How Does Outsourcing Help The U.S. Economy: Pros And Cons

• By Jay T.
• 10 July, 2012
• No Comments

Let’s Understand The Pros And Cons Of Outsourcing. How Outsourcing Helps Our Economy At Micro And Macro Level.

Outsourcing technically means giving parts of your business to be managed by professionals from other companies or companies from abroad. Although outsourcing is a very widely followed trend in the US other countries are slowly catching up.

Outsourcings have their own set of pros and cons but what are the factors of outsourcing that actually help in building the economy?

Cheap labour

Companies outsource their operations because of the availability of cheap labour off shore. This helps them bring down their cost of production and as a result gives them a higher margin on their net income.

Thus huge amount of operating profit is left in the hands of the outsourcing company. The minimum wage in America is about $7.25 an hour whereas those in countries like India and China it could sum upto around $1-$2 an hour. Thus a clear cut margin of $5 remains in the hands of the parent company.

Effect on the GDP

In layman’s terms GDP is the final value of goods and services produced within the domestic boundaries in a financial year. US, being a developed nation has already achieved a higher national income and thus needs to just maintain it. Here where outsourcing plays a role and produces the desired amount of goods and services to maintain just the required GDP.

Job creation

Outsourcing always helps in creating a large number of jobs in the off shore countries.

In the US about 10% of workers are employed by foreign companies. Infosys employs Americans in their work units in America.

This helps to maintain the productivity in the country and also to restore their GDP in terms of the output produced within the domestic boundaries.

Benefit from the time zone

US outsources majority of its BPO/ IT services and ensures round the clock efficiency from its employees abroad which ultimately results in customer satisfaction. All this is possible due to the services offered from a country of a different time zone which works according to the flexibility of the parent company. This along with subsidized labour helps them save big time on their expenses.

75% of America is in services

75% of the US economy gains its shares from the service sector. As we all know America boosts more of the service industry rather than the manufacturing industry due to various factors like obsolete labour, land costs etc. Thus outsourcing forms a major part of their operations. This helps US firms them rake off a sustainable GNP growth all around the world helping them grow further.

Outsourcing has become an essential factor due to growing need of the hour and the major factor being globalization. No country is self sufficient and the balanced dependency on each other, to improve their productivity, is the only mantra for a successfully growing economy.

Article Written by - Sanika Janwalikar, sanikual@gmail.com