Effects of Outsourcing Outsourcing is the process in which businesses contract with service providers or manufacturers for services or goods that would have otherwise been performed or produced in-house by the employees of the business (Outsourcing Dominates U.S. Manufacturing Economy). Businesses do this with the intention of producing the services or goods more efficiently (The Ins and Outs of Global Trade). Offshore outsourcing is a good method of improving efficiency and bettering the economy of developing countries; however, it also stagnates innovation and worsens the economy of the home country.
First of all, outsourcing can improve the overall efficiency of the economy. Outsourcing is a fine example of companies utilizing comparative advantage, a firm’s ability to produce goods or services at a lower opportunity cost than other firms. For example, if the U.S. produces automobiles and corn, it can only produce so many automobiles and so much corn. However, if the U.S. only makes automobiles and imports its corn from China, it can produce more automobiles for the same cost as it would have for both automobiles and corn (The Ins and Outs of Global Trade). When countries …show more content…
Outsourcing has been known to stagnate innovation by limiting workers’ resources and time. While this could be considered a cause, an effect that would stagnate innovation for the United States would be that while Indian IT firms operate at a level five on an IT service model scale, U.S. IT firms score an average of two or three on the same scale (Outsourcing Dominates U.S. Manufacturing Economy). Also, from 2001-2011 U.S. workers who were displaced by job loss to China lost a cumulative $37 billion in wages from accepting lower wage jobs (Peralta). Earning a lower wage would create less motivation and less incentive for these workers to be productive and
First of all, outsourcing can improve the overall efficiency of the economy. Outsourcing is a fine example of companies utilizing comparative advantage, a firm’s ability to produce goods or services at a lower opportunity cost than other firms. For example, if the U.S. produces automobiles and corn, it can only produce so many automobiles and so much corn. However, if the U.S. only makes automobiles and imports its corn from China, it can produce more automobiles for the same cost as it would have for both automobiles and corn (The Ins and Outs of Global Trade). When countries …show more content…
Outsourcing has been known to stagnate innovation by limiting workers’ resources and time. While this could be considered a cause, an effect that would stagnate innovation for the United States would be that while Indian IT firms operate at a level five on an IT service model scale, U.S. IT firms score an average of two or three on the same scale (Outsourcing Dominates U.S. Manufacturing Economy). Also, from 2001-2011 U.S. workers who were displaced by job loss to China lost a cumulative $37 billion in wages from accepting lower wage jobs (Peralta). Earning a lower wage would create less motivation and less incentive for these workers to be productive and