The Effect Of Offshore Outsourcing

Larry Price
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Wednesday - March 11, 2009
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The Council on Revenues’ projections haven’t settled in yet, but as suspected the additional downturn in the economic numbers has created more urgency for lawmakers and the governor to come up with a revamped plan to adjust spending and the lack of revenue. It’s not a pretty picture, and local businesses are going to have to adjust their cost of doing business in Hawaii.

There are a few things to expect. Subcontracting manufacturing work has been a longstanding practice known as outsourcing. More specifically, when a business subcontracts work outside the United States, the practice is known as offshore outsourcing. Consumers benefit indirectly from offshore outsourcing - from reasonably priced goods and services to more jobs being created.

In any case, advocate groups can be expected to voice their outrage, because the immediate impact of offshore outsourcing rests upon the pocketbooks and purses of local workers who find their jobs relocated to countries like India and China. Although employers have concrete reasons why they choose to outsource, before experiencing any of the indirect benefits created by outsourcing, average employees will feel the instant devastating changes in their lives when employers announce potential layoffs.


 

For every study purporting that offshore outsourcing is removing jobs from Hawaii’s workers, there are other studies that prove the contrary and show how this practice brings jobs back to the Islands - eventually.

Nevertheless, groups completing outsourcing studies across the nation predict that the trend of moving work to foreign countries will not end and, in fact, will be on the upswing, especially after the latest revenue projections by the Council on Revenues.

That latest report could spur heated debates by government leaders attempting to pass legislation restricting offshore outsourcing. The primary motivation for outsourcing comes directly from customers, who expect better quality at lower prices. Businesses that cannot meet their customers’ demands soon will disappear from the local landscape while their competitors successfully find ways to offer goods and services to meet these demands.

To support this premise, on behalf of the Information Technology Association of America, Global Insight (USA) Inc. completed an analysis of the impact of Offshoring IT services and the effect it has on the U.S. economy (2004). Using information gathered from third-party research reports, members of the IT industry and primary research surveys, Global Insight cited “lower cost” as the most common reason for offshore outsourcing. Other mitigating factors that showed up in the analysis, like competition demands in an environment of slower growth and lower inflation, also were found to be valid justification businesses rely on when making the decision to out-source. Additional evidence from the sixth annual Outsourcing Index’s polling of more than 640 outsourcing buyers, 66 percent of the executives stated that reducing or controlling their operating costs was the No. 1 reason to out-source. (2003).


Experts have concluded that technology has made the world a smaller place because distance is no longer a factor. With the introduction of modems and more sophisticated high-speed communication technology, it doesn’t matter where information is processed or where a 1-800 telephone number is answered. (It’s interesting to note that Hawaiian Airlines brought back an outsourcing answering service for better customer service.)

Another reason outsourcing is going to increase in the coming years is because competition drives a business to outsource so it can take advantage of freed-up resources to concentrate on its core business.

Almost all of the IT software and services-related jobs can be traced to the bursting of the “dot.com” bubble, which stopped the hiring trend that started from the late 1990s. The recession of 2001 also is a factor when businesses seriously looked at their income and expense numbers.

Perhaps the most intriguing factor for lost jobs, however, was the emergence of new technology that made certain jobs obsolete, thereby reducing labor requirements.

It was innovation that allowed tasks to be done quicker and better that eliminated jobs, not just outsourcing.

As the state ratchets up cost-cutting, the trend to use offshore outsourcing providers will not end. Instead, consumers may be forced to find a way to make peace with the practice.

The opposing views are here to stay, and much will be determined by our new president, legislative leaders and our own government leaders.

If there is a way to handle our dismal financial outlook, everyone can expect outsourcing to join the list of other proposed solutions like furloughs, layoffs, cutbacks, restricting medical care, reduced workdays and diminished retirement benefits.

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