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Trend Analysis: Outsourcing

With companies paying greater attention to costs and bottom lines today than in the past, many are turning to a new paradigm called outsourcing รป contracting with firms or individuals who do not work for the organization and which may, in many instances, be located in developing countries (e.g., India, China, and Southeast Asia) where skilled workers earn a fraction of what their Western counterparts earn (Kirk, 2004). Driven in part by economics and in part by globalization, the outsourcing of many different functions and particularly of functions based on information technology (IT) represents a cost effective strategy that is appealing to many executives.

Whether it is called outsourcing or offshoring, the exodus of many jobs from the United States to locations where costs are reduced is troubling to politicians as well as ordinary American workers (Kirkpatrick, 2004). Economic forecasters suggest, according to one analyst, that as many as 10 million U.S. jobs could be at risk (Kirkpatrick, 2004). However, a recent study by the McKinsey Global Institute, an economics think tank, calculated that for every dollar spent on a business process outsourced to a country such as India, the U.S. economy gains at least $1.2. Kirkpatrick (2004) states that $.58 goes back to the original employer and other money returns home as earnings.

Former Secretary of Labor Robert Reich (in the Clinton administration) argued that the U.S. economy is experiencing a transition in which two major occupational categories will become dominant. These categories are what Reich refers to as symbolic analysts and service sector workers. Symbolic analysts, individuals who identify and solve new problems, are expected to do well as long as they avoid being trapped in routine work or work that is ripe for sending offshore (Keuffel, 2004).

The outsourcing of non-core services is the biggest type of outsourcing activity observed by analysts (Tarsh, 2...

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