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Outsourcing and Offshoring of IT to India
Introduction
One of the hottest trends today for big corporations is outsourcing and offshoring. Outsourcing simply means a company based in one nation will hire from other nations in order to more efficient accomplish its goals. It makes sense on the part of the corporation, why pay a programmer in the US $80,000 a year when they can pay a programmer in India less than 1/10th of that salary, and make him a very happy man. This because even when he is earning 1/10th of the US salary, he is still earning more money than he ever hoped to get in that industry in India. It seems like a win-win situation1, but there is still a loser: The growing unemployed population of the US. As more jobs go overseas, more US citizens are finding themselves becoming obsolete.
Recent History of IT in the US
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.
The outsourcing trend continues to eat up the value chain from blue-collar jobs to white collar jobs3. The software industry is experiencing an outsourcing trend to countries such as China and most significantly to India. The proliferation of the Internet has opened easier access to information and collaborative environments. Previously communication costs and access to mind power was limited. The Internet made communication costs virtually free and collaboration with groups around the makes software engineering and collaboration tasks easier. In additional, liberalization of free markets across international lines has made it easier for companies to set up and outsource engineering tasks throughout the world. Business-process and software outsourcing rely on cheaper cost structure as found in East Asia with manufacturing4.
Offshoring American jobs have positive and negative consequences to the American community. Some of those consequences of offshoring American jobs include Amer...
Mankiw and Swagel (2006) argue outsourcing is not as large a phenomenon as the media describes. Their research indicates outsourcing accounts for very little of job loss in the United States, nor has it made a distinct contribution to the slow rebound of the labor market. They go on to propose that increased overseas employment has actually contributed to higher employment in parent United States companies. They reported that while 30,000 jobs were lost per month in 2004, two million job changes per month were happening as well. They reference the Bureau of Labor Statistics when they report that in 2015 there are expected to be 3.4 million jobs outsourced, but 160 million jobs gained here in the United States. They also claim that there is a rise in net US income by 12-14 cents per dollar of outso...
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).
“5 Facts About Overseas Outsourcing.” Center for American Progress, Center for American Progress, 9 July 2012,
Both sides can agree that outsourcing can be desirable for a business do to the potential profit. It allows goods to be made cheaper, management to run smoother, and money to be made faster (Salanţă 270). Both sides can also agree, however, that U.S. jobs are lost as a result of outsourcing (Ahmed 192), as well as environmental damage being cause due to corporations taking advantage of loose environmental regulations (Marquis 39). Upon digging deeper into this debate, one can find that both sides present very convincing arguments.
Since the concept of outsourcing was introduced it has been a subject of debate between politicians and citizens of the United States. Remarkably, it was the United States who supported outsourcing and now it is the United States that feels its economic progress is being threatened by outsourcing. One may argue that the financial situations that existed two decades earlier are not the same as they are today, thus the change of time, business priorities of economies have also changed.
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”.
...ect on the college graduates and younger children of today. Outsourcing has made nothing but trouble for the United States with the passing of free trade agreements. It will cause a lack of jobs that will run the economy into the ground, and ruin the lives of the citizens of the United States. All of that so a business can use its faulty practices to make a higher profit. Outsourcing has consequences that will haunt the average American and their families for the rest of their existence on this planet.
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...
There are many benefits to outsourcing, many reasons that company has to outsource some of its business. According to Robin Gareiss, “The No. 1 reason companies turn to outsourcers is to save money--64% say that’s the main goal of their outsourcing contracts” (3). Companies are able to save money because they outsource to another country, and the third party that is in the outsourcing contract, runs the business in that country and is able to pay wages in accordance with that country’s laws, which for the most part there are none. The business usually outsources to a developing nation, and as a result can pay much, much lower wages than if it were to stay within the US. This cost-saving idea has become a much strong reason for outsourcing since the economy has been in a recession, a...
As esteemed journalist Tom Piatak wisely puts it, “The trickle of outsourcing threatens to become a flood.” His words speak the truth as outsourcing has left United States’ workers jobless, and it continues to increase the unemployment rate every year. During February of 2009, American workers lost a record 651,000 jobs alone, increasing the unemployment rate to 8.1 percent, the highest it has been in 25 years (Katel). Multinational corporations, hoping to cut down costs and stay profitable in the market, outsource by exporting American jobs to third-world countries such as China and India. It may seem noble that outsourcing provides third-world countries with job opportunities, but the United States’ markets and industries are greatly affected. Outsourcing is harmful to the United States’ economy because it paves the way for job losses, decreases product consumption, and widens the gap between the rich and the poor.
Outsourcing has been around for many years. In this paper, I will discuss some of the history of outsourcing, the good things about outsourcing, and the bad things about outsourcing. Outsourcing is important because many companies rely on it in order to get many different products and services to their facility on time and in good shape. Outsourcing is a huge part of the business industry today. Any business can be affected by outsourcing.
Globalization has had a major impact on the way business is conducted. Companies are increasingly turning to offshore software development outlets for design management. Anywhere from one-half to two-thirds of all Fortune 500 companies are already outsourcing to India and the amount of work done there for U.S. companies is expected to more than double this year according to Forrester Research. This paper will take a look at some of the arguments for and against outsourcing IT development to India. Most importantly this paper will take a look at ethical standpoints taken on outsourcing. But first, we'll take a look at the history of outsourcing to India.
The main problem Bharti Airtel Limited facing is "How to manage its capital expenditures for its operations and how to face the expected exponential growth and a competitive environment." The challenges that the company is facing are
During the past decade, the Indian IT industry has been experiencing a dramatic growth. It grew from Rs.4.7 billion in 1991 to Rs.755.47 billion in 2003, accounting for nearly 3% of the GDP. The revenues generated from software exports reached $10.4 billion for the financial year 2003 with a 30% growth over the previous year. The main factors which contributed to the success story of the Indian IT industry are: