Case Summary
The American Outsourcing Case is a compilation of factual information for the purpose of provoking debates. The authors present both the pros and cons of outsourcing, and avoid inserting their personal bias. The case clearly defines outsourcing and then focuses on outlining its existence in China, Mexico, and India. The evolution and U.S. involvement in the Maquiladoras of Mexico is described first. The implementation of NAFTA and the creation of Maquiladoras were major catalysts in the growth of free trade between the U.S. and Mexico. China, in an attempt to attract foreign investors, created Special Economic Areas, which designated geographic zones that were enabled to operate under their own laws. With great tax benefits and low utility costs, outsourcing to the Special Economic Areas became very popular. Outsourcing of white collar jobs to India was also a great investment, with their inexpensive and technologically skilled laborers. General Electric Inc. is known as the largest market capitalization in the world. They have established themselves in more than 100 countries, three of those being China, Mexico, and India. The case closes with comparisons of the advantages and disadvantages of outsourcing to the three countries, and leaves the reader with thought provoking questions about the future of outsourcing from the U.S.
Companies that Outsource
GE has outsourced to Mexico for the past 108 years, and has employed around 30,000 citizens. The majority of the thirty plants they operated in Mexico were maquiladoras. GE’s Mexican based operations are primarily targeted at the blue collar workers, with the production of anything from motors to lighting products. Mexico’s close proximity to the U.S. enables cheap shipping costs and short travel time. This is a distinct advantage when in comparison to outsourcing to China.
Even so, GE has invested around $1.5 billion in outsourcing to China, while providing around 12,000 jobs. China was even identified as GE’s major target for international growth in 2002. Outsourcing to China was and is slightly more sophisticated than that of Mexico. GE strategized to further develop distributional channels for selling purposes, build up product related services, and eventually start delegating financial services. They sell, purchase, and produce goods in China. GE has outsourced to China for electronics, telecommunications advancements, jet engine services, and even medical equipment.
GE found India to be useful in the area of human capital, where they employed more than 22,000. The came upon very intelligent, college-educated Indians willing to work for a small portion of what Americans would expect.
This report analyses how American Companies started offshoring or moving white collar and blue collar positions to other countries with low pay since the 1960’s. Also, the purpose of this report is to highlight the advantages and disadvantages of offshoring jobs to countries with low pay. This report will analyze how the consumers, communities, and corporations are beneficiated and/or affected.
Becoming more global was also one of Immelt’s strategic focuses. To achieve that, GE gave priority to long-term investment that required new resources. Lastly, as GE wanted to become more socially and environmentally responsible, they needed more capital and resources. As GE could be...
Outsourcing is a complicated and a multifaceted subject that involves a “business[’s] purchase of parts or labor from another company rather than maintaining a sufficient enough number of its own employees to do the same work in the country where the company is already based” ("Outsourcing"). The first practice of outsourcing was in medieval times when “nation-states called in soldiers-for-hire to help their own military forces during ongoing conflicts” ("Outsourcing"). Many think of outsourcing as a one way trade of production facilities moving outside of a companies locale but in actuality it is a two way trade that also involves companies from other areas moving their factories to local areas where conditions are beneficial for the specific business. Outsourcing has evolved but the main idea has remained the same. The recent increase in outsourcing “was initiated by Wall Street pressures on corporations . . . . for increased profits . . . in the production of goods and services marketed in the U.S."(Roberts).
For advocates of global business, the hope is that outsourcing will help lift the United State’s economic growth and development by lowering the input cost of services (i.e. labor and materials) and by opening new markets abroad. Mainstream economists believe that outsourcing will have ...
As the problem of job outsourcing becomes more of an issue in politics, elected officials like the President and Congress will no longer be able to ignore the dilemma. The war in Iraq has been at the forefront of the presidential race but the importance of outsourcing American jobs seems to have been slightly overshadowed. If the issue of outsourcing is not watched carefully and a definitive plan hammered out, a trickling down of negative effects may occur within the U.S. economy. However, there is a polarized opinion on the effects of this “phenomenon”.
Outsourcing emerged on the financial arena during the 1980s and has since then been spreading. Outsourcing production was furthered with the process of globalization which provided a new component leading to the strengthening of resources, skill and labor specializations across the world. The process of outsourcing is using the skill and abilities of a third-party to accommodate society on the foundation of labor. As stated earlier, it was during the 1980s that the process kicked off mainly due to the efforts of corporations when they began to hire labor forces across the world. Even though outsourcing has come out from its developing stages, there are still following effects on the US economy.
Between 1987 and 1997 imports used in US manufacturing rose from 10.5% to 16.2%2 and in High Technology rose from 26% to 38%. The US has a long history of outsourcing blue-collar jobs, including those that are intermediate steps within business processes in many industrial sectors. Manufacturing’s outsourcing success can be attributed to the lower cost structures found in many East Asian countries such as China, Taiwan, South Korea, and Malaysia and others2. These countries not only provide a lower cost structure, but also have a highly educated work force and business friendly environment. Outsourcing of blue-collar jobs has increased the demand of white-collar jobs in the US. The focus on white-collar jobs by US firms has pushed US profitability upwards.
