Offshore Outsourcing: A Dangerous Proposition

In today’s global economy people are able to compete against companies from various nations and parts of the world. Consumers are now given the choice to buy foreign or domestic depending on their preference and companies are striving to provide quality products at an affordable rate. Often times they look to offshore outsourcing to cut down on expenses thus increasing their bottom-line. For those who do not know, offshore outsourcing is defined as, the practice of hiring an external organization to perform some business functions in a country other than the one where the products or services are actually developed or manufactured. Offshore outsourcing has many advantages including lower costs, improved profits, streamlined cash flows and a variety of others (“Advantages and Disadvantages of Outsourcing”). On paper outsourcing may seem like a slam dunk, but before looking at the bottom-line take into account all of the negatives as well as the positives.

There is no debate that offshore outsourcing has its advantages. However, with that being said there are also countless disadvantages as well as other issues to consider when deciding to implement offshore outsourcing in your business. In an article for QuickBooks Angie Mohr discusses five of the top disadvantages of offshore outsourcing. Quality control, confidentiality, flexibility, branding and liability are all areas she focused on in her article “5 Reasons Not to Outsource Jobs”. Mohr made numerous compelling arguments against outsourcing but the one that resonated with me the most was her argument about quality control.

In the article she discusses that it does not matter where the people you hire are from, you are responsible for the quality of the work they do/provide and if they are outside of your nation it can be very difficult to monitor and even costly to check their work (Mohr). Mohr later discusses the effect this can have on the business doing the outsourcing and describes how lack of quality can severely affect the reputation of the company and negatively impact growth/profitability of the company. A 2008 study conducted by Dr. Whitaker of Richmond University, Dr. Krishnan of the University of Michigan, and Dr. Fornell of the University of Michigan found that offshore outsourcing (specifically in customer service) has a negative effect on a company’s American Consumer Satisfaction Index (ACSI). The ACSI was created by the National Quality Research center at the University of Michigan and measures customer satisfaction. “ASCI scores tend to move in the same direction as companies’ stock prices… the average ACSI decline we found at companies outsourcing customer service is associated with a drop of roughly 1% to 5% in a company’s market capitalizations (Whitaker, Krishnan and Fornell). That drop can be a steep price to pay and even tough to overcome in some cases.

One of the biggest risks of offshore outsourcing is the reputation of the company. When outsourcing jobs, jobs are being taken away from other workers often the same workers who buy your product. When Hershey decided to move main operations from Hershey, PA to Mexico they had a lot of negative publicity thrown their way in the local news and media outlets. Many people were calling for a boycott of Hersey products saying that, “The town of Hershey may not only have this heartening decrease in employment soon, but it will lose its rich heritage. The heritage that is a product of the town’s namesake Milton S. Hershey.” (Meyers). I urge companies planning on outsourcing jobs abroad to consider all of the repercussions of their decision. The bottom-line of a company should not be the only determining factor, the communities and the people they are displacing should also have the opportunity to discuss their concerns or apprehensions. Too often in business decisions are made out to be cut and dry, without looking at the larger picture. Yes, the duty of the company is to increase profits and return on the investment of the investors, but at what cost?

In the day and age of modern business companies are striving to provide products with increasing quality but lower prices. They accomplish this feat by outsourcing jobs to foreign, less developed nations. However, in some cases they do more harm than good. Small towns that rely on the big centrally located company are uprooted and devastated, people lose jobs and even the quality of service/product provided can decrease. Offshore outsourcing is not the greatest evil in our world but I encourage companies to take a closer look before pulling the trigger. There are other ways to lower costs and improve revenue than outsourcing to foreign countries. Continuing to build in your home nation not only shows support for the people you serve but encourages loyalty a measure that the bottom-line cannot predict/show.