Controversial Topic: Outsourcing

Like most economic issues, outsourcing is a controversial topic that carries complex implications. 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 outsourcing debate topic in the United States, wherein:

• Supporters of outsourcing, including large-scale corporations, third-party “service bureau” companies, industry lobby groups, and pro-business elected officials, argue that outsourcing helps maximize profitability for businesses, creates jobs in the developing sphere, and results in global economic growth; whereas
• Opponents of outsourcing, including American labor groups, advocates for international workers’ rights, environmental groups, and some economists, argue that this practice results in the loss of American jobs, damage to the American labor economy, exploitation of low-wage workers in developing economies, and environmental abuses on a global scale.

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.

A Brief History of the Issue

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.

Outside Resourcing (1980s)

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 Collapse of the Soviet Union (1988-1991)

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.

High Speed Internet, Free Trade and Globalization (The 1990s)

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%.”

Top Ten Historical Influencers in the Outsourcing Debate

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.

Top Ten Most Influential Books About 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.

The Current Controversy

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.

A Quick Overview of Our Method

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:

Key Terms

• Outsourcing
• Globalization
• Offshoring
• Global Outsourcing
• Economies of Scale
• Free Trade

Outsourcing

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.

Influencers

• Leslie P. Willcocks is a Professor of Technology Work and Globalization and governor of the Information Systems and Innovation Group at the London School of Economics. He is considered an authority in the field of Outsourcing and recipient of the PricewaterhouseCoopers/Michael Corbett Associates World Outsourcing Achievement Award for his contribution to the field./li>
• Mahesh Shahdadpuri is an Indian entrepreneur and founder of TASC Outsourcing, a staffing company in the Middle East headquartered in Dubai. He is the CEO of TASC Outsourcing and a director on the board of the Nikai group of companies. Over the years, he has received many accolades, including a Forbes ranking as one of the Top 100 Indian Business Owners in the Arab World, the Sheikh Khalifa Excellence Award 2016, and Innovator of the Year 2016 by Entrepreneur Middle East among others.
• Jonathan Jacob Hirtle is an investment industry executive who pioneered the outsourced Chief Investment Officer model. For his OCIO innovations, Hirtle has been dubbed the “Oracle of Outsource.”
• Cinda A. Hallman became noteworthy for her work in Y2K prior to coining the phrase “outsource the outsourcing process;” both of these were at Du Pont, prior to her nomination to The Research Board.
• Laura Anne Dickinson is the Oswald Symister Colclough Research Professor of Law at George Washington University School of Law. She is the author of the 2011 book Outsourcing War and Peace, which discusses the current trend in the United States towards privatization of the military.
• Elizabeth Jane Iorns is a New Zealand scientist, entrepreneur and researcher, and the founder and CEO of Science Exchange, a Silicon Valley startup which operates a platform to allow scientists to outsource their research to scientific institutions such as university facilities or commercial contract research organizations. Science Exchange has received considerable media attention since it first launched in August 2011, particularly following its participation in the Y Combinator incubator program in Summer 2011 and its role in launching the Reproducibility Initiative in Summer 2012. Iorns has been profiled in many leading publications including Nature, FastCompany, the San Francisco Business Times, and Xconomy. Iorns lives in Palo Alto, California, where Science Exchange is now headquartered.

Globalization

“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.

Influencers

• Dani Rodrik is the Ford Foundation Professor of International Political Economy at the John F. Kennedy School of Government at Harvard University. He earned a B.A. from Harvard University and an MPA and Ph.D from Princeton University. With his focus on global markets, equality, and social stability, he has produced numerous notable works, including Has Globalization Gone Too Far?, considered to be one of the most important books about economics to be published in the 1990s. He has identified three tensions that exist in globalization efforts - equality, conflict with norms, and social safety nets. The system of globalization, he feels, can cause many of the problems that it is trying to solve, as free market economies can only participate fully to the extent that they have the economic and political means to do so. This inequity exposes fundamental differences between nations - differences that either help or harm a nation’s chances of success in a global economy.
• Saskia Sassen is Robert S. Lynd Professor of Sociology at Columbia University and Centennial Visiting Professor for the London School of Economics. Born in 1947 in The Hague, Netherlands, she grew up in Buenos Aires, Argentina. Her father was a Nazi journalist and a member of the Waffen SS. She earned her M.A. and Ph.D from the University of Notre Dame and an additional master’s degree in philosophy from the University of Poitiers. A recognized expert in urban sociology, Sassen is credited with coining the term, “global city” used to describe a population center integral to a larger global economic network. Weaving variables of inequality, gendering, and digitization through her study of urban politics, she has investigated the phenomena of transnational human migration, globalization, immigration, and denationalization. She has written numerous books, such as The Global City: New York, London, Tokyo, Losing Control? Sovereignty in an Age of Globalization, and Expulsions: Brutality and Complexity in the Global Economy.
• Charles Derber is an American Professor of Sociology at Boston College. Derber’s work focuses on the crises of capitalism, globalization, corporate power, American militarism, the culture of hegemony, the climate crisis, and the new peace, and global justice movements. Derber is persuaded that the overwhelming economic and cultural power of global corporations, increasingly melded with the political and military hegemonic power of the American government and the crises of global capitalism and global climate change, are together an integrated crisis that is now the pre-eminent social issue of the 21st century, and that a new vision and political movement is needed.

Offshoring

“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.”

Influencers

• Ronen Palan is an Israeli-born economist and Professor of International Political Economy in the Department of International Politics at the City University London. He has many books and articles on the political economy of the state, globalisation and state strategies, and evolutionary approaches to the study of international relations. Ronen Palan was of the founding editors of the Review of International Political Economy. Palan’s major empirical work is the area of offshore financial centres and tax havens. Palan has argued that offshore finance “is certainly not the sole cause for the decline of the nation-state, but it must be seen as an important contributing factor to the decline.”
• Aruna Jayanthi is an Indian businesswoman and managing director of Capgemini’s Asia Pacific and Latin America business unit. Previously, she held roles as their CEO of Business Services and CEO of Capgemini India. Jayanthi joined Capgemini in 2000 and was part of the core team that initiated and set up the firm’s offshore capabilities in India, eventually heading up their global outsourcing services. Jayanthi has been chairperson of the board of governors of National Institute of Technology Calicut since November 2014.
• Charles Raymond Plott is an American economist. He currently is Edward S. Harkness Professor of Economics and Political Science at the California Institute of Technology, Director, Laboratory for Experimental Economics and Political Science, and a pioneer in the field of experimental economics. His research is focused on the basic principles of process performance and the use of those principles in the design of new, decentralized processes to solve complex problems. Applications are found in mechanisms for allocating complex items such as the markets for pollution permits in Southern California, the FCC auction of licenses for Personal Communication Systems, the auctions for electric power in California, the allocation of landing rights at the major U.S. airports, access of private trains to public railway tracks, access to natural gas pipelines, the allocation of licenses for offshore aquaculture sites, the combinatorial sale of fleets of vehicles, and the application of complex procurements. Plott has contributed extensively to the development and application of a laboratory experimental methodology in the fields of economics and political science.

Global Outsourcing

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.

Influencers

• Aruna Jayanthi is an Indian businesswoman and managing director of Capgemini’s Asia Pacific and Latin America business unit. Previously, she held roles as their CEO of Business Services and CEO of Capgemini India. Jayanthi joined Capgemini in 2000 and was part of the core team that initiated and set up the firm’s offshore capabilities in India, eventually heading up their global outsourcing services. Jayanthi has been chairperson of the board of governors of National Institute of Technology Calicut since November 2014.
• Kenneth Darryl Tuchman is an American billionaire who is the founder of global outsourcing company TeleTech. In 2013, Teletech had operations in 14 countries. Nine of these countries provide services for onshore clients (the U.S., Australia, Brazil, Germany, Ghana, Ireland, New Zealand, South Africa and the United Kingdom); the other six countries provide services for offshore clients (Argentina, Canada, Costa Rica, India, Mexico, and the Philippines) On January 9, 2018, TeleTech officially changed its name to TTEC.
• Jamie Peck is the Managing Editor of Environment and Planning A: Economy and Space, Canada Research Chair in Urban & Regional Political Economy, and Professor of Geography at the University of British Columbia. He earned a B.A. and Ph.D. in geography from the University of Manchester. Peck considers himself an institutional political economist, and focuses his research on labor regulation, economic geography, and statecraft. His most recent books are Offshore: Exploring the Worlds of Global Outsourcing, Fast Policy: Experimental Statecraft at the Thresholds of Neoliberalism, and Constructions of Neoliberal Reason.

Economies of Scale

“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.

