Benefits Of Outsourcing

Outsourcing is when an industry looks to get a good or service from a country outside of its base of operations. This is done typically in one of two ways, the first is using services and people to perform tasks that you do not want to perform in house such as book keeping and back office work such as answering phones or online technical support. The second is using manufacturing plants in other countries in order to lower the cost of labor and capital required to lease out the land for the plants that produce those goods. Outsourcing typically sacrifices something in order to receive the benefits associated with it. Are these sacrifices worth the gains made by outsourcing? Using another country to perform a service for a firm is not typically …show more content…
I would want the absolute best service for my customers as well as ensuring that my employees have the best working conditions possible. The problem with wanting these two things is that the costs are much higher to provide a better standard of either portion of a business. This would mean that I was a non-competitor in whatever industry I was in. I would have to charge higher prices than my competitors for similar services or goods because my cost of production would be higher per unit of output. The problem with outsourcing is that when a company does outsource to save money, they drive the price of labor down in their home countries as a response to the outsourced labor that is cheaper as well as driving the product price. When the product price goes down typically the product demand goes up. This does not necessarily work. Lets use a hypothetical country that every citizen makes a widget, that is the countries sole product. The neighboring country has a lower minimum wage and there is no extra cost to import that widget into the home country. The boss of the company decides to move the widget production to the neighbor and says it’s a cost saving measure. While he does save money in the short run by doing this every person in the home country is now unemployed this move has driven the countries income to 0. His home country can now not afford to buy any of the widgets so demand is also at 0. The outsourcing of the jobs put the boss out of business because while it saved money in the short term it forced his own people into destitution. While this was an extrmem example, I think it goes to show that there is a downside to outsourcing. It causes economic harm to the home country, and with a large enough firm or group of firms it could cause an economic