Outsourcing: Reasons Why It Is Not Economical To Outsource

Outsourcing
Name
Institution
Introduction
According to Grossman & Helpman (2005) outsourcing refers to a situation where firms use sub-contractors to carry out a given task instead of hiring employees from within the organization. In the past few years, companies have been outsourcing some of these tasks to subcontractors based that are based in developing countries, mainly because of low labor cost through a process called off-shoring. However, economists have pointed out that outsourcing of labor may some instances turn out to be not economically viable. There is an argument that it is not economically viable to produce in a foreign countries, even in those countries where there is substantially low wages. This argument was proven to be true when companies that are based in the United States shipped their jobs to Mexico and ended up making losses instead.
Reasons Why It Is Not Economical To Outsource
Although outsourcing is good idea for cost cutting, it is not entirely true that it is economically viable. One of the countries that have suffered a great loss as a result of outsourcing through the means of producing in a foreign country is the United States. The primary benefit that a company can drive out of outsourcing is affordable or cheap labor cost. When a company hires internally, it will be forced to include a competitive compensation and benefits so as to recruit and also to keep the employees. The other advantage of outsourcing or producing in a country where there seems to be a cheap labor is that the company will be paying lower wages and in most cases there are no extra benefits like allowances as the case in the united states. Outsourcing is also advantageous in that it will reduce the workload for human resources processes like documentation of hiring details and payroll taxes. However, it would be important to note that there are also shortcomings of outsourcing. Some of those shortcomings would be discussed later in the paper (Prawitt, Sharp & Wood, 2012).
Disadvantages of Outsourcing or Producing in a Foreign Country
According to Prawitt, Sharp & Wood (2012), outsourcing will result into semi-permanent unemployment. This because those jobs that are exported off-shore will never come to the country of origin. This is because as the jobs are taken to the developing countries like India and Mexico, this would lead to no new jobs being created in the exporting countries like the United States. For that matter, most of American countries have been rendered jobless as most jobs have been taken to the foreign countries. The other advantage of outsourcing is the fact that it would lead to the loss of intellectual capital. Initially, outsour...