Global Outsourcing of American Products and Services Global outsourcing of American products and services is a trend that is becoming increasingly popular with large corporations. For the same services provided in the United States, corporations are finding quality work in other countries for a fraction of the cost. The country currently at the forefront of this trend is India. This paper will discuss companies that outsource business to foreign countries and also why they are chose to.
The ethical implications to both countries in these situations will also be discussed. Many corporations are experiencing significant cost savings by outsourcing work to developing countries across the globe. Some advantages of global outsourcing are: technically skilled, inexpensive labor; multi-lingual workforce; potential 24/7 global tech support; global prestige; local market access advantages; lower duties and tariffs; low cost delivery; and after sales service. (web) “Developing nations…
benefit by providing local viable careers for their educated populations, attracting foreign investments in their infrastructure, and a general increase in the standard of living.” (web) These advantages make a strong case for outsourcing, but there are many disadvantages that are being discounted or overlooked. Some disadvantages noted by corporations are: political risk; loss of quality control over manufacturing, brand, and support; misrepresentation of the company; IPR concerns; brand management; channel conflict (gray market, territory); stricter labor laws; bribery and kickback pressure; and productivity. (web) There is also the possibility of a negative impact to the American job market. Issues surrounding this impact to our job market are not frequently mentioned during discussions about whether or not to send business overseas. Finally, there are many ethical questions and dilemmas involved with these decisions. These ethical dilemmas affect individuals in America as well as those in the overseas countries.
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In spite of these disadvantages, many major corporations have decided to outsource to foreign countries, indicating that the advantages are worth the risk. Several corporations have already experienced difficult situations associated with working in these developing countries. For example, the Nike Corporation was recently under attack over allegations of poor labor practices in Vietnam. In 1996, workers from the Vietnam plant reported cases of “physical abuse, sexual abuse, salary below minimum wage and debilitating quota systems.” (web) Cooperation between US labor groups and Vietnam organizations was by the intervention of the Nike Corporation. It is alleged that Nike sent a letter to a government official “accusing US labor activists of harboring a secret agenda to change the government in Vietnam.” (web) Many workers’ rights and anti-sweatshop organizations are working together in an attempt to convince Nike Corporation to treat its overseas workers fairly. (web) In 2001, an international human rights group filed a lawsuit against the Exxon Mobil Oil Company.
In this law suit, Exxon Mobil was accused of “actively abetting human rights abuses in Indonesia.” Exxon Mobil hired local army units to protect their natural gas fields in the Aceh province. These military units were supplied with the equipment necessary to build interrogation and torture centers, and dig mass graves. “The case brought on behalf of 11 Achenes e villagers, accuse Exxon Mobil for their involvement in the murder, torture, and sexual abuse of the local population.” (web) Exxon Mobil denies all allegations brought against the corporation. Due to the possible impact of these allegations to the United States, adjudication of this case has been postponed several times. (web) In 2001, Coca Cola was targeted with a relatively similar law suit when trade union leaders in the United States claimed that Coca Cola hired “right-wing death squads to terrorize workers at its Columbian bottling plant.” (web) According to the suit, Coca Cola and Pan America Beverages used these forces to “kill, torture, and kidnap union leaders in Columbia.” (web) Coca Cola, of course, denied all allegations related to this law suit. Several US based companies have also faced allegations of unethical or illegal practices In China: Timberland, Wal-Mart (Kathie Lee Gifford handbags), Huffy, Keds, RCA, Fubu, Deep E, Spiegel, New Balance, and Alpine.
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(web) Most of the allegations surrounding these companies relate to the “sweatshop” environment the employees are forced to work in, and the slave wages they receive for working there. It has also been alleged that police and government officials in areas surrounding these factories are compensated for looking the other way while these companies exploit the workers. The ethical implications of these issues alone are astounding. If even half of the claims are partially true, there is a severe injustice being done. The stories of sweatshops run by American conglomerates are horrific. Local individuals are employed in these factories.
They are paid so little that they cannot afford to live anywhere but the dormitories provided by the company. The dormitories look like concentration camps with many people crammed into small rooms sleeping on small cots that are stuck in every available inch of space. Money is taken from the employee’s paycheck to pay for these living quarters. If the employee wants to eat, they are charged to eat the bland meals served by the company. These people are company employees, yet they are not even treated as well as prisoners. Some of these individuals make as little as 15 cents per hour.
Allowing for the significant difference in the cost of living, the average wage in one of these facilities is still about one-fifth of the amount necessary to afford a meager existence outside the walls of the factory. These individuals are forced to work unreasonable hours and meet impossible quotas. It is not uncommon for a worker in one of these factories to work 10 to 14 hours a day. In these circumstances, there are national laws in place that should protect these workers.
