The first outsourcing activity in the United s occurred in the 1800s (Cantoria, . During that time builders of ships outsourced parts of its production to producers in Europe. The industrial revolution help boost the concept of outsourcing as companies began to have greater demand than what they could produce in-house. Outsourcing was not been exploited by companies as a major strategy that could be used to gain a competition advantage. Outsourcing in the U. S. gained popularity in the 1970s and 1980s. The concept was revived and firms expanded its operations by signing outsourcing contracts with companies located in Asia, South America, and other parts of the world.
Developing nations have historically benefited from the rise of outsourcing due to the fact that companies seek reduction in labor wages. In 2008 the hourly labor wages of Chinese workers was $1.36 (Ventureoutsource, 2011). Outsourcing allowed companies to take advantage of the international labor market, while at the same time keeping a physical presence in the domestic market. Outsourcing today has become a strategy that many companies utilize to gain a competitive advantage.
The use of an outsourcing strategy is not limited to the manufacturing sector. The service industry has increase the implementation of outsourcing in the 21st century. Customer service calls are often handled by workforces from countries such as the Philippines and India. The supply of human capital for U. S companies is no longer limited to the domestic market. One of the economies that benefited the most from the proliferation of outsourcing is the People’s Republic of China. The exports and imports of China in 2012 amounted to the highest total in the world at $3.87 trillion (Ghigliotty, 2013).
The labor costs in China have been rising in recent years, but they are still very low in comparison with the labor market of developed nations such as the United States, Europe, and Japan. The general perception of Americans is that outsourcing is taking jobs away from American workers. The reality is not that simple. On many instances outsourcing costs functions to developing nations can ensure that a company is able to keep its operation open in the U. S. by taking advantage of the cost cutting associated with the implementation of outsourcing.
A function that is been outsourcing more in recent years is the customer service of companies. The global internet bank PayPal outsources its phone call center to a company from the Philippines. Governmental agencies today are using outsourcing to lower labor costs. The use of temporary part-time employees can help firms reduce its overall compensation costs by paying lower fringe benefits. It is important to monitor labor outsource contracts to ensure that companies are complying with local labor laws and with the expectations of the parent company.
Companies must act in a socially responsible and ethical manner when performing business in foreign countries. Unethical acts such as paying briberies to corrupt governmental officials must be avoided. Outsourcing is a work trend that is going to continue to grow in the coming decades. References Cantoria, C. (2011). History of Outsourcing. Retrieved February 22, 2013 from http: //www. brighthub. com/office/human-resources/articles/100143.aspx Ghigliotty, D. (2013). Tradeoff in trading power: China eclipses U. S. as the top importer and exporter of goods. Retrieved February 22, 2013 from http: //www. dailymail. co. uk/news/article-2276633/Tradeoff-trading-power-China-eclipses-U-S-worlds-importer-exporter-goods. html Ventureoutsource. com (2011).
2011 Report: China manufacturing labor hourly labor rate, compensation costs impact EMS. Retrieved February 22, 2013 from http: //www. ventureoutsource. com/contract-manufacturing/2011-china-manufacturing-hourly-labor-rate-compensation-costs-ems