Typically, the method of hiring new employees to fill positions left by former employers or those caused by employees is comprehensive. This is done to ensure that the employer receives the best employee possible, one with the expertise, qualifications, and experience to fulfill the demands of the new job. It is up to the boss, by recruiting agents and managers, to determine where to find workers to fulfill different duties that arise during the course of business. Employers have traditionally been known to look for labor and expertise to handle new activities outside of the business. They believed that they were likely to get more experienced individuals at lower prices compared to when existing employees are assigned the new task. This started to change in the new century when employers realised that existing employers had better potential of performing new tasks, especially those that involve decision-making. A significant number of employers in then contemporary business world will prefer assigning existing employee to new tasks as they come up. This essay argues that outsourcing has detrimental effects on the functioning of an organization and the economy at large. This argument is supported by explaining the demerits of outsourcing and weighing them against the merits of insourcing. Outsourcing has slowed down the growth and development of the economy at the firm, industry and national level.
The Effect of Outsourcing on Job Security and Career development of Existing Employees
Some employers choose to part ways with employees when they deem their skills as being obsolete to the work demands. In other cases, existing employees are kept aside while others from outside the organization perform the new tasks. This disadvantages the existing employee because they did not anticipate the turn of events. If they could have been informed on time, they could take necessary steps to prepare for the new roles. These may include updating their relevant skills through means such as engaging in seminars and training and enrolling for further studies. Employers whose policies are geared towards insourcing always keep their employees updated about likely changes in the labour market and new demands at the workplace. Such employers ensure that their employees attend seminars and conferences in their area of specialization in order to improve their skills and have updated information on new job demands. Some employers have also started programs to support the employees’ interest in further studies by availing time and resources for them to enrol in various academic programs. Therefore, policies bend towards insourcing guarantee career and educational growth of the employee and helps them in securing their jobs (Gilley & Rasheed, 2000). However, employers who are inclined towards outsourcing are likely to drop the existing employees at any time or keep them at bay while outsiders perform roles within the organization. It tends to slow down economic growth because individuals lose opportunities to earn income. This reduces their purchasing power. This means that the demand for goods and services manufactured in the country is cut. This cut results in the reduction of returns to investments in form of land, labour, capital and entrepreneurship invested in the production of these goods and services within the economy thus slowing down growth. Individuals who work under employers with outsourcing tendencies are usually uncertain on whether they will be given an opportunity to work on the next task or not. They are demotivated in the course of their work in the organization because they do not have the security of tenure. This will in turn negatively affect productivity, loyalty and organizational citizenship.
The Risks Associated with Outsourcing
Outsourcing of human resource is riskier than allocating the tasks to existing employees. When an employer gives their employee a task, they are sure about worker’s capabilities to perform it. The employer understands both the weaknesses and strengths of this employee. They are therefore sure that they will be able to deliver good results to a certain extent in the new task. However, outsourcing is a great risk because the employer does not understand the capabilities and shortcomings of the new worker (Gilley & Rasheed, 2000). Individuals tend to exhibit positive attributes when looking for jobs but change after they are assigned the responsibilities. Therefore, an employer who outsources may not be able to familiarise with all the attributes of the new employee during the hiring and recruitment process. The new employee may turn to be worse than what the employer thought resulting in inconveniences at the workplace. In other cases, employers outsource through tendering. In such cases, the individuals who perform tasks do not take direct instructions from them but rather the companies that won the tenders. In such cases, the results may not meet the expectations of the business owner (Savitz, 2013).
Another major case where outsourcing falls short of the employer’s expectations is labor costs. Organizations run on tight budgets to ensure that they remain profitable and sustainable. More often, companies find out that services provided by outsourced human resource are more expensive than expected (Kosnik et al., 2006). Outsourcing segments the company into many divisions that are hard to sustain financially. In the end, the investor or business owner may find himself/herself with many financial obligations (Gilley & Rasheed, 2000). The fact that the quality of work is not guaranteed means that the investor may not draw enough financial benefits to meet the extended costs of labor. The organization thus becomes unsustainable and risks insolvency.
In addition to risk reduction, insourcing saves the employer the energy and resources spent in recruitment and training. When employees who fill vacant positions are insourced, there is no much demand for training and assimilation. On the other hand, there must be proper training for outsourced employees to ensure that they are familiar with their job demands and organizational culture. In some instances, outsourced labor force continues performing the tasks without acquainting themselves with the existing organizational culture. These individuals may not also be familiar with goals, missions and aspirations of the employer (Gilley & Rasheed, 2000). This undermines that ability of the organization to have a united workforce that can work towards the achievement of a solitary goal.
Factors Behind the Shift from Outsourcing to Insourcing
A review of factors that necessitate the shift from outsourcing to insourcing plans reveals different reasons and perspectives into the issue. Companies have to forecast both the merits and demerits of the two courses of action. The decision has both ethical and political implications. In the US for instance, the culture of outsourcing saw many manufacturing companies turn to China and other Asian countries (Moore, 2010). This is because these countries had cheap labour. This made the companies dismiss many employers in their plants because most of the tasks were now being fulfilled by outsourced labour. This caught the attention of the political elite who noted that many Americans were now becoming unemployment. Therefore, political pressure has been mounting on employers to cut the amount of work that they delegate to Asian manufacturers.
There have been allegations that one of the key reasons why labour outsourced from Asia is cheaper than in the west is poor pay and working conditions of the workers. In addition, there have been claims that the contracted companies utilize juvenile labour. For instance, Apple, a major mobile phone manufacturing company that is based in the US admitted that companies handed tenders to manufacture its products were using underage children as labour (Moore, 2010). This saw authorities and human rights activists put pressure on Apple and other American companies to take over the manufacture of their own products. There were also reports that Tin used in manufacturing electronics in countries such as Singapore, Malaysia, Philippines and Thailand was being mined under very poor conditions. This put the lives of the workers at risk. Those in charge of the process were also flouting many labour laws. The fact that the entity that outsources labour does not have control over the performance of each procedure in the course of production has raised ethical concerns. This has seen pressure mount on many US companies to cut outsourcing and instead focus on developing their own manufacturing capabilities to meet the needs of their customers.
The trend where companies in the west outsource labour force from foreign countries has created market inefficiencies. As noted above, most manufacturing companies outsource the services of Asian entities. This creates inefficiencies due to the distance between the two. It also results in additional costs that would not have been incurred if the products were manufactured locally. For instance, goods meant for the home market have to be transported back to the country leading to an increase in costs due to an increased demand for logistical services. The time spent moving the good between the manufacturer and the final consumers also increases the risks associated with outsourcing (Kosnik et al., 2006).
There have been counterarguments that companies that outsource do not meet the extended costs of labour such as additional benefits for employees, vacations, health insurance and bonuses. However, it is important to note that companies that take tenders to perform certain tasks meet these costs and have to make profit. At the same time, these companies do not bear as many risks as the one that gives out the contract. With all the other factors held constant, the reality is that outsourcing is costlier compared to using existing employees to perform the new tasks.
Outsourcing is a culture that developed among employers who did not investigate its real implications on their employees and themselves. Employers felt that by obtaining labour services from outside the organization, they were saving on labor costs. However, the entities from which the services are outsourced have to pay their employees while at the same time make profits to remain sustainable. This means that entities that outsourced pay more compared to when they would have used their own labor force. Outsourcing is also risky because the employer is not guaranteed that the new labor force will perform the tasks satisfactorily. It is therefore advisable that business organizations focus on developing their own labor force to perform tasks.
Gilley, K. M., & Rasheed, A. (2000). Making more by doing less: an analysis of outsourcing and its effects on firm performance. Journal of management, 26(4), 763-790.
Kosnik, T., Wong-MingJi, D. J., & Hoover, K. (2006). Outsourcing vs insourcing in the human resource supply chain: A comparison of five generic models. Personnel Review, 35(6), 671-684.
Moore, M. (2010). Apple admits using child labour. The Telegraph UK, 27 Feb 2010. Retrieved from http://www.telegraph.co.uk/technology/apple/7330986/Apple-admits-using-child-labour.html.
Savitz, E. (2013). Why Some U.S. Companies Are Giving Up On Outsourcing. Forbes, January 16, 2013. Retrieved from Forbes Website: