We’ve all heard news reports about companies shutting down their US factories and moving those jobs overseas, causing hundreds and thousands of Americans to become unemployed. How could outsourcing possibly be good for the local economy when it immediately results in lost jobs?
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Outsourcing’s Effect on American Jobs
Outsourcing has evolved over the years into a vital part of effective supply chain management, but the concept is still surrounded by a large collection of myths. The biggest is that outsourcing causes unemployment in the US. What many people overlook is the number of jobs that other countries outsource to America. 5.3 million American jobs are insourced from foreign companies. This type of strategic partnership between domestic and foreign corporations will boost American employment rates in the long run.
Quality and Outsourcing
Another major misconception is that outsourced jobs go to developing countries and that US businesses are sacrificing product quality for lower wages. Developing countries pose several risks to the supply chain, however, and can negatively impact a company’s profits. In 2011, 75% of the investments American companies held abroad were in developed countries like Japan, Canada, Australia, and New Zealand. Outsourcing, even to richer countries, does have cost benefits, but it also allows companies to improve quality without it affecting price.
The Effect on Local Economies
Outsourcing can have a major impact on a small company-centered town. The strategic benefits of such a decision aren’t always immediately obvious. The ability to outsource lowers the cost of many products and can stimulate the local economy, but less than 10% of the jobs outsourced in the US contribute to the manufacturing of products sold in America. The remaining 90 to 93% fulfill US export demands. Multinational companies make large profits on exports and invest that money back into the local economy over time, often creating more jobs than what were originally lost.
Outsourcing and the Global Economy
The biggest benefits of outsourcing are on a global level. Healthy trade and commerce between nations stimulates the economy at every level, including small towns that were originally hurt by outsourcing. Government policies are kept in check, making it easier for US companies to prosper, and large corporations must focus on improved products to stay competitive. Outsourcing can also give more opportunities to small businesses by opening doors to more lucrative contracts.
For many years, outsourcing has been a controversial topic. It has been the center of political debates and business discussions. Most of the myths about outsourcing are far from the truth, however, and as more businesses use this strategic tool to better manage their supply chain, the benefits of outsourcing will far outweigh any disadvantages.[/show_to]