Is foreign outsourcing of American jobs by American Companies immoral? I Say YES

Lawmakers in more than 25 states and in the United States Congress have identified foreign outsourcing as a threat to US employment and prosperity. Legislators must ban federal or state contracts with companies that would outsource jobs to foreign countries.

If no action is taking, US companies will continue to fire American workers in significant numbers and replacing them with foreign workers in low-wage countries such as India, China and Eastern Europe.

Of course, outsourcing is nothing new. The US and State governments and American Corporations have been outsourcing domestically for decades such services as data base management, janitorial services and payroll. The recent increase in foreign outsourcing in which US companies buy services from foreign-based providers has been make increasingly cost effective due to the personal computer and the Internet.

According to the data from several experts, over one third of the world trade growth has been achieved by means of foreign outsourcing to other countries. This has caused the loss of hundreds of thousands of jobs in the United States and has had a major effect on the US Economy. Foreign outsourcing has changed the demand for skilled and unskilled labor and altered the structure of wages in the United States. Foreign outsourcing sends production to countries where labor costs are lower than in the US.

As a professional web designer, I have seen many American businesses outsource their web projects to foreign countries. American businesses fail to realize that they are spending their money overseas and not supporting the US economy. They are causing American workers to lose their jobs.

Mitch Webb

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Article Source: Mitch Webb – EzineArticles.com Expert Author

Foreign Outsourcing of American Jobs

So what are the pros and cons of outsourcing?

The potential from outsourcing and BPO related activities:

• Savings in terms of cost from labour arbitrage
• Productivity improvements from access to experienced and up-to-date skills
• The potential to focus on the core business without the distractions of a difficult function in-house
• Enhanced access to expertise (but at a cost)
• Operational cost control as the cost becomes very transparent and controlled
• Improved accountabilityas you know who is responsible for what service
• Flexibility to reallocate resources and meet company goals
• Improved Human Relations management in terms of career development potential for peripheral functions.

As for the downside of outsourcing  the list would include the creation of a dependency mentality coupled with a  lack of innovation and integration with the core business – along with a loss of competitive edge. Outsourcing can garner these ill-effects mainly when used as a short term technique to reduce costs.  To avoid this Outsourcing has to be planned carefully going beyond mere cost control and with carefully thought-out strategies and logistics in place to ensure success. A productive nurturing culture is imperative, especially in the beginning, to set the backdrop for a successful relationship.

How to make the most of outsourcing

Apart from reducing the development time and the cost for example new services  an outsourcing relationship can free up resources and orient them towards innovation that can really add value to the core business. It is this potential for the sources of innovation to be focused on the core business competitive needs that is at the heart of the aphorism ‘to focus on core competences’ – In fact it means to build the core. There must also be good communications and systematic tracking and measures in place to help understand how the service is evolving and how improvements can be made. This goes well beyond simplistic SLA types of measures and is in fact an example of proactive innovation.  An outsourcing provider who is willing to learn and understand the business drivers of the client organisation and who can provide the right kind of expertise to a client at the right place can be a company sttrategic asset. The type of proactive innovation can make all the difference to an outsourcing partnership.

Tips for the Outsourcer

• Treat outsourcing as a strategic investment, clearly defining goals, strategies, objectives and time lines.
• Choose a firm that has goals you can identify with and a track record that you can use productively in your industry.
• Set up control processes to manage the interface between the two organisations – treat them as part of the business which is in fact what they become.
• Once you have outsourced a service  trust the service provider to do the job – heavy handed control or excessive monitoring can get in the way of good service and can only add to costs.
• Build a contract that has concrete objectives performance measurement strategies and incentives in place – this will clarify things for the provider and provide sustained motivation.

Tips for the provider

• As with the outsourcer outsourcing is a strategic investment – define goals, strategies and objectives.
• Build a contract with the client that spells out performance measurements on the basis of concrete objectives – use it to streamline processes
• Develop an open rapport with the client build a relation that aligns the interests of the outsourcer, the vendor and customers.
• Build a measurement system to montitor progress and make sure robust management processes. are in place – use it to negotiate changes and upgrade performance responsibilities.

