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Human Capital And Incidence Of Unemployment

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Discuss about the Human Capital and Incidence of Unemployment.
 
 

Answer:

Introduction

Many people accept as true the fact that IT offshore outsourcing is dangerous to the Australian economy because of the many high paying jobs subcontracted in other foreign countries. In addition, a good number believes that offshoring will increase because employees in other countries are able and willing to work for lesser. On the other hand, others believe that offshoring helps companies lessen labour costs and overall business operations as well as allowing businesses to concentrate on their core objectives while external workers are delegated the non-major business operations.  Many business have considered outsourcing as a way to reduce production and operations costs and see it as a way of increasing their competitive advantage across the globe. A study by Garner (2004) predicted that about 345,000 jobs in America would be offshored annually between year 2010 and 2015. About 3.5 million jobs were also predicted to be offshored by 2015 (Ogloblin 2004). An article published by BPO Connect (2015) states that Australian corporations do outsourcing in order to get top talents from across the globe and to achieve business operational effectiveness and efficiency while at the same time maintaining and increasing quality.  The purpose of this paper therefore is to investigate both sides of the argument offshore outsourcing, analyze facts and determine if really offshore outsourcing is dangerous to the profession and the economy and whether it should be severely restricted.

Outsourcing is the process of obtaining business services outside an organization (Amiti & Wei 2005). Outsourcing first started when Britain traded cotton from the United States of America early in the 1900s (Lauren 2011). Thereafter Britain decided to cultivate the cotton in other countries including China and India in order to save on costs and shipment expenses (Lauren 2011). Radical developments in the area of outsourcing occurred during industrial revolution with service areas including engineering, insurance, and architecture being among the few of the many industries that began to outsource (Lauren 2011). With time, outsourcing continued developing and brought cost effective measures of maintaining business operations as the low income generating countries got opportunity to improve on   their skills and got more technical experience. Eventually, many companies globally including Australia believed that outsourcing presented a decent way of reducing business expenses. As time went by, offshore assistance took place.

 

Offshore Outsourcing

Offshore outsourcing refers to the process of contracting organizations or workforces to accomplish company jobs in a foreign country (Wise Geek 2017). The Information Technology Outsourcing (ITO) classification comprises outsourcing a firm's information technology (IT) out of the country.  The Internet has played a major part in subcontracting to other countries and also made it possible to    lease freelance workforces from around the globe world, who accomplish tasks for pointedly low payments (Parliament of Australia 2007). Offshore outsourcing consequently delivers   effective and cheap ways to acquire jobs completed. Australia reports of offshoring jobs to other countries to be increasingly progressing every other day (Parliament of Australia 2007). This reports are such as car parts manufacturing, engineering and information technology (IT), telecommunications and banking (Bamber 2012). A current estimate predicted that about 7100 banking jobs could be replaced by outsourcing in Australia in a span of about two years. Some businesses are reported to be actually considering outsourcing their processes to countries including India, Malaysia and the Philippines.  (Parliament of Australia 2007). Information Technology Offshore outsourcing is detrimental to the profession as employees fail to get a chance to technically grow and develop while the  economy in question continues to fall.  

Opposition to information technology (IT) offshore outsourcing         

One of the many alarms with information technology (IT) offshore outsourcing is the loss of jobs. According to Buck (2015), there have been innumerable cases of high profile Australian businesses being disapproved publically for offshoring jobs such as the Iconic and Bonds.  According to the Bureau of Labor Statistics, a number of mass layoffs that has occurred in the United States corporations can be linked to offshore outsourcing (Drezner 2005).  

The other big risk for a business is failure to cultivate knowledge and understanding within an organization (Weerdt 2006). When a business outsources core IT business operations, the business employees will lack a platform to gain valuable experience on their implementation (Ding 2014). Nowadays almost all business operations are being integrated with emerging and disruptive information technology (IT) technologies which robs the employees the full experience of working and maintain such knowledge even though   only non-major operations are outsourced.  This means that only a little percent of knowledge and skills is retained in a business.  