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Unfortunately, those who are supposed to enforce these laws are frequently paid off in return for their silence on these issues. Ethically, the government is responsible to take care of its own people. Since this is not happening, the US based corporations should step up to the plate and take responsibility. These people are human beings, and should be treated with respect. Not only are these conglomerates violating the employees’ most basic human rights, they are breaking the law. They are breaking the laws of our country, and the laws of the countries that house their factories.
It is abominable and embarrassing how these companies are behaving in their quest for the Almighty Dollar. One would think that all of these troubles overseas would be enough to discourage American corporations from outsourcing more work to the overseas markets. However, many corporations are still looking for ways to outsource some facet of their business to a foreign country. Assuredly, it is possible to obtain the benefits of global outsourcing while obeying the law.
The biggest benefit these corporations have found is cost savings. Even while paying a fair wage to employees overseas, there is still a significant savings when compared to paying a fair wage for the same service in the United States. This savings is the primary reason companies choose to farm out work overseas. India is currently the most popular resource available for companies that want to cut costs by outsourcing. It has been referred to as the “back office of the world.” (web) websites such as web help companies weigh the options and view the services offered in the area. The cost of living is considerably lower in India; therefore, the salary of fully qualified employees is also lower.
“According to management consulting firm A. T. Kearney, an American engineer might earn $90, 000 annually, but the same worker in India would make $23, 000. American software developers might earn $50, 000-$75, 000 a year, vs. $7, 000-$10, 000 in India.
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Call center agents are also cheap, earning roughly $2, 300-$3, 200 annually – vs. ten times that in the U. S.” (web) However, it is not all about the money. John McCarthy of Forrester Research stated, “You can get a higher level of employee, somebody who’s got four years of college or potentially even some advanced degree work.” (web) Many companies have already outsourced work to India in a variety of categories: For customer service operations, GE, Capital, American Express, Earthlink, and AOL Time Warner all have centers in India; Back office administration is being done in India for Standard Chartered Bank, Citibank, and HSBC Bank; and Insurance claims adjudication is being processed in India for AXA, Willis, and American Annuity Group. (web) The engineering industry has also seen significant affects from this new outsourcing trend.
The Institute of Electrical and Electronics Engineers – United States of America (IEEE-USA) has spoken out publicly regarding the detrimental effect of outsourcing on their job market. They indicate high levels of unemployment in the Engineering field as a direct result of offshore outsourcing. In a testimony before the United States House of Representatives Committee on Small Business, Ronil Hira, Ph. D. , P. E.
offered some enlightening words about the plight of engineers in America today: “According to the most recent data from the Bureau of Labor Statistics, electrical, electronics, and computer hardware engineers continue to face a higher unemployment rate than the general population, and over double the rate for other managers and professionals. The news for engineering managers is even worse, with an unemployment rate of 8% higher than the national average.”To become an engineering manager, you must have a degree in engineering, and in most cases, an advanced degree. You also have to have several years of practical engineering experience to successfully lead efforts to develop cutting-edge technologies. And then, after investing the time and money needed to prepare for one of the most innovative and vital professions in the country, you are currently more than twice as likely to be unable to find work than other American professionals.” (web) In regard to a solution of re-training, Dr. Hira had this to say: “Re-training and other types of assistance programs are very difficult to implement. Is it realistic to expect an electrical engineer with 20 years of experience to spend four years studying to become a nurse?” (web) Intel Chairman Andrew Grove gave a speech at a Global Tech Summit in October 2003.
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One of his proposals to help solve this problem was to spend more government money on education, ensuring the United States produces the best workers in the world. In response to his suggestion, Dr. Hira commented: “But it should be noted that increased education spending to expand the pool of highly skilled U. S.
scientists and engineers will fail if there are no rewarding or reasonably secure career opportunities in those fields upon graduation.” Representing the IEEE-USA, Dr. Hira made several suggestions regarding how the government can help displaced Americans whose jobs are outsourced offshore. A few suggestions were, “The federal government must begin regularly tracking the volume and nature of the jobs that are moving offshore. Companies should also be required to give adequate notice of their intentions to move work offshore so that the displaced employees can make appropriate plans to minimize the financial hardship. And government support agencies can prepare to provide the necessary transition assistance.” (web) In addition to these suggestions, there were six more which included programs to help displaced high-tech workers, changes in immigration laws and some Free Trade Agreements, and a call for the U.
S. to formulate a “coordinated national strategy designed to sustain its technological leadership and promote job creation in response to the concerted strategies being used by other countries to attract U. S. industries and jobs.” (web) The U. S. based computer software industry is experiencing the overwhelming effects of large amounts of work being done in foreign countries.
