As the outsourcing juggernaut rolls on, business analysts have come up with arguments favoring and criticizing it. Cost savings, flexibility, access to specialists in each category of work etc are all factors that help businesses. However critics raise issues like worker security, information security concerns and quality discrepancies. Let us examine how these issues are addressed.
In sourcing or Outsourcing?
One of the common issues against outsourcing is that it destroys job opportunities in the country that outsources work. This concern is the most prevalent in the United States. However this need not be the case, as the net number of jobs is not affected. If outsourcing is an export of services, it logically implies that in sourcing is also taking place along with it. Several trade analysts point out that countries like US and UK have more jobs in sourced than outsourced. These countries also have the largest net trade surpluses in business services. It is also true that, contrary to critics? arguments, unemployment is not on the rise in the US.
Since international outsourcing is a kind of trade, it operates on the principles of comparative advantage. Outsourcing thus has not increased the threat to employment or economy any more than imports or migration. Economists point out that advances in technology have always destroyed many jobs that existed previously. For instance, the automobiles took away the jobs of carriage men and people who took care of horses. However these advances in technology also create a lot of new jobs in their wake. The net result is of making progress in the standard of living for all the people. Outsourcing also promotes division of labor and specialization. These are very fundamental to the law of comparative advantage, the reason why capitalist free markets generate economic growth.
It is often alleged that outsourced work suffers in terms of quality. However outsourcing is a decision where the buyer organization has the freedom to revoke the agreement in case the quality is affected. Several American companies have thus brought back work to be done in-house, owing to quality issues. The fact is that outsourcing is just another business decision, like adapting a new technology or hiring new workers, where risk is involved. Critics often point out instances where quality has suffered and fail to recognize successful cases. If outsourcing led to poor quality in majority of cases, consumer demand would have already forced organizations to do all their work in-house.
In fact the power relationship between consumers and producers has tremendous influence on the say the consumer has on the quality of outsourced production. If the producers monopolize the market, they can afford to reduce the quality. In other words, in the absence of competitors, the organization does not suffer any major drop in sales due to a reduced quality level. It is therefore advisable to promote competition, so that businesses are forced to keep up their quality levels.
Another factor that adversely affects quality is the absence of accountability systems. Consumer/user feedback systems can help a great deal in maintaining quality levels. Several offshore outsourcing firms also have adopted quality management systems that can be applied internationally. Models like Taylor, Lean and Six Sigma are some such universal standards of quality. However these standards have so far found varying levels of implementation success with different organizations across the globe.
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