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The Effects of Outsourcing to Developing Countries Pros and Cons

by Suleman
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Introduction

Outsourcing can be taken to refer to the downsizing of an organisation’s workforce, whereby those tasks previously performed by these individuals are alternatively performed by automation or the tasks are exported to another base for completion, especially overseas where the tasks can be completed cheaply (Haynes, 1999). For instance, India and china are known to provide the largest pool of labour in the manufacturing industry, most notably the clothing industry. For the purpose of this report however, outsourcing is defined as the provision of domestic tasks or assignments from internal production to an external organisation particularly in the area of fashion (Eriksen, 2005). This definition can be supported by Ross (2004) who argues that many immigrants especially from developing countries work in the apparel industry toiling in sweatshops where violation of laws governing their wages, safety and child labour is rife (Ross, 2004). According to him, there are about a quarter million sweatshop workers in the United States all employing immigrants from the third world, hence producing a competitive race to the bottom among low wage countries. Since its inception therefore, outsourcing has become a phenomenon that has taken the world by storm (Haynes, 1999). Accordingly, it has brought about the growth of information technology, assisted globalisation thereby generating multinational societies that have necessitated certain situations where stiff competition tends to take control of our lives (Eriksen, 2005).

A manifestation of this cut-throat competition is witnessed in the frenzy with which research and development are occurring in business and most notable in fashion where trade mark names in the clothing industry are the order of the day. Take for instance labels like Van-Heusen, Marks and Spencer, Nike and Adidas just to mention but only a few. You are not fashionable if you don’t don any of these household names (Rosen, 2002). Other areas where outsourcing is taking centre stage include computer programming positions, administrative works and production assignments, with third world countries such as India and China ending up being the highest end-users for this outsourced work (Haynes, 1999). The same competition is also found in the efforts shown by companies in cutting expenditure and attempting to offer the best of services ever, which has finally catapulted itself into outsourcing. This situation is becoming more frightening each waking day because more and more companies are emulating their rivals in business (Eriksen, 2005).

The Effects of Outsourcing to Developing Countries Pros and Cons

On the other hand, outsourcing is considered by majority of business people as a win-win state of affairs but regrettably has not been always the case. In fact it is associated with plenty of shortcomings that are beyond the understanding of most people. The current major disadvantage of outsourcing is that the first world nations have policies in place governing outsourcing that are too inclined to one side to be able to offer a level playing ground for big and small companies alike, thus leaving the only alternative open for them to outsource (Haynes, 1999). Given that outsourcing generally leads to lowering of the prices for products and services, then most organisations are forced to outsource so as to remain in business. This outsourcing makes sure that products and services that are produced are both cheaper and of high quality and at the same time get better sales than those with only quality but costing a fortune, consequently making profits sky rocket (Haynes, 1999).

Evidence available indicates that for the previous couple of years, the United States economy has emerged as a budding economy, significantly and irretrievably impacting strongly on the global market (Haynes, 1999). One of the most momentous impacts of this robust economy lies in the area of outsourcing to foreign countries. That is why the developed countries such as the United States and the United Kingdom where large corporations are mostly found consider outsourcing as an enabling method of international trade to prosper and allow industries to flourish, foremost being in Fashion and sporting (Eriksen, 2005). Accordingly, many companies whose headquarters are based in their parent countries are now turning to outsourcing manufacturing and production to other locations to force down costs.  

In this paper, I will attempt to address the issue of outsourcing to developing countries. The paper specifically investigates the negative effects of outsourcing as well as the positive ones to developing countries. Both effects of outsourcing are handled specifically in the area of fashion, mostly in sports and the garment industry as well as entertainment in general. Arguments on both areas are put forward separately, beginning with the negative effects followed by the positive ones. A brief conclusion is provided at the end of the paper, basically wrapping up the whole report.

