Why Do Companies Outsource: Impact on U.S. Jobs Explained

Author Donald Gianassi

Posted Apr 19, 2023

Reads 12.6K

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Outsourcing has become a common practice for many companies in recent years. But why do companies outsource jobs? This is one of the most frequently asked questions (FAQs) when it comes to understanding outsourcing. In simple terms, outsourcing occurs when an organization contracts with another company or individual to perform services that would otherwise be done in-house. There are two types of outsourcing: onshoring and offshoring.

Onshoring is when a company outsources jobs within the same country, while offshoring is when jobs are outsourced to another country. Both types have economic effects, but they differ in their impact on U.S. jobs. Many people believe that outsourcing is bad because it takes away jobs from Americans and sends them overseas where labor is cheaper. However, others argue that outsourcing works because it allows companies to save money and increase efficiency.

In this article, we will explore the impact of outsourcing on U.S. jobs and the economy as a whole. We will look at both sides of the debate to help you better understand outsourcing and its economic impact. So if you're looking for answers about why companies outsource, whether outsourcing is good or bad, and how it affects U.S. jobs, keep reading!

Understanding Outsourcing: Everything You Need to Know

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Why do companies outsource? Simply put, outsourcing is when an organization hires another company to handle certain business processes. This can include anything from bookkeeping and customer service to programming and marketing. Companies may choose to outsource for a variety of reasons, such as reducing costs, accessing specialized expertise, or freeing up internal resources. By outsourcing services, companies can focus on their core competencies while still ensuring these other important tasks are being handled efficiently and effectively.


Note: Why Do Companies Outsource? Companies outsource for many reasons. Sometimes it is to complete a small project that they do not have the expertise or resources to handle themselves. In other cases, they may hire an independent contractor or major firm to take over certain customer support functions so that their own employees can focus on other important tasks. As technology improves and new businesses emerge, more and more companies are turning to outsourcing as a way of improving their operations. This practice is often called offshoring, and it has the potential to provide significant economic benefits such as lower costs and increased efficiency. However, there are also potential problems associated with outsourcing, such as communication issues and quality control concerns. Ultimately, each company must weigh the pros and cons of outsourcing in order to determine whether it is the right choice for them.

The Influence Outsourcing Has on Economies

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The economic effects of outsourcing can be both good and bad, but overall it has had the greatest impact on lowering prices for consumers. Companies outsource to take advantage of lower labor costs in other countries, which allows them to offer products at a lower price point. However, this often means job losses in the business's home country and can have negative effects on local economies.

1. Job Impacts

One of the main reasons why companies outsource is to reduce costs. Employment outsourcing moves jobs from high-cost areas to low-cost areas, where average wages are lower. Companies prefer employment in these areas because they can save a lot of money on labor costs. However, job loss in high-cost areas can be devastating for communities and families.

In the United States, outsourcing has had a significant impact on the economy. Since 1997, globally employment in the manufacturing sector has decreased by over 5 million American jobs. While outsourcing may help companies save money, it does have negative consequences such as job loss and an economy that falls slightly due to fewer jobs available in certain sectors.

2. Price Impacts

One of the main reasons why companies outsource is to lower prices. General outsourcing leads to work generally moves from higher-cost countries to lower-cost countries. This is because labor grows more expensive in developed countries as demand for higher wages increases, whereas lower-cost countries can offer cheaper labor due to a lower cost of living.

Another factor that affects price impacts is specialized work. Companies may increase their use of independent contractors or offshore manufacturing to receive benefits, such as transportation costs or supply-chain disruption, which can help them save money and improve their bottom line. However, it's important to note that this strategy can also result in higher prices over time eventually skilled workers become harder to find and more expensive in these lower-cost countries.

Why Companies Choose to Outsource: Discover the Key Factors

Companies outsource jobs for a variety of reasons. Rising labor costs, unemployment, and an increase in demand are some of the factors that drive businesses to seek outside help. According to a presentation made by Nitin Goel from Boston Consulting Group's newest venture, Reach Advisors, there are several reasons why companies choose to outsource.

