Introduction



Weighing the Positives and Negatives of Global Labour Outsourcing in Relation to the United States Economy: A Brief Report

Jill Schrader

April 15, 2007

Name: Jill Schrader

Course: Principles of Management (BUS 137-65)

Date: April 15, 2007

Title of assignment:Weighing the Positives and Negatives of Global Labour Outsourcing in Relation to the United States Economy: A Brief Report

Certification Statement:

I hereby certify that this paper constitutes my own product, that where the language of others is set forth, quotation marks so indicate, and that appropriate credit is given where I have used the language, ideas, expressions, or writings of another.

Signature: X Jill Schrader

Prepared for

Ms. Kella Price

BUS 137-65

Introduction

Background

What is labour outsourcing and when did it start? According to , “outsourcing entered the business world in the 1980s and often refers to the delegation of non-core operations from internal production to an external entity specializing in the management of that operation ().”

Labour outsourcing is becoming a global issue because of easy communication and global trade. Labour-intensive jobs are rapidly shifting from countries with higher standards of living to so-called “third world” countries to cut prices and boost production for demanding economies. While the consumption goes up and prices go down, jobs in the United States and other countries continue to be lost.

Outsourcing and the United States

Labour outsourcing is quickly becoming a hot political debate in the United States due to a loss of American jobs being shipped overseas. Linda Myers reported that there has been an increase in job loss due to outsourcing from 204,000 in 2001 to 406,000 in 2004 (). Myers also noted that the numbers published were only estimates; most companies will not release official numbers when the subject turns to outsourcing. Most reports end up estimating the number of jobs lost in the U.S. due to this; and while the numbers released vary from source to source, one fact remains the same: the jobs being lost come in high numbers that continue to rise. Most of the jobs moved outside of the country relocate to places like Mexico, China, India, Latin American countries excluding Mexico, and Asian countries excluding China, respectively.

Problem

Communities of people continue to lose jobs due to many factors. While it is known that this causes crime rates to increase and the quality of life to dwindle, companies continue to make labour outsourcing a globally-contributing statistic in this equation to middle-class America. The outsourcing of jobs is problematic because it ultimately contributes to the loss of American jobs.

Purpose

The purpose of this report is to determine whether the negatives of labour outsourcing outweigh the positives or vice-versa. Since labour outsourcing seems to be an increasingly popular decision among businesses, it seems like a topic that requires attention and more careful consideration than it receives. This report is an attempt to determine if lower prices are really worth it.

Scope

For this report, the “pros and cons” of labour outsourcing have been weighed in a movement to weigh them both. The companies Dell and Wal-Mart are used as examples of popular companies that have incorporated outsourcing into their business concepts.

Discussion

Dime a Dozen Negatives of Outsourcing

When someone hears “labour outsourcing”, the mechanical response is generally a negative one. There is backing for this response, as outsourcing actually does create many disadvantages, the most obvious of the sum being a loss of local jobs. However, others do follow in tow. An example of another major consequence of global labour outsourcing is the unjust treatment of workers.

Social responsibility does tend to weigh on the minds of consumers and Americans do exist in an information age where knowledge of company procedures is not entirely mysterious. However, it is yet to be revealed whether or not this will affect enough future corporate decisions under the category of labour outsourcing.

Job Loss

So, the obvious question related to job loss begging an answer is “just what type of jobs are being lost?” In Linda Myers’ report on outsourcing, it is noted what type of jobs are being lost and that they are indeed including white-collar service jobs. Unlike in 2001, jobs in the service sector – figuratively piled atop physical labour-intensive jobs – are being exported “from the United States and Great Britain to India”.

What does this mean? Many people in service-oriented areas are liable to lose their jobs in the present or future, (pending a change in the nation’s economic direction), and many will not receive the assistance they deserve “because the U.S. Department of Labour’s Trade Adjustment Assistance (TAA) program only offers compensation to workers who lost jobs that produced a ‘product’”.

