What motivates firms to use outsourcing?
January 28th, 2010 | by admin |Which type of unemployment is characterized by job loss due to global outsourcing? Should the government set limits on it to prevent job losses? If the government does limit it, would that violate the free market principles.
Hi Evan,
Outsourcing began first with NAFTA, or the North American Free Trade Agreement between Canada, the United States and Mexico. The U.S. started outsourcing work to Mexico because, a) they could pay Mexicans far less than Americans, b) the cost of land was much cheaper, and finally Mexico had absolutely no pollution regulations. So, as America began to talk about cleaning up their environment, they were merely playing a shell game by using other countries to pollute instead.
Next, the global economy has played a large factor. First it was manufacturing jobs and now many service industry jobs are outsourced to countries like China and India. I don’t think there was much forethought by either industry or government on how this would impact the North American economy. Now, we’re definitely feeling the reverberations with mass layoffs. It’s the equivalent of a worldwide (economic) earthquake.
It’s a possibility that North America may become a 3rd world continent unless something drastic happens, and very soon.
3 Responses to “What motivates firms to use outsourcing?”
By Alexis on Jan 28, 2010 | Reply
Hi Evan,
Outsourcing began first with NAFTA, or the North American Free Trade Agreement between Canada, the United States and Mexico. The U.S. started outsourcing work to Mexico because, a) they could pay Mexicans far less than Americans, b) the cost of land was much cheaper, and finally Mexico had absolutely no pollution regulations. So, as America began to talk about cleaning up their environment, they were merely playing a shell game by using other countries to pollute instead.
Next, the global economy has played a large factor. First it was manufacturing jobs and now many service industry jobs are outsourced to countries like China and India. I don’t think there was much forethought by either industry or government on how this would impact the North American economy. Now, we’re definitely feeling the reverberations with mass layoffs. It’s the equivalent of a worldwide (economic) earthquake.
It’s a possibility that North America may become a 3rd world continent unless something drastic happens, and very soon.
References :
By Grandpa Oddball on Jan 28, 2010 | Reply
The basic reason is to increase profits. By changing our economic structure to reward outsourcing with increased profits firms can increase profits but this is a rather short sided policy because eventually there will not be enough consumers to sustain these profits. For a concrete example see the reference.
Companies are between a rock and a hard place because failure to outsource means that they will go bankrupt while if they do outsource their market will start to shrink. The bottom line is that free trade agreements such as NAFTA are ruining our economy by destroying our industrial base. Soon the only jobs left (if you can find one) will be service jobs at minimum wages waiting on those few fortunate rich souls.
References :
http://getoddnews.com/2009/05/24/the-naked-economy/
By Mika on Jan 28, 2010 | Reply
It’s cheap it helps maintain company stability and it also give them a chance to joint venture with a foreign firm. I think most of the firms would prefer BPO offshore outsourcing, but if the government does limit they should set some alternatives to open more jobs.
References :