Introduction to Outsourcing
What is Outsourcing?
Outsourcing is the delegation of parts of a corporation's operations to a third party. Operations that can be outsourced include, but are not limited to, support systems such as call centers, and software development; in theory, any segment that does not affect a company's core competencies can be outsourced to someone with the expertise to handle it better. With the emerging global market in recent years, outsourcing is generally thought to mean delegation of operations to companies in other countries whereas the more traditional view is outsourcing to other companies within the national border.
Benefits of Outsourcing
There are many benefits to outsourcing. It is a natural extension of economist David Ricardo's economic model of free trade. For a long time now, many complex products have been assembled from parts made all over the world; some countries are simply able to produce certain parts at higher qualities and cheaper prices. Instead of simply goods crossing borders, services are now also offered on the global market. As with the free trade of goods, outsourcing happens because there is economic benefit to both sides. Insourcers are capable of doing work at a lower cost and thus save the outsourcer money; for example, if an engineer in India can be contracted for $10 000 USD a year instead of $60 000 USD a year for an American equivalent; the contract bolsters the Indian economy while the American company can invest its savings into other priorities.
Danielle Goldfarb of the C.D. Howe Institute lists several studies which have shown that global outsourcing only causes a small amount of job loss and most of those are low-wage such as call centers which pay their employees $9 to $14 CND an hour. Goldfarb indicates that the upper limit for number of jobs that could possibly be affected by outsourcing is 19%; however, the UN Conference on Trade and Development suggests that at most 5% of the labour force in the G7 industrialized countries would be affected.