Impacts of Offshoring and Outsourcing on the Domestic Business

An on-going pressure intended for advanced productivity along with the increased profitability in the modern companies combined with the availability of potential low-cost labor in developing countries has triggered lots of companies to consider in offshoring and outsourcing.  The reason behind this is due to those companies have found out a big prospect of suggestively lower-cost labor as a tantalizing invitation to move the business towards offshoring and outsourcing. On the other hand, despite the figure that offshoring and outsourcing could deliver many benefits to the multinational companies, but up till now, these two things are still being criticized by domestic businesses. In fact, there is a controversy that lots of people view offshore and outsourcing to be harmful to the domestic economy. In addition to this, there is also a concern around the quantity of high-paying profession opportunities that are occupied by foreign workers. However, some business persons view this kind of outsourcing as a trade form and highly believe that, in large, both offshoring and outsourcing are a form of trade and they also believe that trade will mostly bring benefits for society. In addition to this, they also state that any type of restriction against this will definitely damage the economy (Driffield, Pereira, & Temouri, 2017).

Positive Impacts

·         Provide great potential to offer long-term benefits for the economy

It appears that the business person who proponent with offshoring and outsourcing are the ones who support free trade. Most of them are economists who approach these two subjects by viewing the long-term impact of the economy. Their main argument has mentioned that international outsourcing has a great potential to offer long-term benefits for the economy. They also believe that both offshoring and outsourcing will able to lower the costs and also inspire competitiveness as well. Furthermore, according to them, the stemming of cost reductions from offshoring and outsourcing will, in the end, lower the prices of the product. Also, the advanced demand and profit which come from offshoring and outsourcing can be utilized for the employees’ benefits in which the employees will able to present more productivity in each hour, and thus, will drive up the actual wages. Moreover, research also has mentioned that 2/3 of the economic profits derived from offshoring into the economy of host countries. The lower prices can see the benefits made for the economy of both products and services, extending market places for the products of the host countries, as well as improving the revenues for the domestic companies (Choi, Ju, Kotabe, Trigeorgis, & Zhang, 2018).

·         Huge opportunities for high-quality jobs availability

Likewise, huge opportunities for high-quality jobs availability have also formed in the host countries. In contrast, there are only a few numbers of developed countries that have a perception that offshoring will be able to deliver significant benefits for the economy in their countries. Another study has highlighted that offshoring and outsourcing could benefit the whole economy of the host countries. In fact, both offshoring and outsourcing have the capability to build up a stronger economic foundation and also improve domestic consumption (Tate, 2017).

·         Motivate the costs of high-tech products down and speed up the implementation of the new technologies

Moreover, this study also has stated that outsourcing has supported to motivate down the costs of high-tech products and also speed up the domestic business to implement the new technologies. Another convincing industry report came from the Global insight has announced that the cost savings along with the utilization of offshore resources will able to lower the inflation, improves productivity, and also lower the interest rate for the host countries. From these views, it is fair to say that offshoring and outsourcing will boost domestic businesses, customer spending, and also escalate economic activities as well. Along with the improvement in production, then the domestic businesses will able to produce more products and services at a minor cost and rise the profits. Additionally, outsourcing will support the companies to put their focus on their main business areas, enter the world’s latest technology at lower costs. This is due to the talented manpower resources will be at affordable costs as well as competitive advantages (Globerman & Vining, 2017).

As a result, there are many developing countries in Asia such as India has been enormously gaining the benefits of the growing offshoring business. In addition to producing the profitable employment for millions of its qualified and talented technical employees, offshoring and outsourcing have projected India to the front position of the IT business which has made this country turn out to be the hub of . In fact, many developed countries such as the United States, Australia, the United Kingdom, and Germany have been targeting India for their outsourcing jobs due to its low-costs business operations, its geographical locations, as well as its ideal Time Zone (Khan, Wang, Arif, Khan, & Idris, 2016).

·         Offshoring attracts the Foreign Direct Investment or FDI

Offshoring business practice has been approved to attract Foreign Direct Investment or FDI in the host countries. In fact, a long-term perception of offshoring is that, it will able to stimulate a healthy and steady world economy, specifically in the evolving market places throughout the Foreign Direct Investment or FDI (Couto, 2018).

Negative Impacts of Offshoring and Outsourcing on the Domestic Business

·         Domestic businesses might face competitive pressures if the  multinational companies recognize the lower costs

Some multinational companies might respond to the changes in the costs of offshoring by shifting from domestic suppliers to foreign suppliers, along with the fact that those domestic businesses might have to face competitive pressures if the multinational companies that doing the business in their industry realize the lower costs. This is aligned with the fact that almost all multinational companies mainly focus more on sourcing inputs and would possibly to substitute between their home productions and abroad. For this reason, there will be tough competition suffered the domestic businesses that aim to supply in their home market industry if the multinational companies will prefer to enter the market with using materials from their home supplier (Gleich, Schmeisser, & Zschoche, 2017).

·         Lower salaries of Offshoring and Outsourcing on the Domestic Business

Another concern that the people of the host countries have regarding this offshoring and outsourcing is around the lower rate of salaries. They have assumed that with the practices of offshoring and outsourcing, they have to compete with the employees in other countries who are quite enthusiast to work in their country for lower salaries that the real citizens get. The employees who belong to the host countries believe that offshoring and outsourcing will force them to settle down and accept the lower salaries or else, they have to lose their jobs and hand over to the foreign workers (Driffield, Pereira, & Temouri, 2017).

·         Offshoring weakened the job creation rate in the host countries

The practices of offshoring have claimed to weaken the job creation rate in the host countries. The reason is due to, in offshoring, there will be a practice of exporting the knowledge of the host companies to other countries. Thus, this might able to weaken the leadership of host countries in the context of innovation and technology. In addition to this, some countries such as the United States have been considered offshoring as a threat which capable to deliver a severe inference for economic competitiveness, as well as the national security of the United States (Driffield, Pereira, & Temouri, 2017).

Conclusion of Offshoring and Outsourcing on the Domestic Business

We can conclude that offshoring and outsourcing are the business practices that deliver both positive and negative impacts for the domestic businesses in the host countries. The positive impacts can be seen from how the offshoring and outsourcing provide great potential to offer the long-term benefits for the economy, offer huge opportunities of high-quality jobs availability, motivate down the costs of high-tech products and speed up the implementation of the new technologies, as well as attract the Foreign Direct Investment or FDI. On the other hand, there are also some negative impacts mentioned from offshoring and outsourcing for domestic businesses in the host countries such as the competitive pressures faced by the domestic businesses if the  multinational companies recognize the lower costs, lower salaries, and also how offshoring has been considered to weaken the job creation rate in the host countries.

However, both the benefits and also drawbacks from the practices of offshoring and outsourcing must be viewed on the basis of each country, as the two countries India and the United States which mentioned above as examples whereas India has found many benefits from offshoring and outsourcing in the country, while the United States assumed that there are more drawbacks offered by the practices of offshoring and outsourcing in the country. Thus, it totally depends on the viewpoint of the host country.