In 2004 the democratic presidential candidate race was zeroed down to which candidate proves his protectionism in eyes of average Americans, who are worried about the increasing quantity of jobs loses because of outsourcing and off-shoring. In conclusion the sentiments management thinker Tom Peters puts it in one of his presentation (Tom Peters 2004) -”when I was young my mom use to inform me finish the food, people in India and China are dying of hunger. Today I tell my daughter finish your research, people in India and China are searching for your job”.

Outsourcing and off shoring has become the latest rage in corporate America. Companies are resorting to outsourcing to chop costs and be competitive in the market. This focus on outsourcing has resulted in shipping out of a large number of American jobs to far fetched place like India and China.

Today Young people sitting in their offices in Bangalore and Dublin are answering average American’s insurance queries, planning their taxes, helping them fixing their computers, providing information regarding their credit card accounts and helping them in planning their debts. The surge doesn’t last there it has now started threatening the white collar jobs which was considered once Americas birth right. So what would be the future for American jobs market, will it be as doomed because the candidates in the presidential race designed to believe us or we must dig deeper to find the real truth.

What is Outsourcing and difference between Outsourcing and Off-Shoring

Outsourcing and off-shoring are taken one for another but there’s a fundamental difference between outsourcing and off-shoring.

Outsourcing is understood to be the exporting of non-core business operations or jobs from internal production inside a business for an external entity which focuses on that specific operation. Decisions regarding outsourcing in many cases are designed to lower operational costs in order to concentrate on business core competencies.

Off shoring happens when the organization sets up its offices in foreign land to avail the resources, tax benefits or human capital. Unlike outsourcing, in off shoring operations and jobs are managed by the parent company rather than setting it up done from external entity.

A related new term is out-tasking: it is typically on an annual contract, or sometimes even a shorter one. It involves continued direct or indirect management role play in decision-making by the parent company of the out-tasking business.

Why do we Outsource

Outsourcing isn’t a new phenomenon; it’s around for hundreds of years. Europeans started outsourcing sugar from Latin American countries by using local people. In modern economies it’s its root in theory of comparative advantages by traditional economist David Ricardo (Ricardo, 1817). Because the theory propagates that certain should spend one’s energies on things that has comparative advantage. It’ll ensure maximum utilization of the time. Similarly outsourcing enables the company to focus its energy on its core competencies and avail the advantages of others dexterity in operations, by which others have efficiency. These efficiencies could be process related like company A is preferable to Company B in making T-shirts, or they may be formulated like one government providing more tax holidays then another therefore the first country become preferred destinations even though the actual price of obtaining a T-shirt made is comparatively greater than the second country. According to the McKinsey consulting analysis off-shoring creates net additional value for both outsourcing economy in addition to in-sourcing economy, taking India as example it says that for every dollar off-shored, the U.S. economy accrues between $1.12 and $1.14 as the India captures just 33 cents. US economy advantages of mixture of reduced costs (58 cents), purchase from US Suppliers (5 cents) and repatriated earnings (4 cents). In addition some 67 cents for directly retained benefits and 45-47 cents from re-deployment at work in high end jobs.

Advantages of Outsourcing

Companies like Dell and AT&T has brought a lot of negative publicity for locating their customer support system off shore and therefore taking away American jobs, however the companies still went ahead with outsourcing. Therefore the big question is what are the advantages or benefits that are driving most top companies today to outsource their business processes from foreign shores.

o Business Cost Sharing – Large businesses still outsource as pricing is shared through the organizations. As the organizations have their own section of specialization, they keep on investing in those facilities. It saves the American company to invest in that infrastructure.

o Reduce Costs – One of the very tempting good reasons to outsource would be that the 3rd party will give you better service at lesser cost. This really is probably the most significant reason outsourcing is going to third world countries where labor is relatively cheap compared to developed world. In third world countries where growth and prosperity level is low, companies are able to significantly reduce their wage bill if you are paying less salary to individuals for the similar work that was made by a worker in developed country for higher salary. Is it exploitation – to reply to it plainly in most cases it’s not, as the income level these businesses provide is comparatively higher than the prevalent income level in those countries.

o Tax Benefits – As Outsourcing brings plenty of jobs towards the country where projects and tasks are outsourced, most government in these countries provide tax holidays and other benefits which makes outsourcing a possible option.

