The Impact of Offshoring in the Services Sector

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The researcher presents that in an extensive study by Wilding and Jurado noted that, Poor labor availability or quality within the surveyed organizations is not a considerable driver for outsourcing. The number one driver is cost savings on labor. For a company to realize any benefit from the lower cost of labor, it will require employee displacement. According to Beaumont and Sohal, Outsourcing a function may entail dismissal or redeployment of employees, changes in the work they do or their transfer to the vendor’s employment and its different conditions. All these features impact the employees that are directly affected as well as influencing the attitude of the employees that remain with the firm. Balancing to the lowered cost of labor is the substantial investment that the firm needs to make in the offshore workforce. Training the vendor is a high priority and requires a significant investment to train and retain agents who are skilled and highly motivated. These investments need to evaluate over the long term and not a snapshot in time. One of the risks associated with offshoring is that the firm creates a dependence on the vendor that does the contracting. As the company offshores more of its internal functions the risk grows with it. The direct cost of this risk is the cost of monitoring the vendor which increases as the size of the contract increases. Additional risk comes from long-term offshoring contracts, which may be difficult to break in case of a problem. According to Oh, Gallivan, and Kim, investors weigh the impact of these risks and state, Investors will bid up” the stock prices of client firms that are able to pursue low-risk outsourcing engagements while punishing clients that become entangled in outsourcing contracts that pose a high level of risk. Offshoring will have a negative economic return for the shareholders. Offshoring may be the remedy of last resort for a failing business. According to Lacity and Hirscheim, outsourcing is being used to salvage a losing enterprise. Is it sound business practice to liquidate the IS department to rescue a firm Many shareholders believe so — stock prices systematically rise just after an outsourcing announcement. The remedy for the impact of offshoring on the low skilled segment of the financial services sector may not be realistic. According to Binder, the jobs of call center operators are clearly at risk, while the jobs of most doctors look safe. The glibly-prescribed remedy for the rich countries is, therefore, more education and, more generally, an upskilling of the workforce. However, in a capitalist market system, there is a saturation point where upskilling results in a market glut of these skills and drives the wage downward. Educating away the cost of offshoring would, therefore, be counterproductive.