As you know, there are many things that can affect the local or even global economy. From political reasons to simply Elon Musk’s Tweets where he reversed one whole industry in just one or two sentences (if you’re wondering, it already happened many times in the past).
Elon Mask - “Tesla stock price is too high imo”
In the next few days, the stock fell by more than 10 percent.
However, it’s not a secret that outsourcing has a huge impact on global and domestic economies as well. An act of using a workforce that is not in-house has many benefits and advantages. But only if you’re doing it correctly.
Otherwise, you’ll find yourself working with unprofessional and oversea partners you know nothing about.
Like in-house, outsourcing can’t be done without any knowledge or strategy. It’s not a smart idea to make decisions just by having your company's reputation in mind. You need to keep in mind the whole market.
Through the process of outsourcing, you’re improving your competitiveness, building your reputation, and expanding your business, but also risking making some changes in the marketplace.
In this article, we will talk more about those changes (positive and negative) you make in the domestic market using business process outsourcing.
The Negative Impact of Outsourcing on Domestic Job Opportunities
Outsourcing has many benefits, but if there is only one negative side that is unacceptable for you, you won’t practice this business process, right?
That’s why we think it’s good to start with some bad stuff.
One of the biggest impacts of outsourcing on the domestic market is the effect on job opportunities. That includes:
- Loss of jobs to foreign countries
- Lower wages and benefits for domestic workers
- Skill gaps in the domestic workforce market due to outsourcing
Loss of jobs to foreign countries
As you know, the number one thing why businesses use outsourcing processes is to lower their investment but keep efficiency. They’re doing it successfully by outsourcing where workforce costs are much lower.
The result of that situation is obvious - if a company outsources certain tastes to other countries, they are lowering their needs for someone in-house (AKA an actual citizen of that country).
Doing this, the unemployment rate is getting higher. When an in-house employee loses their job, they have less money to spend.
This can result in lower demand for goods and services. Following the domino effect, this is going to result in more job losses. And yes, this is a highly extreme case, but it is not impossible.
Of course, unless your company is the size of Microsoft, Apple, or Amazon, you’re probably not going to make much of a difference on the market.
Lower wages and benefits for domestic workers
Lower wages and benefits for domestic workers who remain employed is a kinda less extreme version of the previous one.
For example, a copywriter expert from the USA could cost about $19–$45 per hour. On the other side, you can find a copywriter from India for about $5 or even less.
So what does this mean? Companies that outsource their operations often pay workers in foreign countries much lower wages than they would pay domestic workers.
Living wages in the USA are much higher than in India, so situations like this put downward pressure on wages in the domestic market. It can also make it harder for businesses to attract and retain talent. That could happen because workers may choose to move to industries or countries where they can earn higher wages.
And, again, there’s the same domino effect. This can result in lower demand for goods and services - meaning more job losses. Once again, an extreme but possible case.
Skill gaps in the domestic workforce market due to outsourcing
When you outsource all the positions you can and find yourself in a situation where you have enough resources to expand your business, what do you do? Yes, you invest.
And what is one of the best ways to invest in your business? That’s right, to improve your employee's skills.
Now, when you have a whole team or part of the team that is outsourced, you want to improve their skills as well. By doing this, you’re creating a skill gap in the domestic workforce market. People from outside the country will be more competitive, be in touch with modern cutting-edge technologies and be first to face every change.
While they’re face-to-face with modern trends and technologies, the domestic workforce market is a few steps back.
Looking at it individually, this is such a small factor for one marketplace of a whole country. However, if suddenly everyone starts using this business process, it will for sure lead to some issues.
The Positive Impact of Outsourcing on Job Opportunities in The Domestic Market
Now that you’re aware of everything negative that you can face with business process outsourcing, it’s time to talk about the positive side of this amazing process.
While outsourcing has negative impacts on domestic job opportunities, it can also have positive impacts (particularly on job opportunities in specific industries).
Here are some positive impacts of outsourcing on job opportunities in the domestic market:
- Increased job opportunities in specialized industries
- Increased demand for domestic goods and services
- Increased entrepreneurship and innovation
Increased job opportunities in specialized industries
If you’re outsourcing only in order to save money, it is really hard to find someone that is both skilled and experienced in a certain industry. That’s why people are a bit skeptical about outsourcing. They often take outsourcing as a process that is efficient only with repetitive and easy tasks.
If you hire people that are off-shore to help you with your boring tasks, your in-house employees can focus more on core functions.
For example, you can outsource people for assisting, doing some back-office tasks, or manufacturing. This way, you’ll create new job opportunities in specialized industries, such as call centers or IT services
As businesses outsource non-core functions, they often rely on specialized companies to perform those functions. This can create new job opportunities for domestic workers in those specialized industries.
Increased demand for domestic goods and services
“Hey, but you said people would have less money, how can they afford more goods and services?” Okay, let’s see this side of the story.
When businesses outsource non-core functions to foreign companies, they save money. If the company has some savings, it will most likely invest in core business tasks and operations. This can lead to increased demand for domestic goods and services.
There’s also a domino effect, similar to the one we already mentioned. Let's take the example of a software development company that outsources its customer support job to a foreign country. By doing so, the company can reduce costs and become more competitive. This can increase demand for its software products and services in the domestic market.
Now, when we have a really competitive software development company in our market, it may attract new customers who may not have considered its products and services before.
Back to the first benefit - if you increase the demand for the company's software products and services in the domestic market, in return, it will create new job opportunities for domestic workers (our outsourced workforce, whatever you prefer).
Increased entrepreneurship and innovation
Really similar principle to the previous one.
When businesses outsource, they often free up resources that can be used to invest in new business ideas or technologies. This can create new business opportunities and job opportunities for domestic workers (and as we mentioned, more needs for domestic goods and services).
For example, a small business that outsources its accounting and payroll functions may use the savings to develop new products or services, work on new technology or get a technical update for some modern trends.
Alright! On the bright side, outsourcing can lead to increased efficiency, specialized skills, and lower costs for businesses. Who doesn't love a good deal, right?
However, on the flip side, outsourcing can also mean lost jobs, lower wages, skill gaps, and small businesses getting crushed by foreign competition.
Whatever you do, you’ll most likely see both sides of outsourcing. The question is - how can you minimize the negative side and maximize the positive one? To make outsourcing work for everyone, we need to be smart about it.
Most importantly, we need to make sure that everyone is playing fair. You can do it by enforcing fair workforce practices for both domestic and foreign workers and keeping an eye on any sneaky tricks that might be going on.In the end, outsourcing is like a roller coaster ride - it has its ups and downs, twists and turns. But with a little bit of careful planning, we can make it work for everyone.