As the practice of outsourcing business processes to low wage countries has become a hot-button issue in the US politics, a recently published report has drawn out a dramatically different conclusion.
The report states that the increased economic activity, thanks to outsourcing, has created a broad range of new jobs, both IT and non-IT. This has negated the lay-off effect of displaced workers, who have bagged the new jobs. Benefits that compound over time help US economy achieve a higher level of output, creating more jobs than those lost, and increasing the average real wage.
America is the world’s largest economy and her annual GDP growth rate has been consistently healthy. The GDP growth rate in 2010, 2011, 2012, 2013, and 2014 has been 4.56%, 3.64%, 3.47%, 4.57%, 3.66% respectively, while on March 31, 2015, it was 3.91%. This is consistent with other developed economies in the world.
When a company signs a contract with a foreign company to provide certain services, it is regarded as increase in imports, which stymies GDP growth. It is not happening, indicating that either outsourcing is not affecting the growth of American economy, or, in fact, it is boosting the latter.
A scenario will explain it. Company X lays off 100 employees and outsources their work to Company Y in a foreign country. This enables them to get the same job done at about 60% of the original expenses. They have now saved 40% of the possible expenses, that can be invested in new projects, or opening new offices across America, creating new jobs.
At the most, outsourcing results in the shifting of job requirements. Economists say that while a few low-wages jobs have been outsourced, high-paying jobs that require some specialized skills, remain in the country. There are some jobs that you simply cannot outsource. If you are running a hotel in Chicago, you have to have a manager to care of guests and manage the running of hotel. While you may outsource some jobs to bring down the costs, most will stay. The excess cash you have thanks to outsourcing can be used to expand your hotel and offer new services to the guests. Outsourcing thus becomes a tool in your hands to improve your operations and widen the base of your business.
Outsourcing frees up domestic resources to pursue other productive ends, yielding high quality and providing best of services to the end users. As the requirement of high-skill jobs grow, individual income rises as well, leading to higher spending, providing the fillip to the economy.
Bashers of outsourcing miss out that markets reorganize themselves depending on the scenario. In the times of cut-throat competition, it is unrealistic to expect businesses not to save the dollars they can by outsourcing work at hand. It becomes horrendous when you know that every job outsourced creates another one at home.
It is time to recognize that outsourcing has prevented American economy from going into a slump. It would have been costlier for companies then with nothing to fall back upon.