Offshoring and Outsourcing Term Paper

Topics: Outsourcing, Unemployment, Business Pages: 5 (1806 words) Published: June 2, 2012
Term Paper
The debate of outsourcing or offshoring American jobs rather than utilizing our unemployed citizens has been a highly controversial topic in the past decade. Outsourcing has many advantages to business firms such as lower production costs, lower labor costs, improved quality of work, more time to focus on domestic operations, and increased profits which help stimulate our economy. The opposing view argues that by outsourcing jobs to other countries it is causing higher unemployment in America and stimulating the economies of other nations rather than our own by providing them with jobs, resources, facilities and capital. Though there will never be a universal agreement on this matter both sides do have merit to them and make an interesting case on whether or not the shift toward a global economy is a good or bad thing.

In looking at the many benefits a firm can attain from outsourcing jobs it is clear why they would choose to do so. The lower labor costs in foreign countries allow domestic firms to have their products produced much more quickly and efficiently for fractions of the cost. Nike is an example of a very successful company who opts to do most of its production overseas. The use of foreign labor and the need for employment in other countries has allowed Nike to mass-produce its sportswear, which is then shipped back to America and sold with huge markups on price allowing a tremendous profit margin. Firms can also benefit from lower production costs when performing processes in foreign countries is less expensive due to lower material costs.

Offshoring is also beneficial when the domestic firm is already an international business because shipping from the foreign country doing the production may be much less costly then shipping it overseas from America. The savings from removing shipping costs alone would be very beneficial if the company is large and doing a lot of international sales because the large volume and frequency of shipments would add up quickly and high transportation costs would cut into the profits the business could be generating from their operations. Hewlett-Packard is one example of a firm who used this technique by outsourcing the final assembly of a computer server to Singapore and Australia to be closer to its targeted customers in Australia and South Asia (“Operations Management”). Aside from shipping costs, some countries impose tariffs on their imports that can take value from the product being shipped so an alternate option would be to begin production in the importing country itself to maximize profits from the use of both lower labor costs and freedom from tariffs. In reference to the Hewlett-Packard example used before they also began assembling a product in India because of their high import taxes so they could sell the products to Indian customers and avoid the high tariffs (“Operations Management”).

Another reason a firm may decide that offshoring can help maximize efficiency is the discrepancy in labor laws from country to country. America has high standards and strict laws regarding maximum hours a person can work, child labor laws protecting children and their presence in the workforce, higher minimum wage, and higher safety standards than many other countries. Though businesses must operate at a level that obeys the laws of the foreign country, the laws there may be much more flexible and allow for longer work-days and a looser interpretation of what may or may not be ethical in business operations. Nike is an example of this concept as well, and Nike’s decision to use offshore production for its labor laws has caused quite a bit of controversy. The company’s use of sweatshops has had a strong resistance from not only those who have been employed by the company but also American citizens who feel Nike’s business is being conducted in an unethical way. Complaints of unpaid wages, not getting the healthcare employees were told would be provided,...
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