Outsourcing has been practice for decades, it happens when companies or business contract a third party, someone outside the business, to produce goods or provide services. Outsourcing can be local, within the same country or offshore, outside the country. Some of the job areas companies outsource are Accounting, Customer Services, Human Resources, Information and Technology and Payroll. Outsourcing supporters affirm that this activity provides substantial cost savings to businesses, through paying less to others do their job, at the same time they can lower prices of goods and services.
Although outsourcing brings benefits to a company, this activity may limit the quality of products and the availability of jobs in America. One of the major issues with outsourcing is security. Sensitive information has to be given or transmitted to the outsourced organization which opens the chance that the information can be hacked or stolen during the process. Likewise, confidential information, like social security numbers, bank accounts, security codes, salaries, medical records, could be susceptible to misuse or inappropriate disclosure.
Third parties, who have access to such information, may not have the same ethical standards as American workers, putting at risk the privacy of clients. A former Chase call center rep tells the story about this one thief who was able to rip off one customer for over $40,000, thanks to his constant outwitting out the internationally out-sourced security department. It wasn’t that hard. Over and over again, he was able to commit credit card fraud just knowing the guy’s name, social, and mother’s maiden name.
Outsourcing can also impact dramatically the safety and quality of products and services. Some companies do not properly evaluate the levels of risks associated with outsourcing and the impact to consumers. In 2007, millions of toys made in China were recalled because they contained lead paint. The recall brought attention to China’s lax safety standards and the lack of regulations for imported goods. Consumers and some lawmakers are calling for tougher policies to reduce the numbers of unsafe products entering the United States.
Cases like the one above can lead to an unexpected economic impact for the company in order to correct the damage and the risk to the consumers. Some experts say that outsourcing is one of the causes of unemployment in America. In times of economic crisis some companies have been forced to downsize, lying off some workers and outsource in order to survive during difficult times. Every day we see highly skilled Americans working par-time jobs without social security and below the skill level they have been trained.
Because the job they use to do has been outsourced. Outsourcing is economically justifiable only once the wage differential is large enough to more than make up for lower labor productivity. For example, if the higher wages of American workers are consistent with their relative productivity, there should be no reason for a company to move its operation overseas. Outsourcing is an attractive mechanism that has been practice for long time and some companies have had positive results.
However outsourcing is not a magical path that leads to a profitable and successful business all the time. There are a lot of risks inherent to this practice and any company willing to outsource should evaluate these risks responsibly. American investor should come up with better ideas than cutting costs by outsourcing, it is not a very smart strategy for a country that have a significant number of under-employed or unemployed citizens. Would it be smarter to find the way to take advantage of the well-educated and experienced workers, the tax payers?