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Insourcing, Research Paper Example

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Words: 1058

Research Paper

One of the benefits of insourcing from India is that not only companies get access to low-cost, high-skilled workers but there are also other local benefits such as more favorable attitude of local communities towards trade and globalization (Ismail & Rajan, 2012). In addition, communication and speed is improved since the workers work on-site and can be contacted immediately should any problems occur. The drawback is that the costs go up because workers in U.S. have to be paid more, in accordance with local laws as compared to workers in India. The benefit of insourcing from China, especially manufacturing jobs is that the companies save on logistics costs and also avoid labor availability challenges that sometimes plague certain areas in China especially coastal areas. In addition, the quality also usually improves because the companies can better monitor the quality processes. The drawback is that the production costs go up though some companies believe the customers are willing to pay premium for ‘Made in USA’ products (PTI, 2012). The benefit of insourcing from Brazil is that Brazil is relatively quite close geographically as compared to India and China and, thus, insourcing from Brazil is more practical option when a company may be looking to temporary fill certain positions. The drawback of this approach is that English is not widely spoken in Brazil so there may be communication problems.

One reason companies outsource to India is access to low-cost skilled labor, especially in the areas of information system and information technology. The benefit to this approach is that it helps companies keep their wage expenses low. Even though both India and China graduate huge number of professionals, India has the advantage of a large number of English speaking graduates (Oza & Hill, 2007). The drawback to this approach is that it may result in decline of American students who pursue degrees in areas such as Computer Science due to lower job prospects and could make it difficult for American companies to meet local needs.

Another reason companies outsource to India is flexibility in operations because not only full time employees are expensive to hire and often require training but laying them off is also often a painful and expensive process. The benefit of this approach is that companies are able to respond to changing economic climate more quickly because contract labor doesn’t come with employment commitments and is also quite cheaper on the average (Anderson, 2007). The shortcoming of this approach is that the quality of work delivered may vary from project to project.

China is another popular outsourcing destination alongside India. One of the reasons companies outsource to China is its developed infrastructure as well as low labor costs which makes it an ideal manufacturing hub. The benefit to this approach is that companies can get high quality products at low costs and sell them at attractive margins in America. The downside to this approach is that the companies may have little control over the quality control systems as well as the labor practices and news of labor exploitation may significantly harm companies’ reputation even if they had no role in it.

The companies also outsource to China because of weak pollution laws (Dyer, 2008). The benefit to this approach is that they save costs and resources by not having to comply with strict environmental laws in the U.S. The downside to this approach is that such steps could lead to negative publicity and turn off customers.

The companies outsource to Brazil because of cultural similarities. The benefit of this reason is that it makes it easier to do business with companies in Brazil but the downside to this approach is that despite greater cultural similarities than India, the number of English speakers continue to be low (Horowitz, 2003).

The companies may also be attracted to Brazil for closer geographic proximity. The benefit of this reason is that it is both cheaper and quicker to travel but the downside to this approach is that the savings in travel and communications may not be enough to offset the cost advantage India or China enjoy over Brazil (Tinti, 2009).

One of the companies to take work back to the U.S. is Dell. Dell moved its call centers back to the U.S. from India in 2004. The reasons explained by the company were poor customer service by the call center in Bangalore, India that failed to effectively deal with the volume of calls due to popularity of certain Dell’s products. While Dell’s products were growing in popularity, its customer service reputation was going the opposite way (McCue, 2004).

Another company to move operations back to the U.S. is GE. GE moved back production of energy-efficient water heater from China to U.S. in 2010 because rising wages and shipping costs have risen in China while wages has stayed relatively flat in the U.S. or even fallen. Even addition, GE also got state and local tax credits as well as federal incentives for moving manufacturing operations back to the U.S. (Davidson, 2010).

Companies pursue outsourcing for a variety of reasons including cost advantages, operational flexibility, and cultural similarities. But these advantages may also disappear because greater demand also push up the costs and moreover, the cost advantages may not be worth the decline in quality which could prompt companies to move back some or all of the operations to their home country.

References

Anderson, T. (2007, October 16). Seven Reasons Why Outsourcing to India is Good for Your Business. Retrieved November 20, 2012, from http://www.cio.com/article/146451/Seven_Reasons_Why_Outsourcing_to_India_is_Good_for_Your_Business?page=2&taxonomyId=3197

Davidson, P. (2010, August 6). Some manufacturing heads back to USA. Retrieved November 20, 2012, from http://usatoday30.usatoday.com/money/economy/2010-08-06-manufacturing04_CV_N.htm

Dyer, M. (2008). The Effects of U.S. Outsourcing to China. Retrieved November 20, 2012, from http://www.lsu.edu/faculty/jwither/Essays/Immigration_Trade/Dyer_Essay.html

Horowitz, A. S. (2003, September 15). Brazil. Retrieved November 20, 2012, from http://www.computerworld.com/s/article/84869/Brazil

Ismail, A., & Rajan, S. (2012, February 26). How the Tata Group, Infosys, Wipro & Essar are the biggest job creators in the US. Retrieved November 21, 2012, from http://articles.economictimes.indiatimes.com/2012-02-26/news/31101596_1_indian-companies-job-losses-investments/2

McCue, A. (2004, March 31). For Dell, Indian call center failure a lesson. Retrieved November 20, 2012, from http://news.cnet.com/2100-1001_3-5182611.html

Oza, A., & Hill, K. L. (2007). Outsourcing to India: Advantage or Disadvantage? Retrieved November 20, 2012, from http://www.sbaer.uca.edu/research/allied/2007/Information%20and%20Management%20Sciences/4.pdf

PTI. (2012, January 12). US companies begin insourcing jobs from China, Japan & Mexico; India could be next. Retrieved November 21, 2012, from http://articles.economictimes.indiatimes.com/2012-01-12/news/30616823_1_assembly-plant-galaxe-solutions-new-jobs

Tinti, G. (2009, January 7). Offshore Outsourcing: The Near-Shore Advantage Begins with Business Hours. Retrieved November 20, 2012, from http://www.cio.com/article/474414/Offshore_Outsourcing_The_Near_Shore_Advantage_Begins_with_Business_Hours

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