The Cons Effects of Outsourcing

Morally and ethically, outsourcing is viewed to be completely wrong and may impact negatively on both the workforce and the productivity efficiency of corporations in the long term. From a practical point of view, corporations that rush to outsource job functions recognise little profits on their venture in the long run. This is because several structures need to be put in place before this decision is implemented. The scamper to outsource has therefore depressingly left some corporations with little worth and to some extent no tangible increases in productivity or service delivery (Louie, 2001). Consequently, there has been an increase of panic and discontent among employees in these companies. This is clearly shown by Louie (2001) in her argument about the fact that female immigrants working in sweatshops to make garments have been able to marshal enough courage to challenge the corporate economy. These immigrants have managed to do this by moving up the corporate ladder to be at the top among their male counterparts. Accordingly, these women are hallmarks for inspiration towards creative and successful resistance and positive social change (Louie, 2001). Since most of these immigrants come from developing countries, it is a clear indication that outsourcing aids in the abuse of human rights based on gender in the third world countries.  

There has also been wide-ranging demoralisation of the local employees when they witness their employers gradually assigning tasks to other countries. This is mostly experienced in developing countries that lack technological advancement. Arguably, these job insecurities have impacted negatively on people living in developing countries in that there has been increased job competition that has resulted in reduction in wages and consequently lower standards of living (Eriksen, 2005).  This fact is best demonstrated by Louie (2001) by explaining how employment in the apparel industry has impacted negatively on employees from developing countries, particularly women immigrants under the hands of garment contractors.  These employees are down trodden upon with their human rights fundamentally violated.  In the same vein, Ross (2004) argues developed countries have misused their economic power to violate the dignity of human beings particularly those in developing countries such as China and India by making slaves out of them when they overwork them in their sweatshops with low wages. With the demand of sporting garments therefore, this practice is continuing unabated. All these arguments try to attest how outsourcing has negatively affected the developing countries, particularly China and India.

In one way or the other, outsourcing is known to have led to the exploitation of labour in developing countries.  For instance, in the construction of sporting facilities such as sports complexes and stadiums in the area of fashion, prisoners and child workers have been used to work under appalling conditions to provide cheap labour. As a result of this, safety standards for these labourers are usually ignored in an effort to produce cheap products possible (Esbenshade, 2004). According to Ross (2004), immigrant women, children and men alike are employed in the apparel industry working in sweatshops in most inhuman conditions where wage and safety laws are violated with impunity. There has been wide spread international expansion of sweatshops in recent times that can be mainly attributed to globalisation and industrial deregulation and partly to the increased interest in the sporting industry (Eriksen, 2005). This expansion has principally resulted in a stiff competitive race to the low wage countries found at the bottom of the economic hierarchy, in which several movements against sweatshops and agitation for the development of effective labour standards have been witnessed (Rosen, 2002).

On the other hand, the struggle for securing a job for the locals in the developing countries is ever becoming tougher. This is the most obvious consequence of foreign outsourcing.  The explanation here is because more jobs are assigned in other countries, there by making it more difficult for the natives in gaining employment.  Take for instance sporting. Most well paid prominent players particularly in soccer are outsourced to play in foreign clubs away from their own homes. Actually, majority of them are outsourced from third world countries such as South America and Africa (Eriksen, 2005). Sports have been promoting outsourcing in the garment industry where manufacture of sporting uniforms has been attracting a lot of attention and many companies are now coming up with new designs to be marketed. This demand for increased labour force has necessitated the re-emergence of sweatshops in the United States and the growth of new ones abroad (Rosen, 2002). The process of globalisation has been promoted in such a way so as to blend industrialisation and economic development in both poor and rich countries through outsourcing. This has seen some big social concerns coming up like the fast spreading of fast food chains in the developing world. McDonalds and KFC are very good examples of these fast food chains which are forcing people to consume more junk food from their establishments, thus adversely impacting negatively on people’s health, all in the name of fashionable lifestyles (Eriksen, 2005). 