IT offshoring affects a contracting company economy as it cannot not grow steadily. One of the consequences of outsourcing is that it results in loss of revenues by local and central governments. This results to low tax receipts and reduced donations to Social Security and Medicare. Feil (2002) in an article published by ABC news states that, “The big issue is the cost to the Australian economy of supporting our displaced workers. They have to live and our community has to help them. Those still working will pay more taxes for the Centre link payments to the unemployed, while the offshoring companies increase their profitability “. It is extensively established that offshoring of low level causes interruption for distinct workers. This results in skills mismatch among workers’ services and businesses demands. Supplementary training for evacuated workers will be required to preserve new technologies.

Another factor of offshoring IT is that it erodes leading in technical skills. Information technology (IT) is a field that largely deals with technical skills. Offshoring them therefore means that the domestic country loses to the delegated country on mastering them. According to a research done by New York State Department of Labor (2010), as offshoring becomes increasingly common, external corporations and employees are also becoming more technical oriented.  This results to loss of home IT technical competences and the dependence on overseas sources poses a safety risk for the home country.

 


Offshoring IT operations is sometimes uncertain states New York State Department of Labor research of (2010).  Choosing good and capable foreign workers and partners is complicated because of unfamiliarity. In case a domestic chooses a wrong partner or worker to do their services, the firm will end up going through a loss which will off course affect even their finances through loss. Other times, contracted workers fail to deliver work on time which costs the business even more (Computer Aid Inc. 2004). This may mean that the business will have to start on scratch and may have to start the outsourcing procedure again with other workers and who knows, on maybe other expensive propositions.

Support for information technology (IT) offshore outsourcing

Firstly, proponents of IT offshore outsourcing claim that it enables businesses to save on overhead cost. Major companies’ offshore information technology (IT) in order to tap top IT talents from around the globe (BPO Connect 2017). The goal is to achieve operational efficiency while maintaining or increasing quality. According to William Buck a leading network of business advisors   outsourcing allows access to new talent, a broader skill base, new technology and the added benefit of allowing your business to focus on its core business. But on the other hand, this robs home workers the opportunity to learn and grow as the business also develops.

Secondly IT offshore outsourcing supporters claim that it provides   flexibility. Through outsourcing, businesses are capable of enabling flexibility in performing to build a major business operations (Weerdt 2006).  This is for the reason that, they are no longer   tied up to front and backend office errands  and are able to concentrate on key operations by outsourcing support functions outside the business. As a result, they are now able to find much  more time for working on their core capabilities states BPO connect( 2017) . However on the other hand, home employees lack the opportunity to gain technical experience that is brought about by the IT technologies integrated with business operations.

 


Another reason for offshoring information technology (IT)support is the low entry and running costs.  Administering and maintaining outsourced business operations lowers business expenses (Park 2009). It also gives new business startups a better chance of surviving since they can outsource operations they are otherwise unable to perform in-house such as enterprise resource planning (ERP) systems. In Addition, because the entry cost is low, so will be the risks involved, comparatively low. Nevertheless, companies may never know whether the outsourced operations will be successful or not. Sometimes they are conned by fake contractors and they lose the very amounts of money they are trying to save. 

Fourthly, IT offshore supporters say it provides access to technology. For medium and small Australian companies, outsourcing allows them to access information technology (IT) emerging technologies which they otherwise could not meet the expense of for themselves. Nevertheless, outsourcing can turn out to be expensive for business that realize later into the practice that they may need to add more money for their service to be completed (Overby 2003).  

Lastly, offshore outsourcing allows businesses to get nearer to potential customers and marketing prospects (Overby 2003). Several businesses discover that offshore outsourcing to offshore locations allows them to get closer to customers and be able to market their services and products overseas especially if they have branches in those countries. It also allows them to open up the firm to new business new business opportunities.

