Why outsourcing is bad

Loss of Manufacturing Capacity When industry moves offshore, not only do we lose the knowledge, we also lose the manufacturing capacity. For example, the U. The manufacturing capacity is gone and, if the U. Reliance on Foreign Relations Another risk that outsourcing companies face is the potential for relations with other countries to change.

For example if the U. In , the Helms-Burton Act restricted U. Investors in international markets can also suffer losses to their portfolios if relations between two countries break down or if a foreign country falls into economic duress , which negatively affects the activities of companies operating in that region. The Bottom Line The short term gain derived by companies that outsource operations offshore is eclipsed by the long term damage to the U.

Over time, the loss of jobs and expertise will make innovation in the U. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data.

We and our partners process data to: Actively scan device characteristics for identification. Some outsourcing defenders admit that by outsourcing and offshoring different services to foreign countries, businesses facilitate the gap between the number of available jobs in the US that decreases and the number of people in search of work that only rises.

At the same time, less-developed countries benefit from outsourcing more than the home country. US citizens may argue that outsourcing can lead to higher wages and fewer jobs in their country.

However, many analysts see outsourcing processes as a global advantage that will decrease the gap between more and less developed countries with time in the future. The U. First of all, labor costs in China are much lower compared to the U.

Also, it is easier to enter the market of the country where the manufacturing is operated. Moreover, having access to the Chinese market expands your chances to enter other Asian markets as well.

Also , raw materials in China cost lower and supply and logistics chains are easier to operate compared to the US, which allows for cutting operational costs even more. However, being a favorable destination for manufacturing operations, China experiences problems because of the high demand and decreasing wages with an increasing population. The company outsources its production to Foxconn, a Chinese corporation that allows Apple to decrease manufacturing costs, especially those regarding labor.

Also, in manufacturing its smartphones, tablets, and laptops, Apple utilizes a large amount of glass for displays that are much cheaper in China than in the US. So by outsourcing some tasks and services, organizations can cut costs and increase their profits and the quality of products at the same time. However, many employees in outsourcing companies complain about poor working conditions. Often, they receive low salaries and work more than eight hours a day. The main advantage of outsourcing jobs to less developed countries is that companies can stay competitive on the global market and access foreign markets more easily.

Businesses can settle on lower labor costs by hiring workers from less developed countries and emerging markets with lower living standards. This also allows companies to ship produced goods from the manufacturing countries back to the U.

If these jobs were returned to the US, 4. These job positions could also be filled with US workers, but businesses see an advantage in hiring local specialists that know their native language and market specifics and can be paid lower rates. As outsourcing to less developed countries proves to be cost-effective, more and more US companies tend to outsource their services.

Although Cook declared that the main goal was to create American jobs — it can also be seen as a gesture to placate critics of the Apple-Foxconn relationship. Boeing is no stranger to outsourcing. On earlier jets, the company outsourced work on landing gear, batteries, and engines for the and The result is that there were too many players working on too many pieces with no centralized system of quality control.

For US companies, the rise of the South Korean electronics giant should be a cautionary tale. They should know. This possibility is more likely than ever before because of outsourcing's lower barriers to entry. Consumers can also be turned off by outsourcing. The most ubiquitous case is the outsourcing of customer support or technical support to places like India. When customers hear a foreign accent answer their call to an American company, they may lose trust in the company and could even blame that company for eliminating American jobs.

The situation becomes even more sensitive when customers have to share medical or financial information with strangers overseas. Customers may band together to boycott these companies or spread negative sentiments through social media. While there is much debate as to whether or not outsourcing causes unemployment or actually adds jobs to the economy, it is obvious that it does eliminate certain kinds of work. Presumably, those workers who lose those jobs go on to get better jobs in new industries or through better training and education.

Manufacturing jobs are a prime example. Today, much of what is made by American companies actually gets produced in foreign factories. While it is true that U. Today's U. The low-skilled jobs involving repetitive manual labor have been outsourced either to cheap labor abroad or to technology. As a result, entire towns and communities that relied on assembly lines and factories have become virtual ghost towns.

The so-called Rust Belt is a prime example of this phenomenon. It refers to the staggering economic decline, population loss, and urban decay caused primarily by shrinking the domestic industrial sector throughout the Northeast, Mid-Atlantic, and Midwest. The rise of the Chinese middle class in the past few decades has been attributed, in part, to its rise as a global exporting powerhouse.

The ripple effect predicts that China's competitive low-wage advantage will eventually be eliminated, and the boost to economic production that resulted will also depart.

Outsourcing also takes labor out of the workforce of a country and sets laborers to work doing tasks that may not be critical to their own country's development or growth, but pays better nonetheless. People may be enticed to leave agrarian or cottage industries to earn more money in a city as a call center operator.

And what happens when there are no more cheap labor regions to exploit? Companies may then turn to technology to replace workers causing unemployment of unskilled labor abroad as well as at home.

The influx of investment from abroad, especially for manufacturing, can also lead to a glut of factories that spit out pollution and carbon dioxide into the atmosphere, negatively affecting the health of workers and nearby communities.