Good Example Of Unemployment In Manufacturing Term Paper

Should the government protect American jobs by imposing stiff penalties on companies that transfer jobs offshore by outsourcing or manufacturing in a different country?

Introduction

Outsourcing is a two edged sword. If a company does not use this weapon properly to cut cost and improve quality, then it may lag behind the competitors and may go out of business in no time. On the other hand, outsourcing accounts for the loss of a lot of jobs in the country from where the jobs are outsourced. It is difficult to conclude whether or not outsourcing is bad for a country. However, the USA, which has been outsourcing its manufacturing functions for about 3 decades and services for the last two decades, has definitely begun to feel the heat of excessive outsourcing. At the current state, the main beneficiaries of the outsourcing are the private corporations. Consumers also, to some extent, get the benefit of outsourcing as they are able to buy goods at a cheaper price. However, the worst sufferer is the economy and the labor force. The trade deficit is at all-time high and the unemployment rate continues to be at more than 5.5% (Meyers 2013). The need for the government to create strict policies against outsourcing to protect the US economy from excessive outsourcing and job loss appears to be the only solution left. However, the question is if this step would solve all the problems or not, because the imposition of stiff penalties on companies that outsource jobs offshore may harm the interests of the companies, which, in turn, may bring the economy further down. This essay will discuss outsourcing from the perspective of different stakeholders, including corporations, consumers, labor force, government and economy as a whole before determining if outsourcing had been a boon or curse for the USA.

Background

Outsourcing refers to the practice of transferring jobs to a location where it can be done in a more cost effective way or the product quality of manufacturing is superior. In the early 1980s, outsourcing of jobs from the automobile industry in the USA began to take place not because it was a cheap option, but because the products manufactured were of higher quality. Outsourced jobs went mostly to Japan and Korea. However, because of good government policy and quota based importing restrictions, soon imports reduced and most of the foreign companies started their operation on the US soil itself, and that expanded the job market in the automobile industry and also broadened the automobile market (Chakraborty and Remington 2005). In this case, everyone starting from the government, consumers to automobile companies and labor force benefitted. The same was, however, not true for other industries. For example, before 1979, less than 20% of the textile products were imported. For the year 2013, almost 98% of the textile products sold in the USA were imported from foreign countries, including China, Mexico, Thailand, Taiwan and India (Ding 2014). The main workforce in the US in the apparel and textile industry is constituted of designers, sales people and corporate white collar workers (Levine 2011).

When a country outsources its manufacturing and service jobs, the short time impact is the loss of jobs. 1979 was the year when the number of manufacturing workers was almost 20 million. However, the number shrunk to only 10 million in 2010 despite a huge improvement of the US economy during that period (Ding 2014). It is not possible to estimate correctly how many manufacturing and services job actually got outsourced, but the result was visible in the huge reduction of the labor force. Starting from high tech companies like Apple to shoe companies like Nike, all outsource their manufacturing jobs to China and other low cost economies. This has left millions in the USA jobless. These workers are either learning new skills to get back into the job market or making a huge compromise on the remuneration to get into low-end jobs (Meyers 2013). Statistics show that one in every three persons in the USA is unable to find a job (Ding 2014). Outsourcing is pushing the unemployment rate high despite the US economy being at a decent state.
The proponents of outsourcing suggest that in the short term, it may seem that outsourcing is creating unemployment, but in the medium and long term, it actually begets jobs. Companies that outsource jobs to low-cost countries make more profit by cutting cost and therefore, can sell the products in the domestic market at a lower price. This helps them expand their market as more and more customers are able to buy their products. This in turn helps create more jobs for the company in sales and marketing and other departments (Meyers 2013). Although this argument may be true to some extent, but in most of the cases, the number of manufacturing jobs lost due to outsourcing is pretty higher than the number of jobs created due to market growth. For companies like Boeing, outsourcing caused only job loss in the USA, because through outsourcing Boeing could cut cost but could not expand its operation as it is mostly in a B2B business model (Ding 2014). Therefore, outsourcing has caused more job loss than creation.

