Sunday, October 16, 2005

Jobs: Insourcing and Outsourcing - America

There has been in recent years an influx of negative publicity for American companies outsourcing some of their job functions to foreign countries. The opponents of this form of outsourcing have been very vocal but little attention has been given to the possible long term benefits of such actions. On the same note, little attention has been given to the number of in sourced companies that provide jobs and revenue to the local economies and how those in sourced jobs are affected by outsourced jobs to foreign countries. In sourced jobs, encouraged by outsourced jobs, will provide local companies more revenue by purchasing materials and equipment for less, locally.

Outsourcing opponents tend to put the short term problems in the forefront of the overseas outsourcing debate. It is expected that there will be stumbling blocks along the way to any form of positive progress. Mark Levinson (April 2004) has said, “Why haven't developing countries benefited from increased openness to trade… Because many countries are now similarly positioned in the international economy--producing apparel, toys, and electronics for export--they must compete feverishly for investment by multinational producers” (One-sided World. The American Prospect, p61, ¶ 6). What he fails to mention is that the number of countries that are capable of supporting “investment by multinational producers”, are relatively small in numbers. Outsourcing tends to favor nations that produce acceptable levels of education and services. This reduces over expansion and provides specific nations with little need to compete for certain types of multi national investments. In his defense, not all developing nations will benefit, especially if they cannot provide investors with adequate resources at reasonable cost.

Many opponents of outsourcing also tend to complain quite a bit about the United States not taking a more active role in assisting less fortunate nations around the world. By allowing companies to outsource production and services they are assisting many less fortunate nations to become more financially stable and less dependent on foreign aid. New jobs being created by outsourcing provides higher paying jobs to those who would otherwise make much less or have no income at all. With more and higher paying jobs in these nations, the governments are provided more avenues for tax collection and at higher rates. This will assist in development and maintenance of basic infrastructure providing better roads, schools, utilities and sanitary functions. This can provide assistance with out resorting to international welfare and incurring international debt that would have to be paid back with in a certain time frame. In many cases, this debt will not be paid because the money collected at the government level seldom, if ever, makes it to the private sector where companies can build more stable income and long term economic growth can occur.

Outsourcing can provide positive return effects in the short and long term. The United States brings in more jobs from foreign companies than it loses to them. In fact, Bruce Bartlett (July 27, 2004) shows us, using information from the Organization for International Investment, that “For the past 15 years, corporations have moved jobs to the United States at a faster rate than jobs have left, for an 82 percent increase in insourced jobs compared to a 23 percent increase in outsourced jobs.” How Outsourcing Creates Jobs for Americans. National Center for Policy Analysis No. 480. In the same source it is noted that, in the same time span, there was a 117 percent increase in manufacturing jobs from in sourced companies compared to a 56 percent loss to outsourced companies. These findings counteract the popular belief that The United States is losing more by outsourcing to companies outside its boarders.

Many might say that foreign companies would pay less than indigenous companies would for workers inside The United States. This assumption has been shown to be incorrect. “Insourced jobs pay 16.5 percent more than the average domestic job, and one-third of them are in the manufacturing sector. These include plants that assemble German and Japanese automobiles and produce pharmaceuticals.” Bruce Bartlett (July 27, 2004) How Outsourcing Creates Jobs for Americans. National Center for Policy Analysis No. 480. Therefore, Workers inside The United States can benefit from in sourced jobs from foreign companies that open shop in The United States.

By utilizing lower cost labor and facilities in other countries soil, companies from The United States can direct more money locally for the research and development of products and services. These companies will still need to conduct consumer research in local areas to maintain a good understanding of what consumers of their products and services want and what demographics they will need to target their promotions. In researching, these companies will need to have development facilities and material close by their target customers so they might rapidly and more cost effectively distribute new ideas to test subjects in target areas.

Other indigenous companies will benefit from cost savings from lower labor spending on foreign soil. Marketing companies will have greater demand put on them to produce more innovations in advertisement methods because more money will be available for larger ad campaigns. Television, news papers and radio stations will benefit financially from increased advertisement revenues and consumers will have more information on what goods and services are available.

There is no doubt that—even though many will benefit—there will be others that do not fair so well at first. There would need to be plans in place to help those workers that are displaced when their jobs are moved to other locations. There have been suggestions of how this can be done in a way that will make transitions a little easier for displaced employees. Here are some ideas that an analyst has come up with that seem to be feasible to accomplish this.

In healthy economies, companies create new jobs — often with higher wages and higher value added to the economy — for most of the people who lose their old ones. Companies can make it easer for their workers to adjust by committing themselves to continual on-the-job learning and retraining programs. Policy makers can assist them by offering tax credits or other incentives for companies that hire and train displaced workers. Generous severance and relocation packages can help as well. (Diana Farrell, 2004, McKinsey Quarterly, Issue 3, p4-5, ¶4)

With some of the short-term issues involved in outsourcing as a result of global economic integration, people have to look at some of the long-term positive results to see the full benefits. Once foreign companies begin to show more sophistication and development, people are sure to see additional jobs open up in America from in sourcing. Foreign companies will eventually need to open facilities in the United States to reduce shipping costs for imported products. This will certainly provide jobs that were not there before. In addition, these companies will benefit from better educated American workers in terms of being more efficient.

Foreign companies in the United States will help produce more income for local companies. These foreign companies will take advantage of resources available to them in their immediate areas. This will increase sales of goods and services for American companies surrounding them. Even if these foreign companies send some of their higher position people to run the facilities in the United States, these people will contribute to the local economies by purchasing living goods and automobiles from local companies. More over, the local ad agencies and local media outlets will benefit from these companies through promotional needs.

After reviewing the long term benefits of outsourcing to foreign nations, we can see that stifling economic globalization might result in poor growth in the future of America and other countries. There are times during progress when you have to take a step back before you can take two steps forward. The world is in a unique position at this point in its history where people can truly make a solid, positive impact for the future of the human race. This can only be achieved if people and governments all work together toward a common goal; progress through unification.