This paper presents discussion on outsourcing, especially to low cost-labor countries, which has had substantial growth in the recent years. Although there have been a number of enormous economic issues that have happened over the past few years, job outsourcing to foreign nation has become the most outstanding. It has become a habit of multinational corporations and well-established businesses to actively shift jobs from the industrialized nations such as the United States, Germany, the UK, and all over the globe searching to find the cheapest labor possible. However, corporations began hiding their details following the 2004 popular uproar against the practice (Cullen & Lacity, 2014).
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Nonetheless, these corporations continued with expansion of their offshoring activities, which, subsequently, removed issues surrounding outsourcing out of the headlines. Even though the idea appears straight forward, companies require deciding which work sites and suppliers to migrate out of high-cost nations like the United States or Germany, to low-cost nations like Malaysia, Mexico or Hungary. This means that sometimes it can be a tricky undertaking identifying the right opportunities within the supply chain. These considerations entail materials manufacturing to engineering to research labor to materials supply.
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In regard to the trade-offs between inputs for the productivity improvements, most empirical studies on production concentrate their attention on value added labor and capital inputs without considering the effect of ancillary processed materials inputs meant for processing inputs (labor and capital) (Vonderembse White, 2013). Even when there is much recognition regarding such substitution, substitution in the context of input categories like – foreign versus domestic materials or unskilled versus skilled labor – is not permissible. In this case, the expectation would be that firms make allocation of their labor and capital inputs to activities, which can earn them a comparative advantage with respect to competitors. This would, then, allow them to outsource the remainder suppliers from outside. It is, however, essential to note that the relative advantages associated with these options would be influenced by trade, market and technological conditions. Import competition; for instance, from low labor costs nations might result into foreign outsourcing thereby decreasing the demand for laborers who have fewer skills. Companies may also proceed to reduce costs through outsourcing lower productivity process or specialized tasks to other companies within the domestic domain (Sheehan & Cooper, 2011). It is significant to note that such behavior would affect the competitiveness and productivity of outsourcing companies. This implies that the interpretation measures of productivity and social welfare will be affected together with policy consequences. Outsourcing; for instance, would lead to decreased employment and the whole situation would result into enhanced measured labor productivity. This can be misleading if it can be interpreted to imply welfare enhancement.
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There are various advantages and disadvantages of global sourcing versus producing in the U.S. In regard to advantages, global sourcing allows access to cheap manpower. Companies relocate labor intensive processes to developing countries where they can access cheap labour. The second advantage of global sourcing is scalability. Sourcing is the most effective approach of assembling a team of professionals with adequate experience to test different solutions irrespective of their magnitudes (Vonderembse White, 2013). Other advantages include: access to typical skills; access to raw materials; and increased productivity. In terms of disadvantage, the sourcing company would experience quality problems. The focus on the expected profit would limit the company’s capacity to make appropriate changes in the rapidly changing business environment. Other disadvantages include job loss and loss of intellectual exceptionality. On the other, hand, the advantages of producing in the U.S. include creation of employment, maintenance of improved quality, and retention of intellectual uniqueness. The disadvantage include reduced scalability, decrease in productivity, reduced access to idiosyncratic skills, and reduced access to raw materials.
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There are various U.S. products and services produced in low-labor cost countries such as AT&T Corporation manufacturing various cell phones such as Galaxy S6 and iPhone 6 in China. Describing Galaxy S6 as an example, the product comes in glass back and metal frame design. Some of the enhanced features include 3 GB of RAM, the quad-HD display, touch-style fingerprint sensor, and 5-megapixel front camera (Schott, & Cimino, 2015). It supports magnetic card stimulation and NFC payment methods. AT&T Corporation enjoys cheap labor, and lower material costs in China. In considering recommendation of a low-cost labor nation in regard to inputs, trade-offs, and going global advantages, China continues being recommended as the cheap labor nation. Besides, both India and China have recently become the huge market for various U.S. products such as iPhone 6 and Galaxy S6. In this regard, labor is the most essential input that qualifies trade off with land or capital. This is because of the desirable cost leadership advantages associated with it. Some of the going global advantages include increased growth, access to distinct skills and increased number of more satisfied customers.
In conclusion, considering the trade-offs between inputs for the productivity improvements, most empirical studies on production concentrate their attention on value added labor and capital inputs without considering the effect of ancillary processed materials inputs meant for processing inputs (labor and capital). Some advantages of global sourcing include: access to typical skills; access to raw materials; and increased productivity. Disadvantages, in this regard, include job loss and loss of intellectual exceptionality.
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