outsourcing detrimental effects

Introduction

Typically, the method of hiring new hires to fill positions left by former employees or those caused by employers is comprehensive. This is intended to ensure that the employer employs the most qualified employee, whose expertise, abilities, and experience would enable him or her to fulfill the demands of the new tasks. It is up to the boss to determine when to look for workers to handle different duties that arise during the course of operations, using staffing agencies and managers. Traditionally, employers are known to search for a skilled workforce to perform new tasks outside the firm, believing that they are likely to get more experienced individuals at lower prices compared to when the existing employees are assigned the new tasks. This started to change in the new century, when employers realised that the existing employers had better potential to perform new tasks, especially those that involve decision-making. A significant number of employers in contemporary business world will prefer assigning new tasks to existing employees as they come up. This essay argues that outsourcing has detrimental effects on the functioning of an organization and the economy at large. This argument is supported by explaining the demerits of outsourcing and weighing them against the merits of insourcing. Outsourcing has slowed down the growth and development of the economy at the firm, industry and national level.

The Effect of Outsourcing on Job Security and Career Development of Existing Employees

Some employers choose to part ways with employees when they deem their skills to be obsolete to the work demands. In other cases, the existing employees are kept aside, while others from outside the organization perform the new tasks. This disadvantages the existing employees because they did not anticipate the turn of events. If they could have been informed on time, they could take necessary steps to prepare for the new roles. These may include updating their relevant skills through means such as engaging in seminars and training and enrolling for further studies. Employers whose policies are geared towards insourcing always keep their employees informed about likely changes in the labour market and new demands at the workplace. Such employers ensure that their employees attend seminars and conferences in their area of specialization in order to improve their skills and have updated information on new job demands. Some employers have also started programs to support the employees’ interest in further studies by availing time and resources for them to enrol in various academic programs. Therefore, policies directed towards insourcing guarantee career and educational growth of the employees, helping them to secure their jobs (Gilley & Rasheed, 2000). However, employers who are inclined towards outsourcing are likely to fire the existing employees at any time or keep them at bay, while outsiders perform roles within the organization. It tends to slow down economic growth because individuals lose opportunities to earn income, which reduces their purchasing power. This means that the demand for goods and services manufactured in the country is cut, which results in the reduction of returns to investments in form of land, labour, capital and entrepreneurship invested in the production of these goods and services within the economy, slowing down the growth. Individuals who work under employers who advocate for outsourcing are usually uncertain on whether they will be given an opportunity to work on the next task or not. They are demotivated in the course of their work in the organization because they do not have the security of tenure. This will in turn negatively affect productivity, loyalty and organizational citizenship.

The Risks Associated with Outsourcing

Outsourcing of human resource is more risky than allocating the tasks to existing employees. When an employer gives his/her employee a task, it means being sure about worker’s capabilities to perform it. The employer understands both the weaknesses and strengths of this employee and is therefore sure that he/she will be able to deliver good results to a certain extent in the new task. However, outsourcing represents a great risk because the employer does not understand the capabilities and shortcomings of the new worker (Gilley & Rasheed, 2000). Individuals tend to exhibit positive features while looking for jobs, but change after they are assigned the responsibilities. Therefore, an employer who resorts to outsourcing may not be able to familiarise with all the attributes of the new employee during the hiring and the recruitment process. The new employee may turn out to be worse than the employer considered him to be, causing inconveniences at the workplace. In other cases, employers outsource through tendering. In such cases, the individuals who perform tasks do not take direct instructions from them, but rather form the companies that win the tenders. In such cases, the results may not meet the expectations of the business owner (Savitz, 2013).

Another case when outsourcing can fail to meet the employer’s expectations is labor costs. Organizations run on tight budgets to ensure that they remain profitable and sustainable. More often, companies find out that services provided by outsourced staff are more expensive than expected (Kosnik et al., 2006). Outsourcing segments the company into many divisions that are hard to sustain financially. In the end, the investor or business owner may end up having many financial obligations (Gilley & Rasheed, 2000). The fact that the quality of work is not guaranteed means that the investor may not draw enough financial benefits to meet the extended costs of labor. The organization thus becomes unsustainable and risks insolvency.

