Unraveling the Complexities of Outsourcing

The Truth behind Outsourcing

Outsourcing is when a company or business decides to contract part of their services that they do not do well to an outside company. There is two types of outsourcing offshoring and nearshoring. Offshoring is where a company outsources abroad and, nearshoring is outsourcing within the home country. The reasons that a company decides to outsource varies from company to company but, the most common ones are cost reduction, increasing globalization, growth , tax incentives, government support and access to new markets. However there are some key challenges that come with offshoring and those key challenges are quality and labor retention. ( Bacon, 2007 p 38-39). Asian outsourcing began as early as the 1960’s (Espana 2013 p 3). Some people argue that offshoring is good for the economy even though it’s a well know fact that offshoring has a negative effect on the economy, there is wage differences and the unemployment rate increase.

There is no reason to assume that offshoring has reduced the cost of labor. In fact there may be an increase in cost or poorer quality (Yusuf & O’Connell, 2014 p 478). Because there is no way to assume that there is a benefit when you offshore that the labor will be cheaper you may possibly be paying a higher wage to them. Having a price increase or no difference in price is a negative effect on the economy.

Another negative effect that offshoring has on the economy has the economic conditions within the home country and abroad.

“Overall economic conditions within the country or abroad also pose a major threat to business operations. 33% of service providers considered potential risk to their operating practices and something which impact on their business in comerpasion to last year and around 30% of the companies faced this risk factor.”( Ahemed, Capretez, Sandhu & Raza, 2014 p