priced goods. But with the loss of well paying jobs consumers are turning towards credit, and the end result is a weakened economy.