Outsourcing Effects

After the advent of Internet, the next big word the businesses across the globe became aware of was outsourcing. So what is outsourcing Suppose there is a for profit corporation that has to carry out 10 different functions to finally achieve some profit. Effectively, the attention of the manager has to cover 10 different departments! This does slow down the work, and the manager would feel more comfortable managing just about five or six activities at a time. The manager could make them perform optimally as perhaps at present those departments are not running at optimal levels. Another factor that weighs heavily is the labor cost. Specialized labor force elsewhere may be cheaper, and also more efficient. Even cost of overheads like rentals of accommodating the particular department can be saved. Theory is, by outsourcing the business is able to increase its profits because of these reasons. Therefore, these are the considerations for outsourcing some of the activities.

Generally, activities involving interactions with customers, or some specific and specialized works are outsourced. But there are negative effects of outsourcing as well. Manufacturer and seller are completely disconnected, leading to a situation where the seller may not be able to highlight the positives of the merchandise, and therefore, lose good customers to a competitor! Of course, training helps in making the seller realize the qualities of the product. But if, for any reason, the manufacturer and the seller disagree on some issues, the process of training starts once again for the manufacturer. The manufacturer may even lose some customers, who might have got accustomed to dealing with particular customer relations officers! Some of the manufacturing activities can also be outsourced, like stitching of clothes, and shoes! Advocates of outsourcing feel the people to whom the works are outsourced become potential customers, and therefore, in the long run, outsourcing is good! From the perspective of people to whom works are outsourced, specialization increases efficiency and makes them give optimum! Moreover, specialized units have access to different sets of customers, and they can easily offer the product to customers of another unrelated product for which they are already offering the same service!

Some of the repercussions of outsourcing are more serious. If the manufacturing unit ceases to be viable for some reason, the customer relations unit simply deflates, and many lose their employment. This has cyclic effect. Since the purchasing power of these unemployed people is reduced, the estimation of demand for the product goes awry. And the manufacturer may be left with a lot of stock on hand, which is difficult to sell. This may force the manufacturer to sell almost at cost price so that additional stocking costs are not incurred. Effectively, the gains are only for short-term. However, the manufacturing units rarely become non-viable. Therefore, such a situation is again hypothetical, though some businesses may have faced it during recent recession.


Skilled labor in eastern countries is considerably cheaper than in western nations. This is the reason many of the activities are outsourced to such countries. This links the economies of the nations, and therefore, any recession or boom in the country from where the job works are outsourced, will have similar effect on the country to which these works are outsourced. Many people in these countries undergo specific training to get employed in enterprises that bag these outsourced assignments. These training institutes mushroom, and they too face the threat of extinction when the works are no longer being outsourced to the nation. On the whole, outsourcing is here to stay till an equilibrium is achieved between the wages in western nations, and wages in eastern nations.