In the field of fashion, it can be argued that outsourcing has brought very bad aspects of foreign cultures that are adversely affecting the local cultures in developing countries basically through films, television shows and the Internet. An argument put forward by (Haynes, 1999) strongly indicates that the use of films and the Internet have been frequently abused by enemy nations to spread hate propaganda. The Islamic world where terror groups and insurgents are common, the use of the Internet to spread their dislike of the Americans can strongly attest to this. In the same way, deadly diseases like HIV/AIDS and other communicable diseases are being spread by travelers to the remotest corners of the globe, not sparing the third world countries. Human trafficking has also borne the brunt of outsourcing particularly when one considers the numerous immigrants employed in the garment industries (Esbenshade, 2004).  

Finally, developing countries have in recent times experienced terror attacks due to the fact that outsourcing has facilitated globalisation which has in turn helped terrorists have access to sophisticated weapons enhancing their ability to inflict damage. Terrorists use the Internet for communicating amongst themselves and are able to scheme their devious deeds. A recent case is the events that led to what is commonly known as the September 11 where the twin towers of world trade centre were bombed. Also, due to the concentration of manufacturing industries in developing countries, pollution has become a very challenging issue in these countries (Haynes, 1999). This pollution especially of air introduces green house gases to the atmosphere thereby depleting the ozone layer hence affecting weather patterns.

 The Cons Effects of Outsourcing

According to Haynes (1999), globalisation has created the concept of outsourcing. He argues that work in the area of software development, customer support, marketing; accounting, insurance and advertising are all being outsourced to developing countries such as India and China. In this case, the company that is outsourcing the work enjoys the benefit of lower costs because the wages in developing countries are deemed to be far lower than what the developed countries offer. This in itself helps workers in the developing countries to get employment opportunities (Haynes, 1999). In addition to this, the developing countries concerned get access to the latest technology in the market. On an argumentative point of view, increased competition due to outsourcing has forced most and not excluding those dealing in fashion design to lower prices while at the same time improving quality. At long last, this has ended up benefiting the end user consumers. Similarly, increased media coverage draws the attention of the world to human right violations which are rampant in the developing countries. This exposure definitely leads to the improvement of human rights (Haynes, 1999).

Among the most important benefits of outsourcing seem to be the cutback in operating costs and increases in efficiency. The cutbacks in operating costs are witnessed in outsourcing because workers in the developing countries are paid far much less than what they would be paid in the developed countries (Rosen, 2002). This really offers a considerable decrease in working cost and it is thus the principal reason why various companies in the developed countries throughout the world have preferred to outsource many of their business activities to other locations (Esbenshade, 2004). This argument is strongly supported by (Rosen, 2002) who states that outsourcing is more cost-effective rather than developing in-house talents.  This is basically because foremost, an outsourced workforce from other countries requires only smaller salaries because of the certain standardised salary schemes within the country. Secondly, contracting out workforce help to cut costs and redirect resources. Haynes (1999) argues that a large company with numerous personnel with unspecified work may yield the same results as a company that has smaller personnel but with specified work descriptions.  These specified work descriptions are attained through outsourcing of different functions from different sources. Finally, outsourcing results in lower investment in internal infrastructure of the outsourcing country because they will be built instead in the outsourced country, thus greatly improving the standards of living in the developing countries outsourced (Haynes, 1999).

For any economy to be stable and flourish, manufacturing base becomes vital. This is because manufacturing industries provide long-term employment to the public who in turn become wealthier, and are therefore capable of comfortably spending their wealth and hence pay taxes, thus enabling the government to complete development projects (Esbenshade, 2004).This has been witnessed in China, a third world country that is gradually becoming the world’s factory base simply because it is capable of pulling huge investments from major manufacturers due to its lower labour costs and large population (Esbenshade, 2004). In relation to this, most of the United States’ economy has grown tremendously partly because of the use of immigrants working in the apparel industry, mostly manufacturing fashionable garments in sweatshops (Louie, 2001). Most notably of these manufactured garments are found in sports. The best examples of these are found in the well known trade mark names like Puma, Nike, Carlsberg and so forth branded on most uniforms for players in famous clubs. Lastly, United States’ suppliers are currently finding it extremely difficult to match their prices with that of China, and as a result, they, too, are outsourcing to China or moving their operations to China, thereby helping to better the Chinese economy (Rosen, 2002).