The paranoia surrounding outsourcing is slowly waning and being replaced by a grudging acceptance and recognition of how both sides can benefit. Reports are coming in that well crafted outsource deals restate the value of outsourcing – and add to the stability of the concept. According to a Global Insight study sponsored by the ITAA (Information Technology Association of America), the benefits of offshore IT outsourcing added $33.6 billion to real gross domestic product in the United States in 2003. During 2008, real GDP was expected to be $124.2 billion higher than it would be in an environment without IT software and services offshore outsourcing.

There is value to be achieved by Outsourcing what is needed is a well crafted management strategy to deliver the promise that Outsourcing offers.

Royston

I was thinking about outsourcing change management and the observation that those being outsourced often speak with respect about the boss delivering the message whilst being very hostile to the organisation actually forcing through the reorganisation. It has often happened to me when talking to people being outsourced that some managers or leaders are able to give bad news when it is necessary whilst still maintaining a good relation with their staff.

From a justice perspective, followers, or in this case the ones on the ‘receiving end’ of the outsourcing change, will judge the leadership exercised as to the degree which it is fair. That is leaders can motivate followers by following ‘fair procedures’ and followers can as a result become more supportive of the direction or goals being proposed and exercise good organisational citizenship – even when the goal being proposed is adversely affecting them.

This can be sharply contrasted if you think of a more distributive type of process where the person affected by the change only sees the instrumental issues – how the change is materially affecting them (loss of income or job for example). What this forces us to consider is how people apply different yardsticks when looking at an organisation’s position and how this can inform us why a person could simultaneously ‘respect’ the person who is communicating the bad news whilst keeping this distinct from poor justice perceived at an organisational level – or from another person or department  elsewhere. I.e. is it seen as fair what the company is proposing as articulated by the manager compared to the way it is actually carried out at a company level. For example an outsource in order to gain cost advantages over an incumbent workforce would I suspect be judged adversely in a distributive justice sense, whereas a correct and fair application of the selection of the people affected by the outsource, as done by the manager, could be seen as procedurally fair if done with integrity – you would probably hear things like ‘he’s only doing his job’ or ‘he has no say in the matter’ but never the less ‘he’s a good chap.’

You could also take another view more directly related to identity and leadership: followers internalise the leaders perspective and construct an identity congruence to the leaders (buy in to the vision) and the issues around Identity in terms of the organisation (letting go and the processes involved in breaking the psychological contract) and constructing a new identity with the new organisation in outsourcing or ‘downsizing’. These types of processes also affect those left behind – i.e. be distanced from the organisation as a consequence of a poor outsource process. These sorts of processes could also help us ‘explain’ a differential response to the different players within an organisation (respect the manager but despise the organisation) – this is seen a lot in downsizing or outsourcing organisations people leave and organisation with a bitter taste in the mouth. It should not be forgotten that poorly outsourced people are probably lost as customers for the rest of their lives!

What this means is that the response of workers to an outsource can be greatly affected by the way messages and procedures are actually executed. A fair and equitable approach delivered by a well trained and respected manager can actually help in reducing resistance to change – in effect stopping causes of resistance at source.

Royston

An article in Computer Weekly highlighted the problem that the salaries for mid-level IT staff have increased due to greater demand due to Outsourcing. Companies need experienced staff capable of overseeing project work, managing virtual teams, negotiating service line agreements and so on (the hidden costs of outsourcing) – but they don’t need the lower level skills because most of those jobs have been outsourced to lower cost economies such as India.

It seems project managers and project leaders have seen quite dramatic pay increases (good news for some), but because all the lower level jobs have been outsourced or ‘offshored’ then there are fewer people to rise through the ranks. SSL (Salary Services Limited) carried out a study which clearly demonstrates the shift. Their research director George Molyneaux is quoted by Computer Weekly as saying that ‘Outsourcing jobs reduces the incentives to get into IT’. Not surprisingly, there are far fewer people taking IT as a subject at University – and there are fewer graduate level jobs in the UK. How on earth are we going to develop the future project managers who will understand the UK IT industry? I think this is a real time-bomb.

Yet the reply from one of the recruitment companies is that we need to increase marketing and highlight that there is a demand for IT people. Does this person think that today’s young people are completely stupid? It is clear from the above analysis that there are fewer jobs and no clear career path. The IT industry cannot continue to dump people like hot potatoes whenever they think they can get them cheaper elsewhere and then expect a good flow of graduates coming into their sector.

Better marketing is not going to resolve the issue. People will only start moving back into IT when they can see there really is a career for them.

