Outsourcing It Jobs: Pros and Cons

Outsourcing IT Jobs: Pros and Cons

In 1973, a monumental shift was prevailing where U.S. companies were sending low skilled jobs within the manufacturing industry to offshore countries to reduce labor cost while maximizing profits. The effect of the jobless manufacturing work force was a shift of those laborers to focus on and perfect the service industry of what it is today (Koch 1). During the high tech recessions of the late 1990s and a nominal expansion of the present time, the Information Technology industry, an industry which through continuous innovations enabled the companies and corporations of America to become more efficient and productive, is also facing the outsourcing similarity with manufacturing. While outsourcing manufacturing jobs offshore requires movement of raw materials and building new factories, Information Technology jobs could be outsourced much quicker than manufacturing jobs, as the majority of its roles and responsibilities are mobile. Overseas outsourcing of IT jobs has quickly become a controversial national issue. Outsourcing involves far more complicated advantages and disadvantages than the debaters on either side are willing to admit (Weidenbaum).

Outsourcing can help a company operate in an increasingly competitive global marketplace. Outsourcing can enable a business to provide 24/7 coverage, especially for consumers who need around-the-clock support (Weidenbaum). In the next several paragraphs, I will discuss from a microeconomic level the actions that my employer implemented to take advantage of globalizing the work force to reduce costs, the issues my organization is facing with offshore efforts on the other hand, and then the cost associated with this trend towards macroeconomic within the U.S.

As a result of the worst high tech recession of late 1990s, most high tech companies saw their revenues plummet significantly. This resulted in net losses or barely positive net income. As a result, the CIO’s budgets for their Information Technology spending were greatly slashed by 20 – 50 percent. In an effort to achieve the optimal return on investment with their new budget, CIO’s began to send Information Technology jobs offshore to lower wage paying countries. My company also followed the industry trend and moved 50% of the application developer and system engineering jobs to Bangalore, India and 50% of call center jobs to Penang, Malaysia. While most companies moved jobs offshore by laying off U.S workers and re-hiring the staff abroad, my company chose softer methods like voluntary separation packages and attritions which achieved the same objective without demoralizing the U.S. employees.

In economic terms, moving jobs offshore is a result of the external factors. By definition, externality exists in economics any time there is a separation of costs and benefits, and the decision maker does not have to incur the full cost but receives the full benefits of the decision (Terry 2). When looking at the overall picture of moving jobs offshore, the first thing that comes into many CIO’s mind is the externality factor, but many companies saw beyond that and saw an opportunity to globalize their work force. There are lots of benefits from hiring lower wage laborers but there are also an equivalent amount of consequences associated with this effort too. According to the article, “What CIOs Can Do,” Chris Koch suggests that successful off-shoring takes time and at least two to three years transition before a true return on investment is seen. The other consequences deal with wages hikes in the up and coming mini Silicon Valley-cities like Bangalore and the inability to retain long term employees as Information Technology resources are competitive. A classic problem that my company is facing with its off-shoring efforts is that the lower wage is not so low any longer. As the Information Technology