 Another very crucial positive effect of outsourcing to developing countries is found in the field of technology. It has been established that most developing countries such as India and China possess a large pool of talents in technical fields like Computer Science and Physics.  For the United States of America to survive in business, it is necessary for it to seek talent outside or to send the work to countries where this talent pool is plentiful.  For this reason, India and China offers a solution to this problem (Haynes, 1999).   Research findings indicate that India has a large population of engineering graduates who have polished technical skills and are capable of accomplishing the any technical work for less. Similarly, China produces the largest number of Computer engineers every year thus piling up a big pool of these.  In view of these two reasons therefore, both countries are greatly benefiting from numerous outsourcing from the United States of America, which is fast recording a rapidly depreciating pool of talents in technical fields (Haynes, 1999). In connection to this, the developing countries are bearing the brunt of the United States of America’s economic woes as well as the rising number in job loses due to outsourcing by tolerating numerous racist remarks and insults from enraged American citizens.

Nowadays is fashionable for everyone to own a mobile phone and at least have access to the Internet. These two basic necessities have rapidly brought people closer and increasingly integrated the economies of the world. Eriksen (2005) argues that access to these two facilities have made the world become a global village, where products and services which were once the preserves of the developed countries are now accessible to all including those in developing countries. According to him, this is globalisation which is interlinked with outsourcing.  In this global village therefore, it has become very easy to outsource work to any part of the globe that has Internet linkage. Similarly, with the enhancements in traffic infrastructure, it has become very easy for anyone to access any part of the world within a reasonably short span of time (Eriksen, 2005). It is even now possible for anyone to watch favourite sports and other entertainments comfortably at home via the mobile phone or the personal computer. This is quite fashionable.

Outsourcing is known to foster good relationships between countries, both developed and developing. Take for instance in sports where most soccer celebrities from developing countries play for clubs in developed countries. These players offer opportunities for mutual interactions to their developing countries which surely have the chance of finding potential markets in these developed countries they are playing for (Eriksen, 2005). In the same manner, it will be easier for organisations from both countries to penetrate the market in either of the country since they already have an idea of the business culture. This will facilitate faster business establishment and with the provision of cheaper labour, productivity simply improves with the creation of more career opportunities.

Conclusion

In conclusion, I would wish to point out that the issue of outsourcing is very significant in the performance of any business enterprise worth its name. From the outset, it is clear that the policies formulated by any government to govern outsourcing make or break businesses. The policies should offer at least a level playing ground for both small and big organisations, both in developed and developing countries. Outsourcing has been found in almost all areas of operation including Information Technology, fashion and manufacturing (Eriksen, 2005). Both negative and positive effects of outsourcing have been found to affect developing countries with almost equal frequency. In the area of fashion, the report identifies more negative effects of outsourcing to developing countries than the positive ones. The difference is only minimal. I there want to conclude and say that as long as none of the two effects outweigh the other, then outsourcing is a great business strategy.

References:
  • Eriksen, Thomas Hylland (2005). Globalization and Sport, Berg Publishers
  • Esbenshade, Jill (2004). Monitoring sweatshops: Workers, consumers, and the global apparel industry. Temple University Press, Philadelphia.
  • Haynes, Jeff (1999). Religion, Globalization, and Political Culture in the Third World. St. Martin’s Press, New York.
  • Louie, Miriam. C. Y. (2001). Sweatshop Warriors: Immigrant Women Workers Take on the Global Factory. South End Press, Cambridge.
  • Rosen, Ellen Israel (2002). Making Sweatshops: Globalization and the U.S. Apparel Industry. University of California Press, Berkeley.
  • Ross, Robert. J. S.  (2004). Slaves to Fashion: Poverty and Abuse in the New Sweatshops. University of Michigan Press, New York, United States.

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