Many countries such as the United States have moved many of their business services jobs out of the country and to countries such as India and other interested countries. In most cases, the workers from these countries that have been delegated with these jobs are usually well educated but receive low pay. Although the services are good and the cost is relatively lower or cost-effective, there are various effects on the country’s economy.
An example of a company that has sent jobs overseas is American Express. This is a company that deals with credit card issues. Individuals calling the company to inquire about their credit card balance have been welcomed with a greeting from an Indian on the other side of the line. This is because the company has outsourced its operations to a call center somewhere in India. The United States has used the help of technological advancements to make use of cheap labor from well-trained foreigners. The services that have been outsourced successfully include data processing, the provision of financial information, and airline service provision. Outsourcing has helped such countries to save a lot of money. The consumers in those countries can get the required services at a much lower price.
However, this venture comes at a price. This is because it leads to the loss of white-collar jobs that were intended for the future American population. Different people have different views concerning the viability of this business venture. There are those people who view it as a new way of doing international trade. This is because it has enabled many commodities that were not tradable before to be traded (Quinn, 2000).
There is also the aspect of comparative advantage that tends to support this venture. It argues that everyone can benefit if each country specializes in what it does best. However, many Americans argue that the country is already experiencing increased unemployment, wage stagnation, and slow growth in jobs. They argue that sending jobs abroad will just make things worse for the Americans. The various groups of people who disagree with this form of the trade include the manufacturers and labor unions.
The jobs that are likely to reduce if they are sent overseas include those in computer programming, X-ray reading, and call-center services. Predictions on the number and types of service jobs that are being lost have been made. However, these predictions vary extensively. Some estimates have predicted that 3.3 million jobs in the United States alone will be outsourced to other countries. The jobs that are likely to be affected, in this case, include administrative and office jobs.
The choice of whether to continue or stop sending jobs abroad is a tough one. There are various advantages and disadvantages and a country should be careful to evaluate them. If a country believes that it will benefit the whole country in the long run, then it can continue to send jobs outside. However, if the venture is likely to lead to the loss of jobs that are vital to the current and future generations, then it should think twice.
A manufacturing company requires various components to produce its end products. Such companies may produce these components themselves or may purchase them from external sources. The decision of whether to purchase them or produce them is dependent upon many factors (Armour & Teece, 1978). For example, the company may produce the components if the various items are unavailable in the external market. Otherwise, the company may be forced to purchase them if it cannot produce the parts within the company.
However, the real dilemma occurs when both conditions are available at the same time. This is to means that the components are present in the marketplace and the company can produce them. This calls for proper management because this is a decision that requires business wisdom. A manager will be required to decide whether to produce the components within the organization or buy them from external suppliers. To come up with wise decisions, the manager should perform a comparative cost analysis. This would be necessary to determine which choice or decision is better.
In preparing for cost analysis, it is important to keep in mind that various costs are applicable in case the organization decides to produce the components or parts within the organization’s capacity. These costs include the direct labor cost, direct materials to be used, the additional fixed cost, the opportunity cost due to production, variable overhead, and other additional expenses if required.
On the same note, some costs are applicable if the organization decides to purchase the components. The first cost is the cost of purchasing those components. There is also the transportation cost, which may be in form of shipping or carriage cost. This is when the purchased components need to be transported from the place of origin to the organization. This would vary depending on the distance from the source to the organization in question. It will also vary depending on the mode of transportation chosen, air transport is the fastest but most expensive. Other different costs due to purchasing may also apply.
The manager needs to put down all these costs from both sides and compare them to make wise decisions. He would then decide whether to buy them from external suppliers or produce them in-house.
However, it is important to note that the costs are not the only factors that affect the decision-making process when it comes to such cases. Other various factors affect the decision-making process. Another factor to consider when making such decisions is the quality of the components to be purchased. If the quality of components were lower than that which is required, then purchasing them would have been a bad idea. Another factor to consider is the reliability of suppliers. If the suppliers are not considered reliable, then it is better to choose the alternative than risk going into losses.
The other factor to consider is the possibility of prices changing with time. If the prices of the components have the possibility of an increase in the future, then the company may incur more costs in purchasing them. However, if the prices of the components are set to reduce shortly, the company may opt to purchase them to incur fewer costs than those associated with manufacturing them. Another factor is the opportunity cost to be incurred if the components are manufactured in-house. The company should also understand that if the components were to be purchased, there would be idle capacity. It should have in place the alternative utilities of such capacity.
Therefore, the manager should consider all these factors when making the decision. He would need to compare the costs and benefits of producing the components against buying them. In case the price of buying the components is higher than the cost of producing the components in-house, the manager should consider producing them within the organization. Similarly, if the company has excess capacity that makes the company be in a position to manufacture the components, then it would be better to produce the components. The same decision would be made in case the suppliers are considered not reliable.
When such a decision is made, some assumptions have been made. Firstly, it has been assumed that the organization has the skills and equipment required to produce the components. It is also assumed that the company can have access to the raw materials required to make the components. The organization must also have the ability to meet the standards of its products. The organization that chooses to produce rather than purchase the components is also at risk of losing alternative sources. There is also the risk of lacking design flexibility. The organization will also not have access to technological innovations. In conclusion, it can be said that the decision to either buy or produce components depend on both the quantitative and qualitative factors, and comparative cost analysis needs to be conducted to come up with a wise decision.
Armour, H., & Teece, J. (1978). Organization structure and economic performance: A test of the multidivisional hypothesis. Bell Journal of Economics, 9, 106-122.
Quinn, J. (2000). Outsourcing innovation: The new engine of growth. Sloan Management Review, 41(4), 13-28.