Technology / Social Effects Of Outsourcing

Social Effects Of Outsourcing

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Autor:  anton  29 November 2010
Tags:  Social,  Effects,  Outsourcing
Words: 2665   |   Pages: 11
Views: 693

There is no denying that outsourcing is a major phenomenon on a massive global scale. The Information Technology field is a major contributor to global outsourcing. Outsourcing is currently a major social and political issue in the United States. At stake are thousands of jobs ranging from help desk operators to software programmers. The financial impact outsourcing has on the global economy is also a key factor.

The advancement of information technology has spurred many high tech corporations and start up companies within the last few decades. The advent of the internet opened the world to online business technology and commerce while simultaneously fueling globalization. Private companies began to appear on the internet in the nineties, contributing to the expansion of their businesses and services on the world market. The late nineties brought the dot com boom to the forefront with internet companies prospering and expanding their operations. The burst of 2000 essentially ended the boom and soured the economy, particularly in the technology sector. As time passed, companies recognized the need to cut operating costs, reduce personnel and save their resources. Hence, outsourcing came to the forefront as a way to stay competitive. Developing nations like India and China have come to light in recent years as they have a wealth of computer engineers and programmers who will work for low wages. Outsourcing has become such a common practice that it is now considered a benefit to the world economy “We know that outsourcing is a $400 billion a year industry and IT outsourcing is a vital part of the industry. A slump in IT outsourcing would mean a loss for the global economy.” (Ghimire) The world must accept that outsourcing is a major staple to the world economy.

However, with every step forward, come two steps back. Companies continue to outsource jobs overseas, leaving thousands jobless in the United States. Companies have emphasized costs cutting and profits rather than focus on the social change outsourcing has done to American Society and the economy. The era of technological outsourcing has essentially lowered the Information Technology talent significantly, as far down as the college ranks. In 2004, nationally, enrollments in computer science and computer engineering were down 23 percent that year. At MIT, the premier engineering school, enrollment in electrical engineering and computer science has fallen 33 percent in two years. (Roberts) The IT industry, particularly in the manufacturing field has suffered many job losses due to irrational outsourcing. As one of the largest industries in the U.S over the last twenty years, this has as still impacts the economy today. As the economics suffer a downturn, the effects also carry on to the families as well. We come to a point in our society where we must ask ourselves whether outsourcing’s economics and staying power is more of social importance then the moral dilemma of shipping American jobs overseas.

The standard of living in today’s modern world is without a doubt high and boisterous. The number of industrialized countries has skyrocketed in the last half century and many more countries are still developing. The information technology age of the twentieth century has literally developed the world into a connected and networking society. Outsourcing of this technology to other countries has given them an edge of completion over the U.S. and other rich nations. Many speculate on the benefits of a globalized society. The advancement of technology is the key factor in the development of the industrialized world. Computers allow industries, businesses and nations to interlink with each other to further trade through instant information. Countries are able to open their markets on the world stage and compete globally. As competition grows globally, so does the spread of technology. A Globalization and Growth study showed various developing countries around the world have shown increases quality of life by taking advantage of a globalized economy. The study shows that 24 developing countries that increased their integration into the world economy over two decades ending in the late 1990s achieved higher growth in incomes, longer life expectancy and better schooling. These countries, home to some 3 billion people, enjoyed an average 5 percent growth rate in income per capita in the 1990s compared to 2 percent in rich countries. (World Bank) However, Globalization is a force that can be attributed to the inequalities that rest in industrialized and developing nations. The distribution of income is substantially higher in developing nations, giving prudence that only white collar workers with technological expertise and education are benefiting versus blue collar workers. Increasing industries have significantly damaged environments around the world and now global warming is a worldwide issue. Poor nations are also left out and steadily declining as they are considerably persona non-grata on the world markets. The information highway has given prudence to the world economy, but is steadily heading into different directions of uncertainty--particularly in the United States.

