Off-shoring Essay

Published: 2020-02-23 05:02:25
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Category: Offshoring

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Off shoring is currently the main option of most large-scale businesses to answer the rising production and overhead costs of the company. Off shoring is the process of passing a certain business operation from being performed inside a company to a third party provider. The said jobs, usually IT-related duties, backbone business processes, and even manufacturing jobs are sent over to another country, where labor costs and production resources are relatively cheaper, with the primary aim of cutting on costs (Pyndt & Pedersen, 2006).

In the 1970s, off shoring had started to play a major role in the economy as U. S. computer-related companies started to export payroll preparation systems to an entirely independent financial firms offering the service. This practice had continued on until late in 1980, where almost all accounting services, even simple word processing jobs were outsourced. Since then, off shoring has been a powerful trend, as medium to large-scale companies are starting to send over jobs and service requirements to other countries.

But what actually forced big-ticket companies to outsource outside the U. S. is the stagnant economy and instantaneous inflation of 1980. At that time the U. S. economy is near desperate to gain balance and to address the issue, the U. S. Federal Reserve actively raised interest rates to as much as 20 % (Maier 1985). These step were done with the anticipation that it will slow down the rising trend of the countrys inflation rate. Unfortunately, the strategy worked all too well that it lead to recession in the following year. The severe recession it caused brought about foreign investors in the country who are overly eager to buy U. S. bonds.

The US dollar value was so high and the local industries were facing trouble. Foreign companies have the ability to hold their market prices very steadily, while American companies cant compete at all. As a result, local company closures and massive job loss had spread through out America. American car giant General Motors for one, was in a very hopeless situation that they have to consider radical steps to order save the company. And what they did is to close down the 10 factories they operate in Michigan and bravely transfer them to Mexico.

This was the first major off shoring activity that the U. S. had seen. But amidst criticism and outrage, the bold move had caused General Motors to sustain their company and continue on to be a player in the industry. That brought about varied reactions through out the continent. But since then, the option of U. S. companies to head outside the country and move production, computer-based works, call center services, and other similar jobs had remained. It may still be an issue until now, but the whole idea of outsourcing is clear and that is to lower job labor costs and overhead rates (Nilsen 2006).

Without doubt, off-shoring jobs to other countries had efficiently cut a company labor costs by half. When labor is comparatively cheap, more people can be hired to do the job and make turn around time a lot faster. And in any company, more jobs done in half the time at half the cost will only mean higher profits and the possibility of expansion in the future. Off shoring jobs also lower the overhead costs of a maintaining a company. The mere fact that the job is being passed on to an entirely different location conserves the companys own resources.

As an example, an additional space to house the workers do a certain job like financial auditing wont be necessary. As such, there would be lower maintenance costs as far as equipments, networks, and facilities are concerned. Lesser employees would also mean lesser responsibility for the company. This means there wont be a need to get individual health insurance for each them, pay them overtime, or even give them paid holidays and day-offs. The business rule of profits indicates that the lesser number of workers a particular company employs, the lesser overhead costs there will be.

Also, in off shoring, even small things such as water bills and electricity bills are cut down dramatically. So if resources are saved, theres no doubt that companies would have a higher profit margin, which they can use for business expansion. And business expansion would only do well for the U. S. economy. It is therefore not right to be threatened by the on-going trends in the off shoring market. Although it would seem that U. S. jobs are lost to third-world countries, the fact that bigger and better jobs are created in their place is more welcoming.

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