Outsourcing refers to the business practice of hiring outside consultants, freelance workers, or third-party agencies to complete work that might otherwise be handled in-house. The practice of outsourcing is also highly connected to the rise of globalization, free-trade, and the practice of “offshoring,” in which American companies will open facilities and employ laborers in other countries where wage standards, environmental restrictions, and costs of operation are lower. The outsourcing controversy centers on the conflicting interests of corporate profitability and free market capitalism on one side, and, on the other side, concerns over heightened American unemployment and the exploitation of low-wage workers in the developing sphere.
Like most economic issues, outsourcing carries complex implications that cannot be easily unraveled. This is because, like the global economy itself, the practice of outsourcing involves numerous interdependent parties including multinational corporations, local labor markets, and the national economies of independent states in both the developed and developing spheres.
This frames the primary debate around outsourcing in the United States, wherein:
Between these two polarized views are also many more moderate views, owing to the complete permeation of globalization and free trade in the international economy. There are many economists who believe that global free trade and practices such as outsourcing can have damaging effects on labor groups and local economies, but who also view these as natural and necessary byproducts of a pattern which is both inevitable and which provides far-reaching economic benefits on a global scale by opening the developing sphere up to trade opportunities. This underscores just how difficult it is to reconcile the issue of outsourcing in a way which is likely to satisfy the needs of all parties.
The end of World War II brought about a new period in American economic growth, one increasingly dominated by economies of scale. Economies of scale refers to the cost advantages made possible as an organization grows in size and, consequently, finds ways to minimize its cost per unit. This premise drove the American economy in the 1950s and 1960s, and with it, brought about an evolution in corporate structure.
Changes included a growing emphasis on management and an increasing focus on lean efficiency in areas of production and output. Large companies became increasingly interested in the idea of maximizing profits by concentrating investments and energy only in core strengths. This meant that certain administrative and technical functions could be provided by an independent third-party contractor.
According to The Economist, post-War companies increasingly contracted out basic infrastructural functions including payroll, claims processing, manufacturing, call center support, and more. In addition to fueling massive growth in America’s service sector, this period marked a transition toward a greater reliance on external service bureaus–companies providing business services like those noted above in exchange for a fee.
Though it hadn’t yet been coined as such, “outside resourcing” became an increasingly consequential dimension of the corporate structure by the 1980s. As managerial structures grew to the point of bloating, larger companies began to rethink the aspects of their operations that qualified as core strengths. At the start of the decade, the practice centered around incidental business dimensions like manufacturing and payroll services. By the end of the decade, companies were shifting increasingly consequential functions to outside parties.
Outsourcing was coined as a formal business strategy by the end of the decade. Indeed, 1989 saw the landmark announcement by Eastman Kodak that it would from that point forward be outsourcing all of its information technology operations. This move, which outsourced one of Kodak’s core competencies, changed the way that companies viewed their own operational priorities. It was previously believed that a company’s competitive advantage was drawn from its pursuit of core competencies, but Kodak’s decision suggested even greater opportunity in strategic partnership.
Countless companies quickly followed suit.
The shifting corporate structure unfolded before a momentous backdrop. For 50 years, the United States and the Soviet Union locked horns in a series of philosophical, economic, and military battles that touched every continent on the globe. Competing ideologies about governance and statehood kept the globe in a divided state with two superpowers battling one another for influence, authority, and resources.
Then, in 1989, the people of Berlin tore down a wall that had separated the German capital city into two spheres of influence since 1961. This was a key event signaling the end of the Soviet Union, which was fully dissolved by 1991. With its dissolution, a rigidly divided world was rapidly opened to unfettered trade. This meant that the world’s largest economies now had unrestrained access to the developing sphere.
The collapse of the Soviet Union collided with a major technological inflection point. The next decade saw a rapid acceleration in computer technology, particularly with the public and commercial proliferation of the World Wide Web, as well as an infrastructural commitment among the world’s major economies to invest in high-speed fiber optic cable, and the advent of increasingly sophisticated mobile communication devices.
These developments made communication, coordination, financial exchange, and collaboration increasingly possible across the boundaries of time and space. Geographical borders and great distances were no longer impediments to conducting business overseas. The United States embraced the opportunity by partnering on International trade pacts like the Asia-Pacific Economic Cooperation (APEC), North American Free Trade Agreement (NAFTA), and the Dominican Republic-Central American Free Trade Agreement (CAFTA-DR).
Such agreements reduced regulatory barriers for companies seeking economic partnerships overseas. As a consequence, such strategic partnerships emerged at a highly accelerated rate as the decade wore on. An article in the Journal of Theoretical and Applied Economics points to the mid-90s as the point at which outsourcing became a dominant model among corporations.
“According to some estimates,” the article notes, “in 1946 only 20% of the value added of US goods and services from external sources, 50 years later, the proportion has tripled, reaching 60%.”
Using our own backstage Ranking Analytics tools, we’ve compiled a list of the most influential figures on the issue of outsourcing between 1900 and 2020. While our discussion focuses on this issue in the context of the United States, the topic of outsourcing has become inherently global in nature. Therefore, our Rankings produced a list of international influencers that includes notable economists, industrial leaders, and journalists who have spoken and written on, practiced, or criticized outsourcing and/or its impacts on people, communities, and the global economy. The list of influencers here also demonstrates the significant role played by India in proliferating the practice of global outsourcing.