Not only are labour and service jobs being lost to cheaper-wage economies, but skill-related jobs are also shifting location. Jobs that involve technology and require an education are more frequently leaving the country. According to , jobs involving consumer electronics, small appliances, toys, and engineering are being shipped out increasingly. Most U.S. graduates who studied engineering tend to be foreigners who do not remain in the country, but rather seek employment in other countries.

With numerous jobs exporting and not enough being created, the wealth of the United States is rapidly declining and so is the nation’s ability to support itself.

Unfair Treatment of Foreign Workers

For those concerned with the well-being of other people, the fact that outsourced jobs do not create the positive opportunities painted by company representatives should cause some heated reactions. It is true that companies using outsourced labour do not treat their foreign employees quite the same as they do the Americans.

In work environments dubbed “slave-labour camps”, workers are paid poorly, beaten, starved, and sexually harassed, states the Executive Intelligence Review (EIR). In places like the Daewoosa Factory in American Samoa, workers (mostly women from Vietnam and China) drone under conditions comparable to those associated with indentured servitude, complete with threats of deportation. Many foreign work environments include similar standards. In fact, Daniel Pyne, a labour lawyer, states that offshore employees “earn much lower wages and enjoy few, if any, of the protections enjoyed by their American counterparts” ().

Outsourcing Produces Positives

Yes, it is true, labour outsourcing does produce advantages otherwise it would not continue to exist (or would it?). The most obvious pro connected with labour outsourcing continues to be cost. Other positives are mostly opinionated arguments.

Cheap Labour

Cheap labour is the biggest and most obvious influence driving outsourcing. Competition in business creates a need have an “edge” on the competition. Reworking a business to include an outsourcing plan creates a cost-effective way to lower consumer prices, as pricing continues to exist as a major deciding factor in the minds of potential buyers.

Possessing the ability to pay workers lower wages is not considered simply “smart”, but rather strategic and efficient, as claims . Because workers in countries considered “third world” have a lower standard of living, the groups employed require not only lower wages, but also fewer benefits. Also, workers in foreign countries are less likely to be unionized, which also in turn saves money for companies.

Not having to pay decent wages is not the only factor lowering overall labour costs. Countries with underdeveloped employment laws breed workers that do not demand protection against discrimination, sexual harassment, or worker safety (). Legal claims by foreign workers are unlikely and cost less than those brought by employees in the United States. Even in countries where fired workers are required to receive severance pay, “it still ends up being cheaper” overall for employing companies, according to lawyer Don Dowling.

Improving Life for All Involved?

Money is a factor that is consistently weighing on the minds of the global community. Lower prices help the aging American population by providing consumer goods at an affordable price. It is arguable that this also helps younger low-wage workers State-side; however, this theory is counterable with the argument that there is a lack of well-paying, skill-related jobs remaining in the country for this group of people. So, while it seems like outsourcing’s low prices help those living on retirement, it does not look good on paper to say labour outsourcing helps the poor population of the country (since it takes potentially better jobs away from them).

Those who suggest that labour outsourcing is a good thing and that it improves the standard of living for U.S. citizens by lowering prices of consumer goods to the elderly and the low-wage also say that it improves the standard of living for outside countries ( articles/outsourcing.asp). The United States is creating jobs in countries where money is scarce and skilled workers are available. Paying these workers creates opportunities for them and does not break the U.S. bank. Some say that this is helping to bridge the gap between the poorest countries and the richest.

Dell Exports U.S. Service Jobs

It was big news in 2003 that Dell was outsourcing a chunk of its customer service jobs to Bangalore, India. However, despite the rewards of cost-cutting; Dell began losing frustrated loyal customers due to the new, scripted, and Indian-accented technical support staff.

One such customer, a computer consultant in Austin, Texas, wrote a detailed description of his experience with Dell’s new technical support division. He then sent it through the Austin LUG, (The Austin Linux Group, Inc.), mailing list. His writing details his attempts at getting support for a four-month old laptop and how the incident ultimately caused him to decide on never purchasing another Dell product.

