Outsourcing of human resources has been prevalent in the global economy we live in for many years now. It is not limited to skilled jobs, such as engineering and software development, but also more of our customer service and manufacturing type jobs have also moved overseas.

Let’s start with definitions – my versions:

What is outsourcing?

The definition is relatively simple for me. Outsourcing is the movement of a task or a process to an outside organization to maximize cost savings for the outsourcing organization. This movement is typically to a low cost country outside the U.S., and often involves human resource reductions in the outsourced country.

A case for the GOOD:

Outsourcing is simply a requirement of the global business climate. To deny that we live in a global economy is simply delusional. We can have instant communications to everywhere in the world. We can have video conferences with nearly any location instantly. The fact that few words exist in any language that are common is strange, but global products such as Coke or Coca Cola are pretty much in any language so business crosses that boundary. Let’s face it – the world is smaller than we think.

Demanding stockholders who seek quick returns on their investments drive the stock markets. These are not just U.S. firms; the stockholders are global in nature. They expect returns, in most cases fast and large returns on investments. Outsourcing can be an effective way for a company to increase profits very quickly. The formula is really pretty simple. In the U.S., a large cost of business is labor; and with benefits added in those costs, labor can be very high. Reducing the labor burden in any way will likely push dollars to the bottom line. If the work is done to do, then outsource the job. Better yet, the process or task can be farmed out to nearly any global location. Technology has only made this easier. Many professions are similar in nature globally; for instance, engineers in Malaysia are perceived to be similar to engineers in the U.S. I can hear the arguments for and against regarding this matter, but in general, this perception holds true.

Outsourcing can greatly increase a country’s standard of living and provide a new industry. Take India for example; Bangalore, in particular, has flourished by being a recipient of high tech outsourcing. The standard of living has increased, and Bangalore is commonly mentioned now in outsourcing conversations. Twenty years ago, did anyone, other than the natives know what or where Bangalore was??Other countries are seeing this influx as well – Brazil, Malaysia, the Philippines – the list goes on. These once challenged economies are starting to shine brighter due in part to outsourcing.

From purely a profit perspective, outsourcing allows for staff reduction in the high labor cost countries. Outsourcing allows the same business task to occur at a reduced cost. The savings directly affects the bottom line, and investors, CEO’s and the countries that receive the outsourced jobs are very happy.

A case for the BAD:

I used to be a big fan of outsourcing. I cannot say that for certain any longer after seeing what it has done to the manufacturing industry in particular in the U.S. I think its effects are very shortsighted and possibly dangerous when we are taking so many skilled U.S. jobs offshore in the name of cost savings. There is no doubt this practice benefits the countries receiving the jobs, and possibly raises their standard of living, but I worry about this. I am sure that in most cases, the firms and staffs performing the outsourced work do a credible job of the task at hand, but I have this nagging question in my head. I ask, “Does any country, the U.S. or otherwise, want to trade sovereignty for profit?” I think this is what has happened in part here in the U.S., with not only commercial ventures but also Government Bidding as well.

The recent reward of the US Air Force Fuel tanker bid illustrates this. Part of this deal is outsourced to Airbus to provide the labor for building the tankers. Is this really that smart? What if the U.S. and Europe get in some serious political battle and the European supply of airframes and parts stop? The same can be said for many other countries. Does France, for instance, want to have its national defense rely on contracts with say Cuba?

I have noticed European countries generally have very strict labor laws; they intensely regulate what jobs can and cannot be removed. I used to think this was a very bad thing; I’m starting to think they may be right after all. However, now I see politicians in Europe being elected in part to try and reduce these dependencies. Sarkozy in France and Merkel in Germany are recent examples. I wonder if (1) they will succeed in reforms, and (2) is it all that wise? The French and Germans should look closely at regions like Ohio and Pennsylvania here in the U.S. if they want a hint of what life with a reduced manufacturing job base looks like.

Outsourcing not only increases quarterly profits, but also it has ugly downsides as well in the form of human and even industry costs within the country or industry being outsourced. Employees are sometimes required to train the people offshore who will replace them, and then they in turn get laid off. They collect unemployment benefits, and in some cases, never return to the workforce and thus, become a draw on the country’s social systems.

COST OR QUALITY WHY IS OUTSOURCING HAPPENING?

I want to talk a bit about a point I have read all over these Hub Pages as a raging argument. These are comments from the countries receiving the outsourced work, and their people rave about how they have been selected not only because they are cheaper, but they also provide a higher quality product and a better, superior skill set.

I really hate to burst a bubble, but I have been responsible for making outsourcing decisions and participated in many as a consultant. The above statement about superior skills does not usually enter into the decisions. The main concern is typically deterioration in service levels when the outsourcing occurs, due to skills and language barriers among other factors. I do not recall having been involved or seen a decision made based on the fact the outsourcing will initially provide a better or increased level of service and they were executing the outsourcing activity due to superior employees. The decisions are usually almost entirely fiscally based. The folks arguing for the point that the outsourcings are occurring because of superior skills, in my opinion, are simply wrong. They are free to argue that point and even write about it, but those in charge of the outsourcing decisions simply do not see it that way most of the time.

I had a conversation with an outsourcing firm some time ago when I was considering employing cheaper resources for a job at hand. They seemed very puzzled when we talked; they seemed to be under the intense delusion that the jobs we had exported to them were because of superior skill, quality and effort. I can only think that either this is the line that is being pitched to them or they have somehow been led to believe. I stunned them when I informed them it was purely because they were cheaper, and if someone else became cheaper, they would likely be the next victims of outsourcing. They refused to believe that this was true. I believe those jobs originally in India are now in Brazil due to lower costs. I think this is a very naive attitude to have.

It’s a very difficult competitive business to be in, unfortunately. Thomas Friedman wrote an excellent book on this topic called “The World is Flat”. It’s a great read – do go and buy and read it. Tom provides better explanations on this topic.

Conclusion – My Cut

I think we need to carefully weigh what the goals of our countries. It’s like everything else in life. The decision is not black or white. I used to an advocate of outsourcing. Now, years later, I’m generally against it mostly because to of the damage to people at both ends. I’ve seen more damage than good in general. In the U.S., it has destroyed manufacturing and other skilled labor jobs. In the receiving countries, I’ve seen them overwhelmed by progress, free flowing money which causes ills in the society they never previously had. Many of these countries that are receiving the outsourcing have long and rich cultural traditions that are being compromised by these changes. They quickly come to learn with the added fiscal prosperity comes the evils as well. In the end, people on both sides lose.

Business wise and monetarily wise, there may be some winners in the short term but I’m still not convinced these deals work long term. I think each country and business needs to evaluate this move from both an economical and social perspective.

For those that are reaping the benefits of outsourcing, I have a word to the wise; you yourself will likely be outsourced as well. It is about cost, not quality and skill; if you’re not cheaper, the outsourcing organization will move to one that is.

The short-term benefits of outsourcing can be great but will probably occur at a long-term cost. As a society, we need to start rewarding the innovative thinkers and the like, not the profit seekers who are everywhere.

Some food for thought, think about it – read, research and form your own opinions.