As Information technology has vastly helped shape globalization in the modern age, the same can be said in reverse. Corporations worldwide now have the capabilities to compete internationally thanks to the advancement of technology. Today new transportation and communications technologies allow even the smallest firms to build partnerships with foreign producers to tap overseas expertise, cost savings, and markets. (Saxenian 2002) These reasons immensely contribute to the need of outsourcing overseas. Perhaps no better area that defines outsourcing is none other than the Silicon Valley. Located in Santa Clara County, California, the area is home to major worldwide technology corporations. The area has attracted foreign born researchers, engineers, programmers, etc. that have found opportunities there. The rising costs to compete globally has virtually forced many companies and businesses to ship jobs like telephone operators, manufacturing and even software engineering to countries like India who will do it at a fraction of the cost. These corporations also recruit foreign born U.S trained workers to mitigate worker costs as well. Companies looking to outsource jobs—including Microsoft and Intel—have even organized job fairs in Silicon Valley for foreign-born, US-trained tech workers willing to go back to their homelands. (Richards/Margolis, 2004) Additionally, these companies save on paying taxes because their profits are generated overseas and virtually are not taxable. Outsourcing has contributed to many corporations staying afloat globally by reducing cost at the expense of the American worker. Consequently, the majority of low wage jobs have been lost abroad, setting the need for highly skilled information technology professionals who can offer anything beyond the norm.

The constant loss of technology jobs to outsourcing has forced many in this field to become more innovative and skilled to compete. The industry is also constantly changing which demands more workers with various skills types. The simple fact that the Information technology field is an integral part of the U.S. economy and therefore a shortage of workers would affect the economy. A shortage of skilled IT workers in the IT industry and other high-tech industries would slow innovation and product development, which in turn would harm exports and wealth creation in the United States. (CRA) Thus, the need to recruit abroad is further exploited to fill in the gap at home. The consummate IT professional needs to be diverse in their expertise to adequatly compete with the ever changing technology. Simultaneously, an innovative and highly skilled worker would possibly reduce the need for companies outsource and help the economy in the same light both at home and internationally.

As mentioned before, outsourcing is a major staple in Globalization. Many economists are undecided on the benefits outsourcing offers, but there is evidence to suggest the trend is a beneficial to the worldwide economy. Outsourcing to developing countries has created a stable economic base in these countries; creating jobs and training opportunities that may not have possible beforehand. Major IT corporations are investing in these countries which help the economies bolster their worldwide status. Alluding to the fact that opens economies will attract foreign investment, essentially, more jobs would help to create a larger middle class population and pump more investment into their respective economies. Outsourcing has shown to benefit the U.S. economy as well. Though the loss of thousands of jobs is seen as a detractor from a positive outlook on the economy, the fact is that outsourcing is quite cost effective for business. By driving down the costs associated with computer software and services and by opening more overseas markets to US competition, global sourcing sharpens our country's competitive edge at home and abroad. The result is more American jobs, higher wages and a faster growing economy overall. A recent study by the Information Technology industry has shown that outsourcing added some $33.6 billion to U.S. gross domestic product (GDP) in 2003 and could add a total of $124.2 billion through 2008. (CNN/Money 2004) The move frees up major corporations and IT companies alike to compete on the global market, where competition for business and highly skilled workers is fierce with companies in industrialized and developing nations. Companies have more spending power to invest in foreign countries through cost savings attributed to outsourcing. The true impacts of outsourcing Information technology abroad may still be contested among economists, but the flurry of business and advancement of technology in developing nations such as India and China cannot be disputed.

In the past, many developing countries could only really compete in global agricultural markets. Today the ability to provide services, such as Information Technology, accounting, call centre work, etc. is having a real impact on these countries’ economies.The advancement of technology is indicative of how developed nations have shaped their economies. Governments have released some foot holds on their economic policies to open their markets on the world stage. In order to attract foreign investment, developing countries have recognized the need to develop or improve telecommunications, educations and tax incentives to potential suitors. Economic development often requires unconventional strategies that fit awkwardly with the ideology of free trade and free capital flows. (Rodrik, 2002)These countries also have political stability which is just as important politics and economy inter related with each other. India in particular has a highly developed technology sector and a large crop of highly skilled and educated Information Technology workers who will work at low wages. The country is also one of the largest English speaking nations in the world which also is a plus for doing business in the U.S. and U.K. India has gone to great lengths to attract U.S. business more than any other country, and even have their own version of the Silicon Valley in the city of Bangalore. Companies like IBM, Dell, JP Morgan and Accenture all have workforces in the country totaling in the thousands and growing. China is also a major competitor for foreign investment and has risen to challenge India in the software engineering field. In fact, China has the numbers and the low cost structure that India has and cost is even lower as compared to India which has given China added advantage. However, with a communist government at the helm, intellectual property rights are not enforced and there are still many stringent controls on economic policy. Compared to India, English is not a well spoken language but the Government is emphasizing the need for it in the Information Technology sector. However, the opening of their markets has given credence to foreign investors in China, as the country is the fastest growing economy in the world today. From Egypt to Brazil, South Africa to Mauritius, countries are looking at their infrastructures and skills sets to see what services they are able to offer. Many of these countries have high graduate numbers and good language skills and are therefore able to supply a whole range of outsourced services. (Hart 2007) In the grand scheme of things more countries are maneuvering to sell themselves to foreign investors. The opportunities of job prospects, higher GDP, trade etc. are major incentives for the developing world to attract these investors.

