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Outsourcing: Bane or boon? Essay

Courtis avers that if a company hires an employee, an engineer for example, the company would spend more money than if it hired ten engineers from another country, say from India (Courtis, 2005). This cost cutting measures of US companies generated a snowball of opposition as the outsourcing trend began to encroach on the high end information technology (IT) and service sector of the economy (Friedman). This development caps years of the efforts of the outsourcing era into the US specialized sector (Cook & Nyhan, 2004).

The protest of these service providers, once isolated and untouched by the outsourcing trend, is continuing at full speed, with no signs of letting up (Cook & Nyhan, 2004). The argument over the issue of outsourcing continues to heat up (Judy Olian, 2004). Two protagonists in the center of the “battle”, so to speak, are Nobel Prize recipient and economics professor Paul Samuelson and Columbia University economics professor Jagdish Bhagwati (Olian, 2004). The 89 year-old Samuelson (2004) argues that the competitive advantage that was lost is considered as permanent to low labor rate countries like China and India (Samuelson, 2004).

The arguments of Samuelson seem to oppose with the data culled by a prominent information technology

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consulting outfit, Forrester Research (Olian, 2004). Bhagwati (2004) does acknowledge that the current outsourcing trend will result to some amount of temporary shifting of low level jobs but affirms that the concept will have provided enough gains to the economy of the United States by way of less expensive imports and stronger export markets (Bhagwati, 2004). The data from Forrester Reaserch, as mentioned earlier, would lend credence to the Columbia economics professor (Olian, 2004).

On the jobs area, the data approximates about 400,000 jobs in the United States had been moved overseas (Olian, 2004). By the year 2015, the amount of US jobs that move abroad will hot an estimated 3. 3 million (Olian, 2004). In this light, the annual turnover in the time span would just hit about 200,000 employment opportunities lost to the outsourcing market (Olian, 2004). This is a miniscule number compared to the normal job cycle of 7 million people gaining and losing jobs (Olian, 2004).

So who exactly enjoy the benefits of outsourcing? First of all, the US companies that practice outsourcing (Greed, 2007). Outsourcing affords American companies a less expensive mode of production, therefore stimulating the manufacture of goods imported into the country (Greed, 2007). Let’s say that a businessman is planning to put up a new venture of making pencils. On an in-house manufacturing basis, the cost of the pencils would come up to a retail market value of five cents.

The company accountant confides to the businessman on the erasers costs two cents, or about 40 percent of the total cost of the pencil (Boland & Block, 1997). But another company can produce the same eraser for half the price that the businessman pays to make them himself (Boland & Block, 1997). In a report by the Mckinsey Global Institute, it states that the net return in terms of savings of foreign outsourcing activities by US companies amount from 45 to 55 percent, with an additional income from the sale of American software and hardware (Olian, 2004).

Offshore activities also reduced prices of products normally produced locally (Olian, 2004). According to the Institute of International Economics, it reported a drop in the cost of personal computers in the 1990’s when the manufacturers of the chips used in the computers moved their operations overseas (Olian, 2004). The move resulted in the decrease of about 10 to 30 percent in the prices (Olian, 2004).

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