There is a podcast about the drop in student numbers and the implications on the following link:Computer Weekly

An outsourcing transfer can be viewed as a form of transition. This change process involves involuntary movement from one company to another, with possible similarities, from the staff point of view, to mergers and acquisitions. The transfer may also include staff reductions or ‘downsizing’, and the new organization will make some effort to develop a relationship with their new staff in the form of organizational socialization. All of these transition processes are likely to impact upon perceptions of justice – in other words, whether people feel they have been treated fairly or not. These perceptions are important as there is substantial evidence that if people feel they have been treated unfairly they are far less likely to perform well. However, of specific interest here is the repeated finding that good attention to procedural justice concerns can increase perceptions of fairness even if the outcomes are unfavourable. If we assume that, at least initially, staff will view the likely outcome of being forcibly transferred to another organization as unfair, it may be possible that procedural justice will reduce their perceptions of unfairness.

What do we mean by Justice? Distributive justice considers perceptions of fairness of outcomes (equity, equality, and needs). Procedural justice emphasises the importance of fairness of the methods or procedures used (decision criteria, voice, control of the process), and Interactional justice is based on the perceived fairness of the interpersonal treatment received, whether those involved are treated wish sensitivity, dignity and respect, and also the nature of the explanations given.

I have had some people ask me why they should bother about how people feel if they are no longer working in their organisation.

For most companies who outsource, the staff will still be required to carry out work for them, albeit under the management of the outsourcing company. It is also possible that at some stage the organization will wish to back-source (bring people back in house). My ongoing research indicates that organizations will experience problems if they do not attend to the needs of their staff during the transfer process. To manage justice perceptions it is important to ensure you do communicate and that the process is viewed as fair.

Some of the practical considerations for the transfer itself therefore include; effective and ongoing communication of the business rationale, a focus on procedural and distributive justice, training of managers to ensure open two-way communication and interactional justice is enabled, and accepting and working with the emotional aspects of the transfer rather than pretending it does not exist.

An aspect not often considered at all by organizations is after the transfer. It will be important to ensure remaining staff receive clear communications regarding the changing roles (their own and their ex-colleagues). A balance will need to be made between letting go, so that transferred staff do not feel they cannot move on, and creating barriers to communication. Most importantly, consider how the contract influences your relationship with them. In the UK for example if the tupe agreement includes a mapping-on of salary increases or other awards it is vital that a process is put in place to ensure this happens, rather than forcing the transferred staff to continually monitor the situation.

So do think about the people side of the transfer if you are outsourcing, and remember that you need them to be motivated and to continue to perform. Achieving this will be difficult and should not just be left to the company you have chosen to outsource to.

Recently Zurich did warn that organisations should ‘prepare for two years of IT disruption’ when they outsource. However, this type of press is rare. Most of the conversations I have are absolutely dire, with very poor performance and real relationship problems creating conflict and reverting to strict contract rules. However as soon as I ask about quoting people I am told ‘The only thing I could say to be quoted would be the good things’. This means of course that many organisations go in to an outsourcing contract without fully realising the problems that others are experiencing.

Our own research has suggested the following issues can exist for organizations after an outsourcing transition:

* Lack of organizational learning and ‘memory’,
* Reduction in innovation,
* Reduced long term responsiveness from staff,
* Poor negotiating, linked to above and cultural differences (both organizational culture and national culture, especially in off-shoring),
* Anxiety and low performance for remaining staff (survivor syndrome),
* Intangibility of services can exacerbate conflicts between clients and suppliers,
* Difficulties with relationships with (ex) colleagues,
* Outsourcing viewed as ‘failure’,
* Misunderstanding of roles,
* Issues around career development,
* Financial losses due to contract misunderstandings and relationship history.

There are some really good tips on the link below about how to renegotiate when things go wrong:

Computer Weekly

However, there are still problems, as in the real world careers are made or broken on these large contracts, and trying to renegotiate, especially shortly after doing the deal, is an admission that things are not right and (potentially) you made the wrong choice. Not many managers are brave enough to do this, they put their careers before the company (more about this on the psychology blog I think…)

Anyone else had this experience, or any views?