Influencers

• Paul Krugman is one of the most highly respected and well-known economists in the world. He is a professor emeritus of the Woodrow Wilson School of Princeton University, a distinguished professor of the Graduate Center Economics Ph.D program and scholar at the Luxembourg Income Study Center, both at City University of New York. Krugman’s work in examining international trade patterns and the global distribution of economic activity and resources was awarded the Nobel Memorial Prize in Economic Sciences in 2008. His academic work has focused on economic geography, international finance and trade, and currency fluctuations. As a columnist for The New York Times, he has written countless articles on nearly every imaginable economics topic, including taxation, income distribution, and liquidity traps. He is credited with pioneering a new trade theory and a new economic geography through his work.
• Danny Quah is Li Ka Shing Professor in Economics at the Lee Kuan Yew School of Public Policy, National University of Singapore. Quah’s work includes contributions to the fields of economic growth, development economics, monetary economics, macroeconometrics, and the weightless economy. Quah is best known for his research on estimation techniques for disentangling the effects of different disturbances on economies, for his studies on economic growth and convergence across nation states, and for his analyses of large-scale shifts in the global economy. Quah became the dean of the Lee Kuan Yew School of Public Policy, beginning his term on 1 May 2018.
• Karen Rosel Polenske is an American regional economist specialized in energy, environmental, and infrastructure analyses, and input-output accounts and models, particularly at the subnational scale. She is currently the Peter de Florez Professor of Regional Political Economy at the Massachusetts Institute of Technology.

Free Trade

“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.

Influencers

• Edmund Walter Sim is an international trade attorney and regular editorial contributor to the Singapore Straits Times and OpinionAsia on trade and diplomacy in ASEAN, as well as editing the ASEAN Economic Community blog. A partner at Appleton Luff, he has participated in over 180 trade remedy proceedings in both traditional jurisdictions such as the U.S., EU, Canada and Australia, as well as non-traditional jurisdictions such as Korea, China, Turkey, Indonesia, South Africa, India, Russia, the Philippines, Malaysia, Thailand, and Singapore. Sim has provided assistance to government trade ministries in Asia. Sim has participated in dispute resolution proceedings under the World Trade Organization, General Agreement on Tariffs and Trade, the North American Free Trade Agreement, and the U.S.-Canada Free Trade Agreement. Sim represented companies in dealing with the economic integration of the ASEAN economies through the ASEAN Free Trade Agreement and other programs and teaches a course on this subject at the National University of Singapore law school.
• Alejandro Jara was a Deputy Director-General of the World Trade Organization. He served in this position from 2005 to 2013. His career began in 1976 when he joined the Foreign Service of Chile to primarily focus on international economic relations. From 1979 to 1984, he served in the Delegation of Chile to the General Agreement on Tariffs and Trade and was seconded to the Economic System for Latin America in Caracas as Coordinator for Trade Policy Affairs. He was appointed Director for Bilateral Economic Affairs in 1993 and Director for Multilateral Economic Affairs in 1994. From 1996 to 1997, he was also Chile’s senior official to the Asia-Pacific Economic Cooperation and Deputy Chief Negotiator for the Chile-Canada Free Trade Agreement and Chile-Mexico Free Trade Agreement. In 1999, he was designated Director General for International Economic Relations. He was appointed in 2000 as Ambassador, Permanent Representative of Chile to the World Trade Organization in Geneva. From 2000 to 2005 he held various diplomatic and ministerial positions, including Chairperson of the Committee on Trade and Environment of the WTO in 2001 and Chairman of the Special Session of the Council for Trade in Services in 2002. He’s written a variety of papers on international trade.
• Gordon Paul Wonnacott was the coauthor of Free Trade Between The United States And Canada: The Potential Economic Effects, a study that helped to revive the Canadian debate over free trade and set the background for the Canada-United States Free Trade Agreement of 1988. This agreement was the major issue in the 1988 Canadian federal election, and came into effect after the Conservative victory in that election. Paul Wonnacott was also the author of two textbooks, and served as a member of the Council of Economic Advisers under President George H.W. Bush from 1991 until January of 1993.

Influential Organizations Involved in the Outsourcing Controversy

If you would like to study this topic in more depth, check out these key organizations...

Proponents and Providers of Outsourcing

• The Outsourcing Institute
• Infosys
• Accenture

Labor Groups Opposed to Outsourcing

• United Steelworkers of America
• AFL-CIO
• American Engineering Association

Interested in building toward a career on the front lines of the outsourcing debate? As you can see, there are many different avenues into this far-reaching issue. Use our Custom College Ranking to find:

• The Most Influential Economics Degrees
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