In addition to risk reduction, insourcing saves the energy and the resources spent on recruitment and training.

When employees who fill vacant positions are insourced, there is no high demand for training and assimilation. On the other hand, there must be proper training for outsourced employees to ensure that they are familiar with their job demands and organizational culture. In some instances, the outsourced labor force continues performing the tasks without acquainting themselves with the existing organizational culture. These individuals may not also be familiar with goals, missions and aspirations of the employer (Gilley & Rasheed, 2000). This undermines the ability of the organization to have a united workforce that can work towards the achievement of a solitary goal.

Factors Behind the Shift from Outsourcing to Insourcing

A review of factors that necessitate the shift from outsourcing to insourcing plans reveals different reasons and perspectives on the issue. Companies have to forecast both the merits and demerits of the two courses of action. The decision has both ethical and political implications. In the US, for instance, the outsourcing culture has witnessed many manufacturing companies to turn to China and other Asian countries which had cheaper labour (Moore, 2010). This made the companies dismiss many employers in their plants because most of the tasks were now being fulfilled by the outsourced labour. This caught the attention of the political elite, who noted that many Americans were now becoming unemployed. Therefore, political pressure has been put on employers to cut the amount of work that they delegate to Asian manufacturers.

One of the key reasons why labour outsourced from Asia is cheaper than in the West is poor payment and working conditions of the workers. In addition, there have been claims that the contracted companies utilize juvenile labour. For instance, Apple, a major mobile phone manufacturing company based in the US, admitted that companies handed tenders to manufacture its products which involved underage children (Moore, 2010). This encouraged the authorities and human rights activists to force Apple and other American companies to take over the manufacture of their own products. There were also reports that tin used in manufacturing electronics in countries such as Singapore, Malaysia, Philippines and Thailand was being mined under very poor conditions, putting the lives of the workers at risk. Those in charge of the process were also violating many labour laws. The fact that the entity that outsources labour does not have control over the performance of each procedure in the course of production has raised ethical concerns. Thus, many US companies were forced to cut outsourcing and focus on developing their own manufacturing capabilities to meet the needs of their customers instead.

The trend of outsourcing labour force from foreign countries by the Western companies has created market inefficiencies. Most manufacturing companies outsource the services form Asian enterprises, which creates inefficiencies due to the distance and results in additional costs that would not have been incurred if the products were manufactured locally. For instance, goods meant for the home market have to be transported back to the country, leading to an increase in costs due to an increased demand for logistical services. The time spent on moving the good between the manufacturer and the final consumers also increases the risks associated with outsourcing (Kosnik et al., 2006).

There have been counterarguments that companies which outsource do not meet the extended costs of labour such as additional benefits for employees, vacations, health insurance and bonuses. However, it is important to note that companies that take tenders to perform certain tasks meet these costs and have to make profit. At the same time, these companies do not face as many risks as the one that gives out the contract. Taking into account all other factors, the reality is that outsourcing is costlier compared to using the existing employees.

Conclusion

Outsourcing is a culture developed among the employers who did not investigate its real implications on their employees and themselves. Employers believe that by obtaining labour services from outside the organization, they will save on labor costs. However, the entities from which the services are outsourced have to pay their employees and at the same time make profits to remain sustainable. This means that the entities which outsource pay more compared to when they would have used their own labor force. Outsourcing is also risky because the employer is not guaranteed that the new labor force will perform the tasks satisfactorily. It is therefore advisable that business organizations focus on developing their own labor force to perform tasks.

References

Gilley, K. M., & Rasheed, A. (2000). Making more by doing less: an analysis of outsourcing and its effects on firm performance. Journal of management, 26(4), 763-790.

Kosnik, T., Wong-MingJi, D. J., & Hoover, K. (2006). Outsourcing vs insourcing in the human resource supply chain: A comparison of five generic models. Personnel Review, 35(6), 671-684.

Savitz, E. (2013). Why Some U.S. Companies Are Giving Up On Outsourcing. Forbes, January 16, 2013. Retrieved from Forbes Website: