Cost Benefit is a Positive Effects of Outsourcing

Lowest Prices with Higher Standard of Living are Direct Result of Job Shipping in US

When companies ship jobs, a cost benefit is in most instances passed onto the consumer; this subsequently results in a higher standard of living. Low prices generally stimulate consumer spending that in turn benefits the economy. With greater cost-efficiency from job shipping, companies can also afford to increase their investment and expand into new sectors; thereby creating more jobs. Outsourcing is a means of getting more final output with lower cost inputs and this therefore leads to lower prices for all U.S. firms and families. Lower prices leads directly to higher standards of living and more jobs in a growing economy.

If US companies stopped shipping jobs overseas, this cost would again be passed onto the consumer. We would most likely witness higher prices and thus a drop in standards of living. Furthermore the amount spent on re-investment and the creation of new industries and new jobs would decrease.

Columbia professor Mr. Bhagwati and colleagues acknowledge some temporary dislocation in low-skill jobs because of job shipping. Nevertheless, they assert that the practice offers substantial gains to the US economy through cheaper imports and stronger markets for exports. It is immediately obvious that US shareholders, investors and American consumers derive benefits from job shipping. BFSI job shipping has resulted in quality and productivity gains of 15-20% and customer satisfaction of almost 85%.

By job shipping it is predicted that US banks, financial services, and insurance companies saved an estimated $300 billion in the past six years owing to the IT jobs being sent to India. Helped by these savings, companies have invested in new industry and re-invested in existing ones. Furthermore it has prevented layoffs and instead added hundreds of thousands more jobs. According to the NASSCOM report, the BFSI sector saved $6 billion in the last few years and due to these savings have added 125,000 new jobs in this period thus preventing layoffs.

The shipping of computer-related manufacturing jobs has accounted for 10 to 30 percent of the drop in hardware prices. The resulting increase in productivity encouraged the rapid spread of computer use and thereby added some $230 billion in cumulative additional GDP between 1995 and 2002.

According to McKinsey Global Institute, for every dollar the US spends in India on job shipping, it gets $1.12-1.14 in return. It is only due to job shipping that the American companies save money and churn out profit for both themselves as well as their shareholders. By sending business processes to India, the American companies create greater demand in the local marketplace for products like telecommunication equipment and computers. As far as the local labor of the US is concerned, it can be realigned to more competitive and better-paying jobs. This is evident from the fact that between 1999 and 2003, around 70,000 computer professionals lost their jobs but during the same time period more than 115,000 software professionals got into better-paying jobs. Therefore, job shipping adds to the competitiveness of the American service sector.

Catherine Mann of The Institute of International Economics estimates that over the past seven years the US has added $230 billion to its GDP on account of globalization of IT production. The noteworthy thing is that this is a rather conservative estimate by the economist. She further adds that globalization of IT services will have a similar impact on the US economy. The decline in the price of IT services will prompt sectors like construction and healthcare to send their IT services. By doing so, these sectors will be able to lower the cost of production and improve the quality of their products. If a drug company gets cheaper IT services, it can greatly reduce the number of “adverse drug events.” Mann further predicts that if companies are able to bar code the prescription drugs and create a medical record system, the number of “adverse drug events” can be reduced by around 80,000 in the US alone.