The expense of outsourcing IT jobs has raised some disconcerting issues among the industry. Among the obvious disadvantages of outsourcing like job loss and production loss, there are other issues companies face in the Information Technology industry, Companies who decide to outsource must make tough decisions on how much resources and production they plan to send abroad. This brings into question of trust among the companies they contract with: What quality are we getting for the return? Now comes in to play the most crucial role in outsourcing: research. This company must be reputable in order to keep up with production, customer base, internal matters and so forth. The main problem here is that overseas companies contracted to smaller businesses in particular were not researched properly and either had unethical business practices or went out of business. Now these companies must spend more money shifting their business in-house and retraining their former employees which severely affects their profit margins. Companies will have to give up control of the services, services and resources as part of outsourcing. It is imperative that the company negotiate iron clad procedures and details beforehand. Loss of control is one of the major fears among outsourcing contractors and thus this concern is treated with specific precautionary measures through the management of the entire outsourcing process. (Sofica) Contracted companies also have access to confidential information about the company they support. These managers have access to employee information, company financial information and business practices. The need to for data security is important to protect a critical data of the company and customer information. Again, companies must take the time to fully research their potential suitors and put in place safeguards to protect their interests. As the outsourcing disadvantages in business become further analyzed, the social impact on the human conscious must also be addressed.

The continued abandon of outsourcing has left a vulnerable workforce in the U.S. As the country faces an uncertainty of recession, many people feel that outsourcing is contributing to the downward spiral of unemployment. Consulting firms like Forester predict a rise of job loss in the Information Technology industry to climb even higher. By 2015, Forrester predicts, roughly 3.3 million service jobs will have moved offshore, including 1.7 million "back office" jobs such as payroll processing and accounting, and 473,000 jobs in the information technology industry. (Otterman 2004) As more lost revenue is incurred in the U.S. business sector, the effects are devastating to out of work people with families. Many IT professionals have solely been educated and trained for their fields. Outsourcing has made it difficult for these workers to find work in the field their industry can find cheap labor for. The reality is these individuals will need to learn a new skill or take jobs of considerably less pay. Often times these difficult transitions can lead to domestic disputes at home, mental instability or even suicide. The need for corporations to help ease the transition for these workers are paramount. These companies have a responsibility to take care of their employees and offer support to help ease the pain of losing their jobs. Only time will tell whether outsourcing will be judged as a savior for businesses, or a detriment to the social conscious.

Works Cited

-Ghimire, Bhumika. "IT Job Outsourcing." Ubiquity. Volume 6. Issue 1. 30 Aug 2005

http://www.acm.org/ubiquity/views/v6i31_bhumika.html.

-Roberts, Paul Craig. "As Jobs Leave Americas Shores." Counterpunch 01 Oct 2006 http://www.counterpunch.org/roberts09302006.html

-"Outsourcing Creates Jobs, Study Says." CNN/Money 30 Mar 2004 http://money.cnn.com/2004/03/30/news/economy/outsourcing/

-Hart, Martyn. "Outsourcing and Offshoring: the Pros and the Cons." The Thinking CEO 20 Jun 2007 http://www.thinkingmanagers.com/the-thinking-ceo/outsourcing-and-offshoring.

-"The Supply of Information Technology Workers in the United States ." Computer Research Association. 2004. 21 Feb 2008 http://www.cra.org/reports/wits/chapter_3.html.

-Rodrik, Dani. "Globilization for Whom." Harvard Magazine June 2002 http://harvardmagazine.com/2002/07/globalization-for-whom.html.

-Call Center Services." Outsourcing in New Europe. Sofica Group. http://sofica-group.com/en/faq_call_centre.html.

-Richards, Craig, Margolis, Lori. "US: Outsourcing threatens one in six jobs in Silicon Valley." World Socialist Website 05 May 2004 http://www.wsws.org/articles/2004/may2004/sili-m05.shtml.

-Saxenian, Anna Lee. "Brain Circulation." Annual EditionsComputers in Society fourteenth Edition (2008):



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