Currently, most of the American software outsourcing is done in India. “In 1997-1998, nearly one-third of the Fortune 500 companies outsourced their software development to India.” (web) One Indian based software company named Er on plc is also known as a “software factory.” They are able to produce significant volumes of software and have grown rapidly over the last decade. (web) Some of the same problems experienced with the engineering outsourcing have been experienced in the software industry. Dr. Hira talked about the amount of education and training required to become a qualified engineer; the same can be said of software engineers, developers, and programmers.
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If American companies are farming engineering and software work out to developing countries overseas, young Americans will be less likely to choose these career paths. The less people we have studying these fields, the less qualified America will be to produce these items on our own. Eventually, we could be dependent on overseas production for these items because we have no qualified workers in our own country. “We need to find ways of rewarding domestic organizations for keeping IT activities at home. We need to entice the emerging generations of professional toward careers in technology. And we need to examine our laws…
An internal memo sent to IT employees of Kaiser Permanente, a medical insurance provider in Oakland, CA indicates: “We must operate as a business as well as a caring organization. By gaining access to highly trained professionals at a greatly reduced rate, Kaiser Permanente, can become better stewards of our members’ dollars and get a better return on our investment in technology.” (web) They can get work done in India for $20 as opposed to the $85 it would cost to have it done in America. Cost to the consumer is of utmost importance to a corporation, but at what cost to American workers? Certainly the insured individuals are pleased with the great savings they are receiving on their medical insurance premiums and co-payments, but will that comfort the newly unemployed IT professionals who received this memo? “Those who lose their jobs are realizing that even if the economy rebounds, they are not likely to find the same kind of work again.” (web) These individuals who were important functioning members of the work force yesterday will have to figure out what to do for the rest of their lives tomorrow.
Low morale among the remaining workers is also a primary cause for concern that is being overlooked by corporations who are merely focusing on what is best right now and not for the long term. (web) Representative Dick Gephardt proposes a solution to the financial issues caused by the outsourcing of American industry to developing countries. He states that if he is elected President, he will encourage the World Trade Organization to establish an international minimum wage. He wants to establish the international minimum wage “high enough so that American workers are not competing with slave, sweat-shop and child labor around the world.” (web) This is not the first time such an idea has been proposed, but there are many factors that would be affected by such an undertaking. Mr. Gephardt says “he just wants to end policies that have left millions of Americans suffering economically and workers overseas denied opportunity for a better standard of living.” (web) A variety of legislative proposals to govern work being sent outside the country have been submitted as solutions to this problem, but so far, nothing big is happening in favor of the American worker.
“The Utilitarian mantra ‘The greatest good for the greatest number’s up ports outsourcing because there are greater numbers of people in developing nations benefiting from the trend than people suffering in the United States… But a nation losing its technological prowess should adopt a Teleological view, examine those consequences and determine if another path isn’t more desirable.” (web) At issue is the ethical responsibility of the American Corporation with operations functioning outside of the United States. The government and local officials of countries operating sweatshops do not take the responsibility necessary to protect their employees working in factories making American goods. Does this absolve American businesses of their ethical responsibility to these individuals as human beings? American businesses that are outsourcing work to developing countries should be concerned with the working conditions and salaries of these employees. The individuals working in these plants are severely underpaid, and many of them are living at the work site in sub-standard conditions. These are employees who are manufacturing products that are sold at escalated prices by American corporations.
These employees should be treated with respect, and should receive equitable reimbursement and fair treatment in exchange for their hours of labor. Unfortunately, where business and money are concerned, ethics are frequently overlooked or severely skewed. The only real rule for business is to ensure that no laws are broken while trying to make a profit. The main function of a corporation is to make a profit and pass that profit along to the stockholders. One would think that American corporations would see the value of employing Americans to do the work that is being shipped to other shores for completion.
In the short term, outsourcing is a viable option; American corporations who have outsourced work to India and other countries have saved millions of dollars. This is great news for the stockholders, but what about the other stakeholders? What about the qualified employees who are no longer needed in their current positions? Who will help them recover, re-direct, and re-build their lives? What is going to happen over the next few years when America’s brightest minds are graduating from high school and moving on to college? Why would they choose a field that offers nothing for the future but ambiguity and a great chance of unemployment? If things continue to progress the way they have been with no legislation or interference by the government, the long term implications to our country’s economy and security will be devastating. Reference: Brad Anderson (April, 2003); Weighing the Pros and Cons of Global Outsourcing, web on November 25, 2003 from the World Wide Web. Julia Campbell (June, 2003); How much longer will software be developed in the United States? web Final Paper.
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