o Makes company competitive – As most companies are outsourcing today therefore the one which aren’t doing the work have a cost disadvantage. To stay competitive against competitors, most companies nowadays resort to out sourcing. Actually this competitive benchmark usually leads companies to explore new foreign outsourcing destinations with better infrastructure and incentives. For instance to provide cheaper clothes in 70′s and 80′s companies like Wal-Mart start outsourcing apparel from Korea and japan. As the prosperity level grow during these countries and employees became relatively costly then before the companies gone to live in East Parts of asia like Indonesia, Vietnam and Thailand. In the meantime China developed its infrastructure making it a far more competitive place then by spreading their basket Wal-Mart moved to China. Today as a company Wal-Mart may be the biggest trading partner of China also it actually exceeds some countries total foreign trade with China.

o With additional control over business outcomes – It may have started as cost reducing activity however nowadays outsourcing provides corporate executives a better scope to shape company’s future. According to among the recent survey in excess of 800 healthcare, manufacturing , retail and travel executives in america and Europe by consulting company Accenture (Advantages of outsourcing 2004) , 86% said outsourcing provides them more and more control over business results in a variety of strategic areas, the most important being a chance to plan. “Industry leaders today view outsourcing like a prescription for change versus an antidote to rising costs,” says John Rollins, a partner in Accenture’s products operating group(Advantages of outsourcing 2004). Increasingly more companies are outsourcing to enable them to focus on their core competencies. Companies like Nike don’t even manufacture just one shoe or garment. It outsources each one of these activities from the dedicated third party factories in South East Asia, China and South Asia. The Nike headquarters in US only focuses its energy on developing new design and sharpening its marketing juggernaut.

Disadvantages of Outsourcing

o Political Risks – This really is one of the most evident risks which a company needs to face whether it decides to outsource. Probably the most hotbeds of the outsourcing revolution today have a various degree of political risk with them. For instance – China is governed with a communist country, despite the fact that government proclaims to adhere to World Trade Organization laws but one can never be sure in a communist country because the government can over change a law overnight to profit its own people. Other countries like Ireland, India, and Philippines etc sooner or later or any other are marred by violence along with other such activities.

o Growing dependence on the 3rd party contractors – As the company dependence on the third party boosts the relative price of business also start increasing as the third party will begin asking better share.

o Difficult to innovate – as the companies are determined by third parties, it leaves lesser scope for a business to innovate business operations and get better than competitors. If the company really wants to focus on a particular training along with other such aspects, the 3rd party will try to resist as it will put a hang on his business prospects with other business clients.

Outsourcing hotbeds in the world

You mention the name of China and India in the community nowadays and something will receive a serious gaze as though these countries take away the prosperity and jobs of average American. The most common reference I learned about is that incompetent people within the east take our jobs just because companies are able to get their work done in 20% from the amount it’ll cost you to make it happen by an American worker. So might be all jobs likely to India and china?

The answer is no, in fact it varies from industry to industry, so if you’re a call center or perhaps an information technology worker, people in India and Philippines are competing for your jobs. If you are an insurance claim processor, Irish workers may be striving for their share and additional facing competition from growing trained workforce in Poland and east Countries in europe. If you are an aircraft engineer and designer, Russian workers may be more of a concern. So if you’re a textile industry recruit then begin looking for opportunities outside the industry as Chinese and Mexican companies will put you out of the job when they haven’t by now.

Can these countries continue having these comparative advantages

Well as mentioned earlier it depends upon the comparative advantage of the nation, my personal analysis is that outsourcing is a long term phenomenon and countries and companies which will succeed at it is going to be those which will address it as part of their business strategy.

Companies which would like to ride the outsourcing bandwagon without any long-term strategy in position will fail miserably at it. Like all supply and demand issues the outsourcing future may also be decided by the supply and demand of accessible resources in a particular country. For instance off shoring and outsourcing activities throughout the cold war were in the United States and England to Ireland and Israel. As globalization stepped in additional and much more countries opened their door to free economy this change resulted in the emergence of recent players like China, India, Philippines, Russia and Nigeria.

Among these China emerged as the leader in manufacturing section while India is excelling in it. India today is recognized as probably the most employer-friendly countries for outsourcing because Ireland and Israel have almost saturated their surplus labor pools and salaries in those countries have started rising. During India educational system churns out almost 3 million College graduates every year plus they earn approximately one-tenth to one-fifth the salaries of the European or American counterparts.

