Issues of Outsourcing

Ethical Issues of Outsourcing

Written By: Gjergji Gega

Introduction

The controversy surrounding outsourcing has intensified in recent years. While proponents view it as improving business performance by shipping support functions overseas and thereby allowing direct employees to focus on complex and core business functions, detractors view it as robbing domestic workers of good jobs by relocating them overseas to lower paid and possibly less qualified foreign workers. In the business world where cost and efficiency matter, corporations have begun to take advantage of the benefits realized by tapping into the foreign workforce (Fisher, Wasserman, Wolf, Wears, 2008). Corporations have begun to realize the rewards of cost-savings, convenience, and efficiency through outsourcing work to foreign countries, such as India, the highly educated English-speaking country (Fisher et al., 2008). As outsourcing strategies have become increasingly popular, questions have arisen about the legal and ethical consequences of such practices (Fisher et al., 2008).

Cost

The recent downturn in the United States economy has driven numerous American corporations to begin outsourcing and off shoring work to countries such as India, China, New Zealand, South Korea, and other countries where the cost of labor is significantly lower (Ahmed, 2006). India is the number one country for Western corporate outsourcing. One of the main reasons jobs are outsourced to countries such as India and China is because they have a lower standard of living compared to other countries. This means that the wages, safety and health laws are not as strict as they are in the United States or Western Europe.

Since wages, safety and health laws are not as strict as they are in the United States; this is very attractive to American corporations. It allows corporations to cut costs and save billions of dollars without violation of Occupational Safety and Health Administrations (OSHA). Although outsourcing may be seen as a business savvy move, there are some negative consequences. A lot of people have criticized companies such as Apple, Microsoft and Sony partnering up with the controversial corporation Foxconn. In 2010 allegations that Foxconn, headquarters in China with production in southern China, is a tech sweatshop and a human rights violator (Rundle, 2012). The unfair pay and treatment of employees can have a negative effect on the products that they are assembling. For example, 300 Chinese workers who assemble Xbox counsels took to a roof and threatened bosses with mass suicide over a dispute about pay (Rundle, 2012).

According to Gartner Group, the total IT outsourcing market totaled over 70 billion dollars in 2001 and projected to grow over 160 billion dollars in 2005 More than 70 percent of Fortune 500 Companies use outsourcing at various levels of their IT activities, including software development (Ahmed, 2006). With the vast amount of profit that corporations such as Microsoft, Apple and Sony make, they have a responsibility to see that the workers that are manufacturing their products are treated equally.

Advantages of Outsourcing

The many advantages outsourcing provides to the business world make it an attractive option to many companies. Are the reasons for outsourcing justifiable for North American and Western Europe corporations to exploit a country’s human resource? Corporations that outsource to undeveloped countries say it is the government’s duty to enforce laws to protect workers (Ahmed,2006). Looking at all the advantages of outsourcing below you can see why these benefits, the countries that jobs are being outsourced to but also corporations.

·         Core activities of the business take center stage. Outsourcing non-core activities such as administration and back-office operations helps to put the focus back on the core functions of the business, such as sales and marketing.

·         One of the biggest advantages of outsourcing to India (or any other location) is cost savings. The lower cost of operation and labor makes it attractive to outsource.

·         Outsourcing frees an organization from investments in technology, infrastructure and people that make up the bulk of a back-end process capital expenditure.

·         Outsourcing gives business flexibility in staffing and manpower management. Since the service provider is responsible for managing the workforce, you save costs and can also pick up the nest people to run your core functions.

(Bucky, 2012)

Disadvantages of Outsourcing

There are a lot of benefits to outsourcing, such as less time and resources spent on employee training. Also there is a down side to outsourcing that may have a great impact on the company. Exploiting an undeveloped country’s work force can have a negative effect on the image of your company. This might lead to lower sales, bad public image and also bad business.

·         Problems with quality can arise if the outsourcing provider does not have proper processes and/or is inexperienced in working in an outsourcing relationship.

·         Since the outsourcing provider may work with other customers, they may not give 100% time and attention to a single company. This may result in delays inaccuracies in the work output.

·         If important functions are being outsourced, an organization is mightily dependent on the outsourcing provider. Risks such as bankruptcy and financial loss cannot be controlled.

·         Not understanding the culture of the outsourcing provider and the location where you outsource to, may lead to poor communication and lower productivity.

(Bucky, 2012)

Conclusion

Outsourcing is not a new phenomenon; it has been a business practice for corporations since the 1970s. During the past decade, it has gained momentum and negative attention from the international community. With the economy still trying to recover, corporations are finding new ways to save, cut costs and time. Only in recent years has the public been showed to what horrible conditions that workers from where all these jobs are being deported have to endure daily. Their rights as human beings and workers are being exploited not only by corporations but their own government. There will always be countries that will not be as developed as others, but that does not mean that corporation can exploit that vulnerability.

Reference

Rano Ejaz Ahmed (2006). Software Maintenance outsourcing: Issues and Strategies.

-          November 2006, Volume 32, Issue 6, Pages 449-453.

-          Retrieved from http://www.sciencedirect.com.huaryu.kl.oakland.edu/science/article/pii/S0045790606000474

Teri L. Caraway (2004). Protective Repression, International Pressure, and Institutional Design: Explaining Labor Reform in Indonesia.

-          Fall 2004 Studies in Comparative International Development.

-          Retrieved from http://download.springer.com/static/pdf/365/art%253A10.1007%252FBF02686281.pdf?auth66=1365190922_8f60b3d637ff78ab817c80f7c05f015f&ext=.pdf

Sandra L. Fisher, Michael E. Wasserman, Paige P. Wolf, Katherine Hannan Wears (2008). Special Issues: With Breaking Barriers for Purposes of Inclusiveness.

-          Autumn (fall) 2008, Volume 47, Issue 3, Pages 501-503.

-          Retrieved from http://onlinelibrary.wiley.com/doi/10.1002/hrm.20229/abstract

Bucki James (Fall 2012). Outsourcing Advantages. About.com

-          Retrieved March 10, 2013, From http://operationstech.about.com/od/officestaffingandmanagem/a/OutSrcAdvantg.htm

Rundle Michael (October 1, 2010). 300 Chinese Foxconn Workers ‘Threaten Mass Suicide’ At Xbox Plant, Reports Claim. Huffpost Tech. Retrieved March 14^, 2013, from http://www.huffingtonpost.co.uk/2012/01/10/300-chinese-foxconn-workers-threaten-mass-suicide_n_1196345.html