If A Company Outsources Because It Cannot Hire Locally, Has A Job Been “lost” To Outsourcing?

The practice of offshore outsourcing to countries like India is often greeted with venomous criticism and unsavory sentiments. Perhaps this is because outsourcing is seen as negatively impacting the national economy and resulting in job losses to the citizens.

There are many arguments, some from a company perspective and others from a wider economic viewpoint, that dispel many of the myths associated with outsourcing. The rebuff to anti-outsourcing commentators herein, however, is, “What if a company simply cannot hire locally?”  In such a scenario, if a company then outsources has a job even been “lost” to outsourcing?

There are three common scenarios when a company cannot hire locally. The first is when a company cannot afford to pay the local rates of local professionals. What if a company simply would not be able to survive, or would not make a profit if it hired locally? Such a hypothetical scenario is often actually the case for startups and many small to medium sized enterprises (SMEs). Outsourcing not only reduces salary costs, it also reduces, if not completely eradicates, office overhead, employee insurance and recruitment costs.  With small turnovers and profits, outsourcing can swing the balance between loss and profit.

This can also be particularly true during a recession. A company that might have been able to hire locally, might no longer be in a position to do so during a recession. Thus, during such times, outsourcing can help a company  become competitive enough to stay afloat and survive a recession as opposed to going completely under.

In short, if a company simply could not exist if it did not outsource, then no job existed in the first place to be “lost” to outsourcing.  Furthermore in this respect, it is actually because of the outsourcing industry that such small companies are able to start up and or even survive.

The second common scenario is due to geographical remoteness. Often a company can afford to hire locally but due to the remote location of the company it does not have access to the required skilled staff. Again, in such a scenario, a company may be forced to outsource and no local job actually existed in the first place to be “lost” to outsourcing.

A third common scenario is when there is a skill shortage in the labor market. For years, Western countries have welcomed Indian brain drain immigration because of local skill shortages: doctors, engineers, accountants, nurses and software developers have emigrated from India in the millions during the past six decades. If an American company outsources because there is a national skilled labor shortage, then surely no job is being “lost” to outsourcing?

In these scenarios, it is apparent that a job simply did not exist in the first place for it to then be “lost” to outsourcing. If the company did not outsource this would not translate to the company hiring locally. Furthermore, if outsourcing makes the difference between a company’s non-existence and survival then not only is outsourcing not resulting in any job loss it is actually contributing to local job and business creation. For, if a company could not survive were it not to outsource, then firstly there would be no company in existence and at the very least the owner of the company would be unemployed. In such a scenario, outsourcing creates and sustains the job for the owner of the company and helps create a company for the local economy.

Many opponents of outsourcing oversimplify the dynamics of outsourcing, equating job creation in India with an equivalent job loss in America. This simply is not the case. Many companies outsource because they have no other alternative; the job positions they were looking to fill locally never existed in the first place; this could be due to financial, geographical or skilled worker restraints. By not outsourcing a new local job would not be created and the company could easily go out of business.  

From such a perspective, even the sternest anti-outsourcing campaigner must acknowledge the positive impact of outsourcing. It is businesses that drive and stimulate national economies and outsourcing helps businesses to start up, exist and survive during times of recession. That outsourcing results in job losses is yet another myth that can be dispelled.