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All discussions on off-shoring/outsourcing these days seem to reach only one conclusion, the severe backlash it gives to the American economy. But is this so called 'detrimental effect' of off-shoring/outsourcing true? Little understanding about the main principles behind off-shoring/outsourcing, they continue to harp on about the trend that will help eradicate poverty and raise living standards globally. It is true that when low-end jobs began to be outsourced, many lost their jobs. But how many are aware of the fact that the outsourcing trend has also helped create more new jobs and helped in lower prices of many services for consumers?
According to the unanimous consensus of high profile economists, and in the words of G. Mankiw, Chair for Council of Economic Advisors, free trade, in other words off-shoring/outsourcing is: "just a new way of doing international trade" and "a plus for the economy in the long run." The efforts of various people including a couple of Californian Senators in a bid to scupper the off-shoring/outsourcing trend will not only discourage outsourcing, but will end up in damaging the economy.
Both the countries involved in off-shoring/outsourcing gain from it. Before the advent of high tech and advanced telecommunications, it was necessary for service jobs to remain at home in order to be close to customers, but with the latest cutting edge information technology and telecommunications, call centers and information-processing firms service customers from across the globe.
20th century information technology promises to perform the same miracle for the service industry as that happened with the introduction of the 19th century steam engine the cost of transporting goods was lowered and a wide array of agricultural products and manufactured goods brought to millions of consumers. Shifting manufacturing to low cost countries resulted in lower costs for consumers, similarly off-shoring/outsourcing greatly benefits the American consumers by providing many more and cheaper services.
The fear that off-shoring/outsourcing is going to destroy American jobs is conceptually wrong, for every job that is lost a new one is created to replace it. By spending dollars on off-shored/outsourced services, the same dollars are either reinvested or used to purchase American goods and services. The American public does not often see new jobs created by the same dollars spent on off-shoring/outsourcing services, but they do return to US export industries as service providers purchase equipment and other goods for their business.
Off-shoring/outsourcing does not alter job numbers in a country. Rather, it changes the job mix to reflect areas where we have a greater competitive advantage over other countries. Off-shoring/outsourcing services in most cases leads to job specialisation as employees having lost low-end jobs upgrade and specialise, in turn helps raising their living standard. Often, unemployed workers move on to work in other industries or re-train for better paying jobs.
Thus off-shoring/outsourcing helps the US economy in the following ways:
1. It creates more jobs in the US export industry when service providers return the favour by buying American goods and services.
2. It results in cost reduction for domestic firms.
3. Consumers get top quality and a wider array of services at lower prices.
In the long run, off-shoring/outsourcing will benefit all Americans, and the IT industry will be the biggest beneficiary of all. In the best interests of American economy, US businesses should continue to off-shore/outsource to retain a competitive edge in consumer markets.
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