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One of the most significant factors is improving internal service levels. By outsourcing certain business functions, companies can focus on their core competencies and better serve their customers. Additionally, higher demand helps move workers to more dynamic market segments where they can find in-house job opportunities. With the talent war continuing to rage on, consistent increasing demand for services provides workers with greater job security as well as increased compensation potential. Finally, Goel cites reasons such as cost savings and access to specialized skills as additional benefits that companies often find when outsourcing work.

1. Cost saving

The primary reason why companies outsource is to save on operating costs. Offshore outsourcing can significantly lower costs compared to hiring in-house employees. A significant portion of a company's revenue can be spent on office supplies, janitorial services, and office space rental. By outsourcing these tasks, companies can save a considerable amount of money.

Retail industry companies often outsource customer service to countries where labor costs are lower. This not only saves money but also keeps the company customers happy. Outsourcing can also help businesses streamline their business processes, such as process payroll or HR outsourcing provider eliminating overhead costs associated with hiring full-time employees for these tasks. If you've experienced poor customer service in the past from a company, it's possible that they were trying to save money by handling those services in-house rather than outsourcing them.

2. Gain access to knowledge and expertise

One common reason why businesses outsource is to gain expertise. By hiring a remote team or outsourcing a specific task, companies can access specialized knowledge and skills that they may not find in-house. Some industries require specialized expertise that can be difficult to find and hiring staff can be a time-consuming process. In other words, outsourcing allows companies to save money, gain efficiencies and focus on their core competency without adding additional staff.

For example, a medical firm might outsource its legal team instead of hiring lawyers full-time. This saves the company money on legal fees and allows them to focus on their core competency of providing medical services. Similarly, an expensive digital technology needed for legal work might be outsourced instead of investing large sums of money in purchasing it in-house. In this way, outsourcing allows businesses to gain access to expertise while saving money at the same time.

3. Access to a diverse talent pool

One of the top reasons why companies outsource is to gain access to a diverse talent pool. With job outsourcing, businesses are no longer limited by their employee count or location when trying to find talented candidates. This means that they can tap into a large number of skilled employees who may be located in different parts of the world.

By outsourcing certain tasks or projects, companies can benefit from the expertise of individuals who have different backgrounds, experiences, and perspectives. This not only brings new ideas and fresh thinking to the table but also helps organizations to build a more inclusive workforce. Plus, working with people from diverse backgrounds can help companies expand their markets and connect with customers from different cultures and regions.

Frequently Asked Questions

Why might an organization decide to outsource?

Organizations may decide to outsource to reduce costs, improve efficiencies, gain access to specialized skills or technology, and focus on core competencies.

Why do companies outsource production?

Companies outsource production to reduce costs, increase efficiency, and focus on core competencies.

What is outsourcing in business?

Outsourcing in business refers to the practice of hiring an external company or individual to perform certain tasks or services that are normally done internally. This can include anything from customer service and data entry to manufacturing and logistics. Outsourcing is often used as a cost-saving measure, allowing companies to access specialized skills or resources without having to invest in them directly.

Why would a company choose to outsource?

A company may choose to outsource in order to reduce costs, improve efficiency, focus on core competencies and gain access to specialized skills and expertise that are not available internally.

How does outsourcing affect the US economy?

Outsourcing affects the US economy by reducing costs for businesses, but also leads to job losses and lower wages for American workers. It can also result in increased competition and innovation, ultimately impacting the overall economic growth of the country.

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Donald Gianassi

Writer at CGAA

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Donald Gianassi is a renowned author and journalist based in San Francisco. He has been writing articles for several years, covering a wide range of topics from politics to health to lifestyle. Known for his engaging writing style and insightful commentary, he has earned the respect of both his peers and readers alike.

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