One of the most controversial business debates to unfold over the past couple decades has been over the outsourcing of labor to foreign markets. As developing nations such as China, India and Brazil began to grow and stabilize, a new resource of cheap labor emerged, prompting many large companies in established economies to tap into the new market.
While the trend has resulted in economic prosperity for a number of the world's growing economies, bringing job creation to countries that have traditionally been bereft of large-scale employment, it has also led to widespread layoffs and unemployment woes in the industrialized world.
The global economic recession only worsened the problem, as it virtually wiped out the manufacturing industries of the U.S., Canada and much of Europe. Contrastingly, one could argue that the shift has forced the emergence of technology- and innovation-based economies. However, the dearth of labor jobs will likely remain a challenge for years to come.
In the U.S., Federal Reserve Chairman Ben Bernanke commented in December that it may take another four or five years to reach pre-recession employment levels. Meanwhile, Canada, with its massive small business sector, which employs the majority of private sector workers, is facing similar obstacles.
However, the radical change in job allocation that has been brought on by outsourcing is not an entirely bad thing. In fact, it has contributed to a general private sector boom over recent decades. Domestic outsourcing has also led to economic growth, creating new jobs and business specializations that lead, overall, to a more diverse job market. But what businesses need, regardless of how they outsource, is a sort of balance.
"As many firms discovered during the outsourcing 'mania' of the early 1990s, outsourcing too much can be an even bigger mistake than not outsourcing any work at all," writes AllBusiness.com. "The flat economy caused many companies into huge layoffs and subsequently outsourced functions that were better kept in-house."
The website points out that "wise outsourcing," however, can lead to several long term benefits. For one, outsourcing allows businesses to control their capital overhead, converting fixed costs into variable expenses while freeing up investment for other areas of business operation.
Furthermore, outsourced labor or services may even be a point of attraction to investors, as the strategy allows small businesses to focus capital almost entirely on revenue-producing activities, especially if some of the core operations of the company are based on technical applications.
"At the end of the day it is often a wise decision to hire an independent third party to act as your sounding board and guide to help you outline your project clearly, hire the right people, and if budget allows, also assist you in managing the relationship either by being the point person or by acting as your behind the scenes adviser," suggests Maisha Walker in Inc. magazine.
"If you're not a technical person (and don't want to become one) make sure you come to the outsourcing party neither alone nor empty handed," she adds. "Don't let your outsourcing dream transform into a money wasting, hair pulling nightmare - just be prepared."
There is also the notion of reducing risk. As outsourcing grew in popularity over the past twenty or so years, new services popped up to meet businesses' demand for greater expertise than they themselves were able to achieve. This process, almost by definition, isolates points of weakness and transfers them to those who are more skilled or adept in the matter, thereby reducing the risk of tackling a project independently.
That, most agree, is the essence of outsourcing and the reason why so many businesses opt for it.
