Macroeconomics Advantages And Disadvantages To Outsourcing

Topics: Outsourcing, Offshoring, Economics Pages: 8 (1665 words) Published: March 9, 2015


Advantages and Disadvantages to Outsourcing
Michael Tuohey
Misericordia University

Abstract
Outsourcing is when producers use different companies for certain parts of the production process. The work can be sent to other companies or to different countries. There are many advantages and disadvantages to outsourcing. An example of one of the advantages of outsourcing would be that it makes the prices cheaper in the United States. An example of a problem with or a disadvantage of outsourcing is that it reduces the amount of jobs in the United States. People argue whether or not it is good for the economy and that will be discussed further.

Michael Tuohey
Mr. Thomas Sweetz
BUS 205 Macroeconomics
22 November 2014
Advantages and Disadvantages to Outsourcing
Outsourcing is when a business gets a good or service from somewhere other than themselves. They have many ways of doing this. They can use a different company for a part of the production process. A different way of outsourcing would be closing their U.S. factories and moving them to other countries, such as China or India. There are a few different reasons as to why a business would outsource, but the main reason is to save money so the product can be sold for cheaper. This is done in many industries and it has many advantages, but with those advantages come many disadvantages.

The first advantage to outsourcing would be the amount of money that it would save the company that decided to outsource something. When the work is sent to another company it is usually because that company most likely makes something more efficiently and it can be bought from them cheaper than if the business were to produce it themselves. If the work is sent overseas there are many things that can save the business money. Work sent overseas is usually sent to countries much less developed that the United States. This means that there are less laws and regulations about production. The most notable difference is what the workers are paid. Chinese workers for example, are paid a fraction of a minimum wage worker in the United States. This is a huge money saver for businesses. Another big difference is in the regulations, most noticeably are environmental regulations. Factories in the United States usually have to spend a lot of money to control the pollution the factory would make, depending on what it is producing. People say that sending jobs overseas is bad because it reduces the number of jobs in the United States, but the money saved creates jobs so it is not as bad as the people who say this think. With these two things alone outsourcing to different countries can save a business a lot of money.

The next advantage would be that the business can focus on things like creating newer, better products and selling them. This is much easier when they are not doing certain parts of the production process, because they can have people who normally, would be doing things with the factories, help with new designs and the marketing of these designs. A very good example of a company doing this would be Nike. They sent the production of all their products, which are things like shoes, clothing, and sports equipment, overseas to China. Now that they do not have to look over the production process as well they are putting all their effort into design and marketing. Apple is doing the same thing with their hardware for their electronics (Pearlstein). This is the most popular way to change focus, because it allows them to put much more focus into the design and market without a bad decrease in the quality of the product.

Another thing that outsourcing does well is reduce overhead. This is very important to businesses and it is a big reason why so many businesses are sending parts of or even the entire production process elsewhere. Overhead is basically the cost of running the business. Things such...

Cited: "Outsourcing Policy." Economics of Outsourcing. Web. 23 Nov. 2014. .
Overby, Stephanie. "The Hidden Costs of Offshore Outsourcing." CIO 1 Sept. 2003. Print.
Pearlstein, Steven. "Outsourcing: What 's the True Impact?" Washington Post 1 July 2012. Print.
"The Advantages and Disadvantages of Outsourcing." Flat World Solutions. Web. 22 Nov. 2014.
Weidenbaum, Murray. "Outsourcing Is a Good Thing - Mostly." USA Today 1 May 2004. Print.
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