Article: Pros and Cons of Offshore Jobs

Culture

Pros and Cons of Offshore Jobs

Offshoring is a painful, yet necessary occurrence. Though the benefits of offshoring are difficult to quantify due to a paucity of information, it is a natural market shift to which we as an industry must adjust.
Pros and Cons of Offshore Jobs

Offshoring is considered one of the methods for businesses to achieve globalization without spending a lot of money. After all, the cost of production and operation can spell the difference between a company’s success and failure, and offshoring presents a more cost-effective way. It not only saves money, but also enhances profitability. So it is no surprise that factories are moving their operations overseas, or that banks are outsourcing customer service and technical support abroad. Offshoring is defined as the movement of a business process done at a company in one country to the same or another company in another, different country. Almost always work is moved because of a lower cost of operations in the new location. More recently, offshoring drivers also include access to qualified personnel abroad, in particular in technical professions, and increasing speed to market.

Companies have been outsourcing work for many years. This trend has been carried to an extreme in the case of offshoring - sending work and jobs to other countries where labor is cheaper. Outsourcing made sense. Specialized companies provided their services to many client companies at lower prices than the client companies could do the work in-house.

Both companies, the service provider, and the client profited from the arrangement. Unfortunately, like the building of conglomerates before it, outsourcing got carried to extremes. Companies began outsourcing work to the lowest bidder and lost sight of the effect it had on the company except for finances. Outsourcing this work to "foreign" or "offshore" companies, solely to take advantage of lower labor rates in those countries, became known as offshoring.

For decades companies expanded their conglomerates by buying other companies. Initially, these companies were related businesses, often suppliers. Soon the conglomerates began buying companies with no relation. Profit motives and the desire to be the biggest became sufficient justification. Ultimately, the conglomerates began to collapse under the weight of the acquired companies. Profits started falling and companies began to retract to their "core" businesses. Next, they discovered that they could shed even core functions by hiring them out to companies that could do them more efficiently and, thus, less expensively. Payroll processing was subcontracted. Shipping was farmed out. So was manufacturing. Companies were hired to do collections, customer call centers, and employee benefits. Collectively, this was called outsourcing.

Routine office jobs are most susceptible, with four job types making up over 80% of the projected offshored jobs: office support, computer, management and sales. Since 2001 in US, between  400,000 and 600,000 service sector jobs have moved offshore, according to Goldman Sachs. That number is likely to grow. Forrester Research predicts 3.3 million white-collar jobs will move offshore by 2015. But there are problems associated with offshoring, including cultural and political concerns. While it is touted as cost-effective, it also has hidden costs. 

List of Pros of Offshoring

Offers cost differentials

One of the reasons the companies are moving their operations overseas is the lower labor costs. Compared to paying employees in the United States, it is more affordable to pay foreign workers. Employers can also save from health insurance, Medicare taxes, workers compensation, Social Security and other expenses associated with local employees. Cost of certain materials is also cheaper, especially if they are produced in the country where a company is offshoring jobs. More savings can be enjoyed in countries with fewer regulations as well.

Provides jobs in developed nations

Most companies in highly developed countries move some of their operations to developed countries with excessive unemployment rates. By offering more jobs to the locals, the situation and economy of the developed nation are sure to improve. This will not only provide more job opportunities, but also improve diplomatic operations.

It can also reduce immigration problems, since locals would not need to work abroad or move to more developed countries just to earn more than what is being offered domestically.

Improve business operations

Offshoring to countries with different time zones will enable companies to provide customer support 24/7 and cater to consumers in other parts of the word. This will surely enhance a company’s reputation in terms of taking care of their clients.

List of Cons of Offshoring

Incurs costs in certain aspects

A company may be able to save money from lower wage, but they might spend more in training and supervising overseas employees. In the end, the cost differential might not be as pronounced or one that can be clearly felt by the pocket. Products may be cheaper to produce abroad, but the cost of shipping them may not be as cheap.

Problems with quality control

In the case of a manufacturing firm, for example, ensuring that the product is built according to company standards may not be as easy as when the item is produced locally.

It would be hard to keep an eye on the overall operation. Even if there are guidelines provided, barriers pertaining to language, culture and overseas supply chains might still affect quality control.

Affects domestic employment rates

Because majority of jobs are sent offshore, very few would be made available to the locals, increasing unemployment rates. This can cripple the country’s economy. This can also hurt the public image of a company, especially when use of labor abuse, environmental damage, and child labor will be associated with the firm.

More recently, offshoring has been associated primarily with the outsourcing of technical and administrative services supporting domestic and global operations from outside the home country ("offshore outsourcing"), by means of internal (captive) or external (outsourcing) delivery models. India has emerged as a key offshoring destination over the past 15 years. The term is in use in several distinct but closely related ways. It is sometimes used broadly to include substitution of a service from any foreign source for a service formerly produced internally to the firm. In other cases, only imported services from subsidiaries or other closely related suppliers are included. A further complication is that intermediate goods, such as partially completed computers, are not consistently included in the scope of the term. After technical progress in telecommunications improved the possibilities of trade in services, India became a country leading in this domain though many parts of the world are now emerging as offshore destinations.

Offshoring has been a controversial issue spurring heated debates among economists, some of which overlap those related to the topic of free trade. It is seen as benefiting both the origin and destination country through free trade, providing jobs to the destination country and lower cost of goods and services to the origin country.

This makes both sides see increased gross domestic product (GDP). And the total number of jobs increases in both countries since those workers in the origin country that lost their job can move to higher-value jobs in which their country has a comparative advantage.

On the other hand, job losses and wage erosion in developed countries have sparked opposition to offshoring. Experts argue that the quality of any new jobs in developed countries are less than the jobs lost and offer lower pay. Economists against offshoring charge that currency manipulation by governments and their central banks causes the difference in labor cost creating an illusion of comparative advantage. Further, they point out that even more educated highly trained workers with higher-value jobs such as software engineers, accountants, radiologists, and journalists in the developed world have been displaced by highly educated and cheaper workers from India and China.  US opinion polls indicate  that between 76-95% of Americans surveyed agreed that outsourcing of production and manufacturing work to foreign countries is a reason the U.S. economy is struggling and more people aren't being hired.

Offshoring is a painful, yet necessary occurrence. Though the benefits of offshoring are difficult to quantify due to a paucity of information, it is a natural market shift to which we as an industry must adjust. Shifting jobs overseas will lead to an influx of jobs as companies better understand the process, thus gaining productivity and profitability. The offshoring of professional and technical jobs by US companies is done to save money, but it has raised concerns. As the US struggles to recover from the recession, the rate of job creation lags far behind the expected pace. There is growing concern that this is due to offshoring.

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