Using our own backstage Ranking Analytics tools, we’ve compiled a list of the most influential books on the topic of outsourcing in the U.S. between 1900 and 2020. This list is composed of texts by economists, business leaders, and social critics who have either championed, critiqued, or objectively examined outsourcing and the closely connected concepts including free trade and globalization.
|1||The Design of Business|
|2||The World Is Flat|
|3||Decline and Fall of the American Programmer|
|5||Concept of the Corporation|
|6||The Other America|
|8||The 4-Hour Workweek|
|9||The Hacker Ethic and the Spirit of the Information Age|
|10||The Coming Insurrection|
As the brief history above demonstrates, outsourcing is not inherently synonymous with offshoring, as this practice can, and frequently does, occur domestically. That said, the continued opening of the global economy to free trade and the rapid evolution in computing and communication technologies over the last three decades have created a clear link between the practices of outsourcing and offshoring, such that the latter is often implied by the former. And like the competitive nature of global free market trade itself, outsourcing is a practice which may simultaneously benefit some parties while working against the interests of others.
For the American economy, outsourcing is frequently recognized as a major force behind both the growth of American corporate enterprises and the contraction of certain domestic job markets. Beginning in the early 1990s, the United States saw a broad swath of its manufacturing jobs outsourced to developing countries with lower wage standards, lax safety standards, lower environmental regulatory burdens, and a host of other features which dramatically lowered production costs.
As the decade wore on, American companies also seized the opportunity for lower wage white collar labor. Information technology, software engineering, and customer support services moved in large numbers to economies like India and Costa Rica, where both wages and the costs of operation were considerably lower than in the United States.
According to The Balance, by 2018, U.S. companies employed roughly 14.4 million workers overseas, with particular concentration in technology, call support, manufacturing, and human resources. The article points to the sheer complexity of the issue in an economy which has reached an irreversible state of globalization. Failing to contract labor in the developing sphere could make U.S. companies, and consequently the U.S. economy, less competitive. However, the outsourcing of jobs from the U.S. economy has the direct impact of causing wider unemployment and underemployment in the U.S.
The result is an ongoing debate over how best to manage the economic gains, and fallout, of outsourcing while finding novel ways to return jobs to the American economy and raise the standards of living and labor projections in the developing sphere.
Our goal in presenting subjects that generate controversy is to provide you with a sense of some of the figures both past and present who have driven debate, produced widely-recognized works of research, literature or art, proliferated their ideas widely, or who are identified directly and publicly with some aspect of this debate. By identifying the researchers, activists, journalists, educators, academics, and other individuals connected with this debate—and by taking a closer look at their work and contributions—we can get a clear but nuanced look at the subject matter. Rather than framing the issue as one side versus the other, we bring various dimensions of the issue into discussion with one another. This will likely include dimensions of the debate that resonate with you, some dimensions that you find repulsive, and some dimensions that might simply reveal a perspective you hadn’t previously considered.
On the subject of outsourcing, this requires us to consider key terms such as “outsourcing” and “offshoring” as well as closely connected concepts such as “globalization,” “economies of scale,” and “free trade.”
Our InfluenceRanking engine gives us the power to scan the academic and public landscape surrounding the outsourcing issue using key terminology to identify consequential influencers. As with any topic that generates public debate and disagreement, this is a subject of great depth and breadth. We do not claim to probe either the bottom of this depth or the borders of this breadth. Instead, we offer you one way to enter into this debate, to identify key players, and through their contributions to the debate, to develop a fuller understanding of the issue and perhaps even a better sense of where you stand.
For a closer look at how our InfluenceRankings work, check out our methodology.
Otherwise get started with a look at the key words we used to explore this subject:
A term first used in 1989, then widely proliferated in the 1990s, “outsourcing” refers to the practice of contracting work from an independent third-party for a function that might otherwise be handled in-house. Primary influencers around this term are economists and industrial leaders who have studied, or levied, the impact of outsourcing within the global economy.
“Globalization” refers to the inexorable process by which the various economies of the world have become economically interdependent. By transcending both political boundaries and geographical limitations, globalization has created an interconnectedness between the economies of the world, and consequently, has opened up opportunities for profitability in the developing sphere. Influencers in this area include economists, sociologists, and professors who have explored the far-reaching effects of this pattern.
“Offshoring” refers to the practice of conducting some aspect of a business operation outside of one’s domestic market. Historically, this phrase has been associated with the offshoring of accounts, funds, and commodities as a way of sheltering these resources from tax laws and other regulatory burdens. However, with the spread of globalization, this term has increasingly come to refer to the practice of establishing operations outside of one’s domestic market, typically for cost-saving reasons. This term, though not synonymous with outsourcing, more often than not implies outsourcing. Other closely related terms include “nearshoring” and “homeshoring.”
While outsourcing refers simply to the act of contracting an outside party to handle a business function, the term has come increasingly to imply the presence of strategic overseas partnerships. The phrase “global outsourcing” produces a list of influencers from both the U.S. and around the world who have either studied the effects of global outsourcing, or who have pioneered the practice.
“Economies of scale” refers to the cost advantages provided by the sheer scale of an organization and its resulting capacity to minimize its cost per unit. This premise drove the American economy in the 1950s and 1960s, and with it, brought about an evolution in corporate structure. Large companies became increasingly interested in the idea of maximizing profits by concentrating investments and energy only in core strengths, an objective which prompted a growing reliance on outsourcing.
“Free Trade” refers to the continued reduction in political and regulatory impediments to trade between nations in both the developing and developed spheres. The reduction of such barriers has ultimately lowered the cost of entry into other economies for companies in the U.S. and, consequently, helped to stimulate a far wider reliance on the practice of global outsourcing.
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