 

Conclusion

Offshore outsourcing of IT is dangerous to the profession and the economy and should be severely restricted. First, as stated in the paper it leads to loss of jobs for home IT graduates. It erodes information technology (IT)   technical skills for home workers because they don’t get to utilize them when they are otherwise being conducted in a foreign country. IT Offshore outsourcing robs the   home workers the chance to develop IT experience which weakens the very industry they have trained for. When almost all business outsource IT operations, only a small percentage is left for home workers to acquire experience from. If companies continue offshoring IT skills, home economies will continue to lag while foreign economies will keep growing. IT courses may decline drastically in the universities since outsourcing outside the country will reduce available IT jobs. If countries that contracted foreign IT skills sourced them from within the country, then the   information technology profession would grow tremendously and economies would keep growing thereby improving ensuring national productivity. IT workers would get to apply learned schools and get to develop technical skills in the IT industry.

 

References

Amiti, B, & Wei, S, 2005, Service Offshoring, Productivity and Employment: Evidence from the United States, Working Paper, and International Monetary Fund

Bamber, G, J, 2012, Business Spectator: Pros and cons in offshoring jobs, [Online], Available: https://www.theaustralian.com.au/business/business-spectator/pros-and-cons-in-offshoring-jobs/news-story/6b739876d1f500cf00e161aecc1c41da

BPO Connect, 2015, Outsourcing in Australia: How Huge Has the BPO Industry Grown? [Online], Available: https://bpoconnect.com.au/outsourcing-australia-huge-bpo-industry-grown/ [Accessed April 23 2017].

Computer Aid Inc., 2004, The Challenges of Offshore Outsourcing: Understanding risks and hidden costs, [Online], Available: https://www.compaid.com/caiinternet/ezine/offshorerisks.pdf [Accessed April 22 2017].

Drezner, D, 2005, Essay: Offshore Outsourcing: Perceptions and Misperceptions, [Online], Available: https://www.pbs.org/wnet/wideangle/episodes/1-800-india/essay-offshore-outsourcing-perceptions-and-misperceptions/?p=71 [Accessed April 20 2017].

Ding, P, 2014, Offshore Outsourcing: Its Merits, Its Drawbacks, and Its Future, Business Administration, Colby-Sawyer College, [Online], Available: https://colby-sawyer.edu/assets/pdf/Offshore-Outsourcing.pdf [Accessed April 23 2017].

Feil, M, 2012, Offshoring is a threat to our jobs and livelihoods, [Online], Available: https://www.abc.net.au/news/martin-feil/33326 [Accessed April 22 2017].

Garner, A, 2004, Offshoring in the Service Sector: Economic Impact and Policy Issues

Lauren, B, 2011, Argumentative Essay, [Online], Available: https://aillobre.blogspot.co.ke/p/argumentative-essay-final-copy.html [Accessed April 20 2017].

Overby, S, 2003, The Hidden Costs of Offshore Outsourcing: Moving IT work overseas can be a much more expensive proposition than you may think.[Online ], Available : https://www.cio.com/article/2442089/offshoring/the-hidden-costs-of-offshore-outsourcing.html [ Accessed April 22 2017].

Ogloblin, C, 2004, Global outsourcing of Human Capital and the incidence of unemployment in the United States

Park, Y, 2009, Three essays on offshore outsourcing and labor markets, [Online], Available: https://deepblue.lib.umich.edu/bitstream/handle/2027.42/64792/ejpark_1.pdf?sequence=1 [Accessed April 22 2017.

Parliament of Australia, 2007, The statistical evidence for offshore outsourcing and its impact on the Australian labour force, [online], Available: https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/RP0708/08rp03 [Accessed April 22 2017].

New York State Department of Labor, 2010, The offshore outsourcing of information technology jobs in New York State, [Online], Available: https://www.labor.ny.gov/stats/PDFs/Offshore_Outsourcing_ITJobs_NYS.pdf [Accessed April 22 2017].

William, B, 2015, Will outsourcing be the big business trend of 2016? [Online], Available: https://therealcfo.com/outsourcing-big-business-trend-2016/ [Accessed April 20 2017].

Wise Geek, 2017, What is Offshore Outsourcing? [Online], Available: https://www.wisegeek.com/what-is-offshore-outsourcing.htm [Accessed April 22 2017].

Weerdt, G, 2006, Analyzing the Debate over Offshore Outsourcing in the Service Industry: Is there a Reason for Concern? [Online], Available: https://business.uni.edu/economics/Themes/vanderweerdt.pdf [Accessed April 23 2017].

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