By Ishani Mitra – EzineArticles.com Expert Author

The outsourcing industry typically encounters two types of investors. Those who are willing to outsource few of their business operations, and know how to do it, and, those who nourish an inclination to outsource, but also harbor doubts because of stories about potential that portray outsourcing disasters. This (second) group of investors, falls into the category of people who would want to see for themselves if outsourcing will work for them, without relying on unreliable third party information strewn all over the internet. This means, they are willing to take the risk, but want to form their own opinion out of experience, and not draw conclusions from the contents of studies, websites and blogs.

“Selective Outsourcing” is aimed at building trust and establishing compatibility between the investor and the outsourcing partner before any long term agreement is reached with mutual consent. This means, while the outsourcing partner works on specific modules, the investor retains control over the overall function. Payroll Management is an excellent example of Selective Outsourcing. Payroll is classified as an HR responsibility. The concerned personnel has to account for each salary component such as leave policy, performance pay, overtime compensation, increment policy in accordance to labor laws, etc. for every employee in the system. The figures need to be meticulously entered and painstakingly double checked to avoid any mistakes, all under the pressure of delivering the completed report before 72 hours of salary due date. Many companies are wary of outsourcing their complete HR operations, but are more than willing to outsource the payroll management.

Payroll Management is time consuming, repetitive and a critical time-bound task. The HR department is under tremendous pressure. This creates a backlog at other HR functions. By selectively outsourcing their payroll management system, companies have saved time, money, and valuable man-hours that can now be channeled towards other HR activities that directly affect the company’s overall performance, such as recruitment and induction training, workforce management, grievance redressing and welfare schemes.

Selective outsourcing is also considered to be the most practical way of identifying the right kind of outsourcing partners. Let us consider a case, where you, as the Investor (or Small Business owner) have a series of graphic demands. With several self proclaimed graphic experts all over the internet, it gets hard to identify, who is actually qualified. In this situation, instead of handing over the complete graphic needs to a certain “expert”, you can check them out; by having them handle just a part of your graphic needs, e.g. a logo, a banner, an icon. Each will be considered as a separate project. This will allow you to evaluate your “graphic expert” on the following grounds:

Reliability: – Does the person deliver what has been promised?
Acceptability: – Does the end product meet your requirement?
Compatibility: – Does the process of deployment and delivery suit both of you?
Communication: – Are response time and other things satisfactory to both?

In other words, Selective Outsourcing allows the investor to see beyond the “all or nothing” approach to outsourcing, and to see the development of customer specific strategies that are tailor made to suit the investor’s needs.

Steve Cameron, senior vice president of managed services at Steve Cameron, senior vice president of managed services at Siemens Business Services on his interview with IT Business Edge says,

“The number-one benefit our clients are seeking is cost savings through the innovative application of the selective service. This also gives the client transparency in the cost structure because of the fixed scope of the selective IT element under management”

It has been noted that about 80 % of Irish businesses use Selective Outsourcing in one way or another. The Outsourcing Evolution remarks that several companies struggle with the costs associated with printing and have opted to use selective outsourcing to fulfill their needs by using the services of Outsourcing partners like Ergo

A Survey conducted by Watson Wyatt predicts that steadfast growth in Selective Outsourcing will be seen among small and medium sized business in the coming years. Companies need to step back and take a broader look at how outsourcing can work towards the overall benefit of business by employing the Selective Outsourcing Model. OutSorcerer.com – Virtual Assistant Outsourcing Services is a leading provider of low-cost, yet reliable virtual assistants to help busy entrepreneurs magnify their efforts.

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Article Source: Ishani Mitra – EzineArticles.com Expert Author Selective Outsourcing

I was thinking about outsourcing change management and the observation that those being outsourced often speak with respect about the boss delivering the message whilst being very hostile to the organisation actually forcing through the reorganisation. It has often happened to me when talking to people being outsourced that some managers or leaders are able to give bad news when it is necessary whilst still maintaining a good relation with their staff.

From a justice perspective, followers, or in this case the ones on the ‘receiving end’ of the outsourcing change, will judge the leadership exercised as to the degree which it is fair. That is leaders can motivate followers by following ‘fair procedures’ and followers can as a result become more supportive of the direction or goals being proposed and exercise good organisational citizenship – even when the goal being proposed is adversely affecting them.