While India provided the company with highly educated, low-cost workers, it became apparent to Dell that they were losing more and more customers due to several similar experiences. “Our customers weren’t satisfied with the level of support they were getting”, astutely observed Dell spokesman Jon Weisbatt. Because of Dell’s apparently previously-unrealized revelation that customers do not appreciate bad service, the company decided to quit outsourcing calls from corporate customers to India. This decision mean that unaffiliated customers would still be subject to terrible service, and in turn revealed that Dell does not care as much about customer satisfaction as they would have people believe.

Dell still uses outsourcing as a method of conducting customer service to non-corporate customers and continues to involve itself with the cheap labour of outside countries in order to reduce prices.

Wal-Mart Sows its Seed Worldwide

“During the last 20 years, Wal-Mart has moved into communities and destroyed them… This is accomplished through Wal-Mart’s policy of paying workers below subsistence wages, and importing goods that have been produced under slave-labour conditions overseas” (Freeman, 2003). While Dell exports out of the service sector; Sam Walton, head of Wal-Mart Stores, Inc; has exportation of the production sector more than covered. Wal-Mart imports its products from Bangladesh, China, Mexico, and more; in fact, Wal-Mart imports 10% of all America’s total imports from China (Freeman; Ticknor, 2003).

Because of Wal-Mart, hundreds of manufacturing plants around the United States have been shut down and countless jobs have been lost to overseas labour outsourcing.

Wal-Mart’s occupancy in the U.S. cannot be ignored. In 2003 alone, the company controlled the country by selling 19% of all grocery-store food, 16% of all pharmacy drugs, 30% of all household products like paper towels and shampoo, 15-20% of all digital entertainment, and 15% of all news publications (Freeman; Ticknor, 2003).

Wal-Mart’s Impact on Other Companies

Not only does Wal-Mart outsource for the production of its own merchandise, but the company bullies other American suppliers into following suit. The company demands that the makers of name-brand goods provide them at discounted prices: lower and lower. Companies like Newell Rubbermaid, General Electric, Masterlock, Levi Strauss, and Dial have had to ship jobs out to other countries in order to meet Wal-Mart’s demands. If Wal-Mart tells a supplier to lower its prices, the company has no choice except to find a way because of the financial control that Wal-Mart exudes.

Wal-Mart’s Destruction of Local Economy

When a Wal-Mart store opens in a small community, it crushes any establishment in its path. Small businesses cower in the face of Wal-Mart’s presence. Wal-Mart negotiates its way into state tax breaks, so the company ultimately pays less in taxes than local small businesses and their prices do not allow for much competition. Downtown areas in Wal-Mart towns often require state or city financed “revitalization” to combat ghost-town appearances.

Wal-Mart also refuses to allow workers to unionize and does not recognize overtime hours. The superstore pays grocery employees an average amount that is significantly less than the national average and forces its employees into poverty.

The reason Wal-Mart is capable of destroying the cities and towns of the United States as it does is ultimately the cost-cutting advantage of labour outsourcing.

Conclusion

The pros and cons of labour outsourcing do not weigh the same for everybody. But the conclusion I draw from this report is that outsourcing is a negative thing. If more jobs were kept in the country, then maybe the United States would not have such high trade deficits. Practically everything bought in an American store has a label proclaiming the basis of the U.S. economy is “made in (somewhere other than the U.S.A.)”.

While exploring the examples researched in this report, it was seen that Dell attempted to learn from its mistakes and that Wal-Mart continues to bully the entire country with a big, yellow smile on its face.

While federal and state aid programs try to keep up with increasing poverty, America continues to give away its financial security to other countries. Is it really fair to make other countries richer instead of keeping one’s own country comfortable? At this rate, governmental 500 extra pity dollars on tax returns will not be able to save Americans.

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