By outsourcing, companies save on labor costs.
Outsourcing trends started with the outsourcing of low-skilled manufacturing labor to low-cost, developing countries. Now, outsourcing is beginning in high-technology manufacturing and high-end services jobs. U.S corporations can hire highly educated and competent workers elsewhere at a fraction of the cost of a U.S. worker of equivalent talent.
Identification
Outsourcing occurs when companies subcontract work to another organization instead of hiring employees to do the work. Most outsourcing work is subcontracted to companies overseas in developing nations, such as China and India, primarily because of the lower cost of labor. The overseas outsourcing phenomenon is also referred to as offshoring, and the newest wave is referred to as knowledge process outsourcing.
Function
Developing nations are slowly increasing their standard of living and wages. But the cost of labor in those countries is still significantly lower than an equivalent worker in the U.S. This also applies to the highly educated and highly skilled laborer in India, such as someone with a master's degree and Ph.D. in engineering, math or science.
Significance
The current outsourcing phenomenon has long-term, negative consequences for the U.S. As U.S. corporations take advantage of the low-cost, highly educated workforce elsewhere, it stands to erode the U.S. competitive advantage in engineering, design, and research and development. This will lead to an ever-decreasing aggregate national standard of living.