Creation of No New Jobs in the Service Sector due to Outsourcing

Unlike manufacturing job outsourcing, outsourcing in service sector simply shifts the job to a cost effective location. As the cost of shifting jobs is almost next to nothing, service sector jobs can be outsourced easily. In the 2000s, almost all technological companies in the USA have outsourced their technological and cost center operations to locations like India and other low cost destinations (Chakraborty and Remington 2005). It is important to understand that in the current economy, manufacturing jobs are only 9% of the total labor market while the service market is pretty bigger in size (Ding 2014). A majority of the Information technology jobs is outsourced. A services job outsourced is actually a job lost in the USA. A few millions service sector jobs have been outsourced in recent times. If those jobs were not outsourced, they alone could have solved the unemployment problem.
The proponents of outsourcing put forth the same argument as was discussed in the previous point, but again the total number of jobs outsourced far outweighs the number of jobs created in the USA due to expanded operation. For example, Accenture, which is one of the largest IT companies in the world, has now grown bigger in size from 80,000 employees in 2002 to almost 210,000 employees in 2014. During the same period, the employee base in the USA has shrunk from 34,000 to 23,000 (Ding 2014).

Reduction of the Cost of Manufacturing by Outsourcing

Cost is the main factor for job outsourcing. For example, it is estimated that the manufacturing cost of a Nike shoe is $20-$30 if produced in the USA, but when the same job is outsourced to China, it can be produced at a production cost of only $5 or less. If Nike does not cut cost outsourcing its manufacturing operations to China, then its competitors will go ahead with the outsourcing and will be able to sell products in the US market at a price quite lower than Nike, and eventually, Nike will run out of the market (Meyers 2013). Therefore, in order to stay competitive, outsourcing is important. Also, by outsourcing, the companies are able to offer products at a price lower than before. A study was conducted among the US consumers to find out how the label ‘made in the USA’ appeals to an average middle class buyer, and it was found out that more than half of the respondents confessed to prefer buying cheap products than made in the USA products (Levine 2011). It seems that cost has a huge impact on the choice of the consumers, and to keep the jobs in USA, one needs to find some way to reduce cost here.
Critics of cost based outsourcing reject the idea. They feel that although outsourcing may bring immediate profit to the organization, but in the long run, the quality suffers. For example, most of the problems faced by Boeing for its Dreamliner were caused by its outsourced parts (Ding 2014). The cost of manufacturing may have reduced, but due to quality problems, the total cost increases for many products.

Quality

Quality is an important point in the debate on outsourcing. Many examples are cited to show that outsourcing jobs to other locations reduces the quality of the product. For example, some years back, the toys of Fisher Price the job of which is outsourced to China were found to contain a high level of mercury (Ding 2014). Not only Fisher Price toys, this argument holds true for many products. However, this cannot be considered as a standard practice as still the products made in outsourced locations are far superior in quality than the home country made products. For instance, high-end Nike shoes, iPhone and iPads, Gucci high-end apparel and Michael Korrs designer clothes are all manufactured and shipped from outsourced locations (Meyers 2013). In fact, in some cases, the quality cannot be matched by the counterparts in the USA and other developed countries. Therefore, quality argument for putting an end to outsourcing may not hold ground in the discussion.

High-End Jobs vs Low-End Jobs

Many argue that there is no need to panic. Low-end jobs should be outsourced to other countries as they create more problems for the society and economy. For example, Foxconn China employees recently have staged multiple strikes and disrupted operations for several weeks as they were not paid properly. The US also experienced several strikes and plant agitations from the low-end workers after the Second World War and till the 1980s. After most of the low-end jobs were outsourced, the US has rarely seen any plant agitation or operation disruption (Chakraborty and Remington 2005). Therefore, outsourcing low-end jobs is actually not a bad thing. However, high-end jobs like research and development, design and other corporate functions should not be outsourced.
It can be argued that when all the manufacturing operations are outsourced to other countries for a long period of time, keeping the R&D and design divisions contained within the USA becomes difficult. Although apparel and footwear industry are doing that for some time now, but for heavy manufacturing operations, it is important for the R&D division to remain in close proximity to the manufacturing units. Therefore, if outsourcing remains prevalent, slowly high-end design, R&D and other jobs too will be outsourced (Chakraborty and Remington 2005). For example, already GE’s high-end jobs like airplane rotor design and engine design and testing are shifted to India.