Because the cycle in previous outsourcing hotbeds proved that once the pool starts saturating and prosperity level increases the economy moves toward a couple of things

o One higher salary for the working class as they require more income to sustain their life style.

o Secondly the countries will move towards more advanced products. For instance in 50′s Japan use to manufacture clothing and garments for American market. As the Japanese economy developed it started producing silicon chips and the made forage into automobiles and electronics. Today Japan may be the second largest market in the world also it outsource most of its clothing and garments requirements from China, Japanese owned factories in Taiwan and Korea are creating chips for Japanese electronics. Today some of the biggest names in electronics in American market are Japanese. What started as a Akio Morita revolutionary Walkman today blossomed into Play Station 3 , next generation gaming system.

How outsourcing influencing the American economy

The growing tendency of companies in corporate America to choose outsourcing has seriously influenced the American job market. The fear and noises have almost the same decibel level because the one heard using the introduction of NAFTA ( United states Free Trade Agreement ) at the begining of nineties. The worry at that time of time was that opening our borders for Mexican agriculture products will wipe of the agriculture industry in the united states. It’ll flood US with Mexican workers throughout and lots of manufacturing jobs in southern America agriculture and automobile sectors is going to be lost. Had these fears came true following the decade of free trade in North America. The free trade proponents believed it has created more jobs and the economy has grown quicker then in the previous decade as the opponents believes it resulted in job cuts in manufacturing and textile sector, in which Mexico has become the largest clothing supplier to Usa within a decade. The reality lies somewhere between.

Effect of NAFTA upon us economy

As free trade brings more opportunities it also brings new competitors. NAFTA opened the united states manufacturer doors for exporting products to Mexico plus establishing their factories in Mexico to make them more competitive to European manufacturers. Overall sectoral analysis throws some light on the true picture
Textile Sector

The protectionist most feared concerning the influx of Mexican garments in the US market leading to job losses. Benefiting from NAFTA , Mexico had become the largest supplier of clothing and garments to Usa within a decade, but looking closely we’ll analyze that although it has had away garment manufacturing jobs but it has increased jobs in spinning and weaving sectors of textile industry. The garment cut and tailored in Mexican factories is American. It provided a great value to the cotton farmers in the country. It also created new jobs in retailing, transporting and hospitality industry.

As we view it from country strategic prospective it kept away the dominance of China in US market. So it balanced our basket of clothing suppliers.

Low price clothing has additionally kept inflation rate at ‘abnormal’ amounts. Today when the protectionist are screaming from the top of their voices about pitfalls of outsourcing, I love to remind them that the minimum price of a ‘Made in America’ jeans can’t be under $80 dollars, it is just due to outsourcing that people are able to buy it at $12 in nearby Wal-Mart stores. (Jim McKay, Pittsburgh Post-Gazette, 2004)

Automobile and manufacturing sector

Dealing with an article of recent York Times economist Paul Krugman (New York Times 2005), he stated that Toyota has decided to start its car manufacturing plant in northern Canada instead of Southern and Central America. The main reason the aptitude degree of the Canadian workforce is greater than the American. The answer is simple when foreign investment is shying away because we’re not purchasing health care and academic benefits for average Americans then it will foul to cry that people are loosing jobs to off-shoring. First of all thing would be to put our house so as.

Agriculture Sector

Agricultural tariffs were reduced to zero for 1 / 2 of American exports to mexico. Another half will be eliminated by 2009. On grains, dairy, and poultry, NAFTA eliminated Mexico’s licensing requirements. The opening contrast to Mexican flooding the US market with its product it provides avenue for all of us food companies to develop business processes to subsidy flushed Western European farmers.

Overall scenario

Rival its NAFTA partners U.S. domestic exports to possess increased dramatically-with real growth of 95.2% to Mexico and 41% to Canada-growth in imports of 195.3% from Mexico and 61.1% from Canada overwhelmingly surpass export growth

Conclusion

How this outsourcing will influence the long term prospects people econmy is still to be seen but to place things in context, with or without outsourcing economies shed and helps to create new jobs each year especially American economy which is the best economy on the planet. Every years millions of American change or leave their jobs because of technological invention like Automated teller machines which lessen the quantity of banking executives needed, process redundancy like requirement for type writers etc. Job outsourcing is also not just one way traffic, one countries outsourcing is other countries in-sourcing. Within the manufacturing sector the US economy might be facing trade deficit however in service sector it’s trade surplus.