Outsourcing occurs when products or services are obtained by an outside supplier (Vonderembse & White, 2013). Companies may decide to outsource if it can be obtained less expensively due to specialization or the other company may have proprietary technology that gives them a competitive advantage (Vonderembse & White, 2013). This paper will analyze trade-offs for productivity improvements, discuss both the advantages and disadvantages of global sourcing versus producing in the United States, recommend a low labor cost country based on inputs, trade-offs and global advantages and give an example of a product of the specific country.
The U.S. industries have been outsourcing manufacturing for several decades now. U.S. companies thought they were reducing costs by outsourcing development, manufacturing, and process-engineering abilities. Consequently, U.S. corporations’ knowledge, skilled workers, and supply chain, which are the necessities to producing advanced products, have vanished. For example, almost all notebook computers, cell phones, and handheld devices, which were once created in the U.S., are now designed in Asia. When a major U.S. company outsource, it pressures their rivals to do the same thing. They also lose the expertise of process engineering, which would interact with manufacturing on a daily basis. Minor companies and skilled workers go to where the jobs and knowledge networks are no matter where they are geographically in the world. This decline of trade in the U.S. has caused a negative chain reaction to their suppliers of sophisticated materials, tools, production equipment, and components. U.S. industries do not have a way of coming up with new ideas for the next generation of high-tech products...
Phillips, of the Netherlands and Matsushita, of Japan are both companies that focus on electrical technology. With their prominence being located in the consumer electronics industry, it is important to note that the world as a whole is moving towards a more technological focus. As the world is moving in the direction of a more technological society with the consumer electronics industry growing, it was suitable for both Phillips and Matsushita to expand their horizons and operate internationally. The growing demand of technology requires a need for companies to operate on a global scale. Moreover, companies also find foreign operation as a means of cutting costs while still producing quality products through the use of outsourcing. The ultimate financial goes is to meet the needs of a market and generate a profitable turn in the process, which is accessible through foreign commerce. Were both Phillips and Matsushita to decide to stay local, they would quickly lose profit to a larger corporation that is driving to meet the global needs of its consumers and eventually be bought out or simply go bankrupt.
Outsourcing is when a company or business decides to contract part of their services that they do not do well to an outside company. There is two types of outsourcing offshoring and nearshoring. Offshoring is where a company outsources abroad and, nearshoring is outsourcing within the home country. The reasons that a company decides to outsource varies from company to company but, the most common ones are cost reduction, increasing globalization, growth , tax incentives, government support and access to new markets. However there are some key challenges that come with offshoring and those key challenges are quality and labor retention. ( Bacon, 2007 p 38-39). Asian outsourcing began as early as the 1960’s (Espana 2013 p 3). Some people argue that offshoring is good for the economy even though it’s a well know fact that offshoring has a negative effect on the economy, there is wage differences and the unemployment rate increase.
The issue of outsourcing has been one of the major component that is affecting the labor market and the economy of the U.S as the big companies that which employees a large population of the United State employees has now shifted their operations oversees where they can find a large demand for cheap labor and low taxes. This issue has complicated the situation of the U.S economy considering that the rate of unemployment is increasing day by day. The issue of outsourcing must be behind the increased rate of unemployment in the country as this jobs that are outsourced to the foreign countries would have been occupied by those skilled Americans who can now find no job or end up getting jobs that which do not fit to their skills (Hira, pg. 63). There is a relative demand for skilled workers in t...
S. jobs. The economist Robert Schiller quoted “Even the so-called recession or ‘business-cycle data’ are influenced by globalization and the new technology that fosters it.” Schiller also noted, job loss recovery, if there is in-fact any recovery, is due to globalization and new technologies. Due to this globalization and new technologies, American workers have been laid off, to cut costs and two million U. S. jobs have been eliminated since 2000 (Heffes, Sep2003, Vol. 19 Issue 6). The concerns American people express and the havoc being stirred up is legitimately in our country. These American people would see outsourcing as an unethical business
Outsourcing is morally wrong, outsourcing is not fair, outsourcing allows for fair taxes to be avoided, only corporations benefit from this practice, outsourcing is contributing to the economy’s fall, and outsourcing is damaging the already damaged economy. There are just too many negative aspects in outsourcing, in the respect that it continues to benefit only particular groups, while the rest are left to unfairly deal with this custom. Outsourcing is having an adverse reaction with the economy; although it may be fine now, it may prove to be a problem in the future.
Outsourcing has been around for many years. In this paper I will discuss some of the history of outsourcing, the goods things about outsourcing, and the bad things about outsourcing.