Globalization

In the present era of globalization, it is difficult to stay isolated. If the USA imposes trade restrictions on other countries, then others may also do the same. For example, if the USA places trade restrictions to create a barrier for the entry of Chinese products into the US soil to cut down on outsourcing practices and keep jobs onshore, then China may not allow the US companies to sell their products in China. For example, if Chinese handsets are not allowed in the USA, then Apple will be forced to produce its products in the USA. However, in that case, China may not allow Apple to sell its products in the Chinese market (Meyers 2013). In such situation, the manufacturing cost of Apple products will go up, and if Apple decides to pass on that cost to the customers’ shoulder, then the product cost will spike up, which will translate into less number of people having the affordability to buy Apple products. Also, Apple will lose its access to the lucrative Chinese market that has a huge potential for growth (Ding 2014). Therefore, in this age of globalization, outsourcing jobs cannot be stopped, because companies will anyhow do that to survive in a fiercely competitive market.

Immigration Making Matters Worse

As per the report published by the Bureau of Labor Statistics, there will be more than 7.7 million job additions in the area of healthcare, construction and technology in the USA in the coming years ("Economic News” 2013). There is a big skill gap both in the healthcare and technology resources. As many of these industry functions are now already outsourced, finding resources within the USA has become very difficult. Therefore, companies are bringing resources from outside, and this alien manpower base is staying and working in the USA. This is also an indirect effect of outsourcing. Outsourcing not only takes away jobs directly, but also creates knowledge void in that area. Even if new jobs are created in that area, in the future, due to the lack of knowledge and labor force, companies are forced to employ people from outside and bring those resources to fulfill the skill gap. Microsoft, for example, has applied to the federal government to approve skilled visas to certain employees so that it can bring skilled employees from outside to the USA and fill up the skill shortage in the software development space ("Economic News” 2013).

Corporate Profit versus Social Responsibility

American corporations are more interested in immediate profit and are less concerned about long term issues and social problems. For example, Apple being a US company could have kept its manufacturing base in the US for iPhone, iPad and MacBook productions, but instead it has chosen to outsource its manufacturing division to China because of low cost so that Apple’s profitability remains high. In fact, due to its outsourced operation, Apple makes almost $15 billion as profit every quarter, which is more than any other organization in the world. Apple could have still made profit with its US operations, but they chose outsourcing as they were looking at greater amount of immediate profit. For them as well as many other companies, the only responsibility they fulfill is that of their shareholders.

Conclusion

Outsourcing is inevitable in this global era. Outsourcing is required as it helps organizations remain competitive in the market. Also, by outsourcing, American organizations like Apple, Walmart, McDonalds and Nike have become global leaders in their respective industry sectors. However, outsourcing of jobs certainly is causing huge problems in the US labor market. It not only has short term impacts like job loss and unemployment, but also has long term effects including skill void, increased immigration and outsourcing of high-end jobs.

Work Cited

"Economic News Release". U.S. Bureau of Labor Statistics (BLS). 19 Dec. 2013. Web. 2 Jan 2015 <http://www.bls.gov/news.release/ecopro.nr0.htm>
Chakraborty, Kalyan and Remington, William. "Impact of Offshore Outsourcing of IT services on the US Economy". West Texas A&M University. 2005. Web. 2 Jan 2015 <http://swer.wtamu.edu/sites/default/files/Data/73-94-69-258-1-PB.pdf>
Levine, Linda. "Offshoring (or Offshore Outsourcing) and Job Loss Among U.S. Workers". Congressional Research Service. 21 Jan 2011. Web. 2 Jan 2015 <http://forbes.house.gov/uploadedfiles/crs_-_offshoring_and_job_loss_among_u_s__workers.pdf>
Ding, Pengxiang. "Offshore Outsourcing: Its Merits, Its Drawbacks, and Its Future". Colby-Sawyer College. 2014. Web. 2 Jan 2015 <http://www.colby-sawyer.edu/assets/pdf/Offshore-Outsourcing.pdf>
Meyers, Bud. "Offshoring from Sea to Shining Sea". The Economic Populist. 29 Jul 2013. Web. 2 Jan 2015 <http://www.economicpopulist.org/content/offshoring-sea-shining-sea>