Globalization is bringing new opportunities and challenges for companies and employees, it is also putting force on governments to provide its citizen better education, improved healthcare and an overall better quality lifestyle. Outsourcing is developing new markets for American products because these countries that are having rising per capita income and changing lifestyle.

The lingering challenges that have touched every region on the planet economy have exerted a mix of financial pressures on businesses in Mexico. The street to economic recovery and sustainable prosperity will need Mexico to decide just how to stimulate its national economy in the face of the worldwide recession, to deal with the devaluation from the peso, and to balance its dependency on manufacturing exports towards the United States. Add to this challenge the rising security issues related to Mexico’s ongoing drug war, and one starts to appreciate the implications on business growth and also the flow of future foreign direct investment into the country.

The good thing is that Mexico has undergone several economic catastrophes, which appear to give it an edge psychologically. Some sectors, for example pharmaceuticals, energy and certain consumer goods sectors, did well, or have at least maintained sales growth, despite the economic downturn.

The present economic challenges – felt most acutely within the financial services and automotive sectors – have previously ushered in certain important structural changes that will help it compete long into the future. These reforms are forcing Mexico to design a strategic economic development program which involves the participation of government and also the private sector. The government has had steps, through public investments, to preserve jobs and improve to safeguard employees. And firms are attempting tough to take advantage of their existing resources and also to be more productive.

Considering the fact that human resources remain the single largest intangible assets on corporate balance sheets, you will find that some Mexican companies see potential in creating workforce efficiency and making their teams and leaders more productive. Mexico as a country, with its closeness towards the Usa and Canada, in addition to being one of the gateways towards the remainder of Latin America (particularly the northern countries), needs to develop internationally oriented leaders to improve its competitiveness.

Finding leaders who’re fully bilingual and multicultural and who are able to fully understand and adapt to a U.S.- or European-owned organization is not easy. However, there are more executives available in the market, there’s still a demand for multicultural, multilingual, executive talent with experience working and/or studying beyond Mexico. In the C-level and one step below, few want to risk a move to a business that’s less economically stable. And because Mexico’s population is young, even fewer have had the expertise of managing or leading inside a severe economic crisis, even though they might have been working during the previous downturns.

Companies across Mexico could be well served to remember that simply because there are more candidates obtainable in the job market does not necessarily mean the talent pool has increased in depth. In an economic environment like this one, where there are multitude of quality unemployed executives, there are also the usually underperforming executives on the market. Companies cannot risk making bad hiring decisions. For this reason, organizations need to have a methodical and comprehensive executive search and buying process, which ensures an attractive and successful partnership for the company and candidate.

The companies which make hiring global talent their priority, in addition to including among their key objectives programs to build up global leaders, will have an advantage over their competition. To achieve that edge corporate “C-level” management happen to be weeding out the ‘B’ and ‘C’ grade managers and hiring or promoting the so-called ‘A players’ whom they are able to depend on to lead in times of crisis. This can be a consequence of top executive leaders having to identify key executives, build strong teams and get higher productivity of managers who are in possession of fewer resources.

It appears, however, that decisions about upgrading talent in times like these is, within many organizations, a matter of individual decision-making rather than a thoughtful, consistent method of improving organizational performance. Most companies doing business in Mexico don’t have well-defined talent management strategies and/or succession plans, which remains one of the leading human resources challenges in the united states.

Aside from a few multinationals that are more closely aligned using the tricks of the home-office, most organizations are losing talent because there are no defined retention programs, career tracks or leadership development programs. Typically, the Mexican business culture has produced leaders having a more autocratic leadership style, a number of whom remain and clash with up-and-coming, high-potential talent. In Mexico, it is now time to align human performance with business strategy.

Today, more than ever, it is increasingly important to establish effective communications within teams; inspiring and involving all associates to concentrate all of their efforts towards a common goal within the most productive and efficient ways.

Looking ahead, if the current recession and financial crisis rebounds out of the box expected by early 2010, a lot of companies may be caught lacking key executive talent in the near future once we have already seen gaps in organizational structures where management positions that would normally be filled internally do not have the adequate talent pool and need to become sourced from the market.

The pace of future business growth will continue to hinge about the region’s ability to develop, attract and leverage the best business leaders who are able to drive talent equity and sustainable business advantage. For employer organizations across Latin America now, driving toward sustainable business advantage should be a few vision and a resolve for discover the next opportunity.