This can be sharply contrasted if you think of a more distributive type of process where the person affected by the change only sees the instrumental issues – how the change is materially affecting them (loss of income or job for example). What this forces us to consider is how people apply different yardsticks when looking at an organisation’s position and how this can inform us why a person could simultaneously ‘respect’ the person who is communicating the bad news whilst keeping this distinct from poor justice perceived at an organisational level – or from another person or department elsewhere. I.e. is it seen as fair what the company is proposing as articulated by the manager compared to the way it is actually carried out at a company level. For example an outsource in order to gain cost advantages over an incumbent workforce would I suspect be judged adversely in a distributive justice sense, whereas a correct and fair application of the selection of the people affected by the outsource, as done by the manager, could be seen as procedurally fair if done with integrity – you would probably hear things like ‘he’s only doing his job’ or ‘he has no say in the matter’ but never the less ‘he’s a good chap.’

You could also take another view more directly related to identity and leadership: followers internalise the leaders perspective and construct an identity congruence to the leaders (buy in to the vision) and the issues around Identity in terms of the organisation (letting go and the processes involved in breaking the psychological contract) and constructing a new identity with the new organisation in outsourcing or ‘downsizing’. These types of processes also affect those left behind – i.e. be distanced from the organisation as a consequence of a poor outsource process. These sorts of processes could also help us ‘explain’ a differential response to the different players within an organisation (respect the manager but despise the organisation) – this is seen a lot in downsizing or outsourcing organisations people leave and organisation with a bitter taste in the mouth. It should not be forgotten that poorly outsourced people are probably lost as customers for the rest of their lives!

What this means is that the response of workers to an outsource can be greatly affected by the way messages and procedures are actually executed. A fair and equitable approach delivered by a well trained and respected manager can actually help in reducing resistance to change – in effect stopping causes of resistance at source.

Royston

I was struck by the similarity in the situation when people are laid off during redundancies and the stress caused by the move from one company to another during outsourcing – it strikes me that this is an under researched area and something we as managers should pay more attention to.

Pioneering studies in Scandinavia that took place some years ago, where centralized health care allows researchers access to vast databases of medical conditions and treatment, showed a strong link between downsizing, layoffs and illness. A study by Finnish researchers published in February (2004) in the British Medical Journal, found the risk of dying from a heart attack doubled among permanent employees after a major round of downsizing, with the risk growing to five times normal after four years. What was surprising about this study was that ‘surviving’ employees – those left behind – suffered as much stress as those who left. Those hit hardest by layoffs in this study – losing more than 18 per cent of their colleagues during the worst years of recession – suffered the highest risk of death from cardiovascular disease.

Two other studies in the same vein suggested that other forms of strain in the workplace can also affect health. An analysis of medical records for 24,036 Swedish workers from 1991 to 1996 found that in workplaces that underwent large-scale expansions, the workers were 7 percent more likely to take sick leave of 90 days or more and 9 percent more likely to enter a hospital for some reason.

What these studies showed was there is a relationship between work related stress and real physical outcomes – for those remaining as well as the obvious strains to those leaving. Outsourcing shares many of the factors that were shown to lead to this heightened risk and we should be aware that an over cavalier approach to managing people in this major change process could possibly lead to people dying before their time. It is not enough that we have to act carefully and ethically as other Blog writers on this forum have said we have to act with responsibility and care for people – in the final analysis if it could be shown we acted in an unfair and reckless manner in dealing with people during an outsource we also might find ourselves liable in law. More research is clearly called for in this area.

RoyMogg

Now it is tricky for me to say too much about this book because I am likely to be a bit biased – I was involved in writing three of the chapters. However I do think it is an extremely good book, and offers a very much needed analysis of a wide range of issues around outsourcing. Hats off to Ruth Taplin for gathering together these chapters, she has made an excellent job of developing knowledge in this area.

Here is the Synopsis
Outsourcing is an increasingly popular strategy deployed by a variety of institutions, including banks, multinational companies and small and medium-sized enterprises (SMEs). This book assesses the problems and solutions for those attempting to outsource through an analysis of human resource management, insourcing, lifecycles of the project, insurance requirements, operational management and recruitment within the context of the financial services industry, automotive and IT industries of Japan, North and South Korea, South Africa, Mexico, Eastern Europe, China and India. Including detailed comparative case studies, this book: considers how outsourcing can best be made to work; explores the human side of outsourcing; offers practical advice for improving organizational relationships and performance; looks at important practices such as insourcing; and, provides much needed analysis of the risk and insurance issues involved in outsourcing.