So, What Is Outsourcing?

For decades companies like Dell expanded their businesses by buying other companies. Initially, these companies were related businesses, usually suppliers.

Soon they began buying companies with no relation.

Profit motives and the desire to be the biggest became sufficient motivation for acquisition. Ultimately, these companies began to collapse under the pressure of the acquired companies. Profits started declining and companies began to retract to their "core" businesses.

What Have Companies Learned? 

They discovered that they could get rid of even core functions by hiring them out to companies that could do them more efficiently and, thus, less expensively.

• Payroll processing was subcontracted.
• Shipping was farmed out.
• So was manufacturing.
• Companies were hired to do collections, customer call centers, and employee benefits.

This was called outsourcing.

Specialized companies provided their services to many client companies at lower prices than the client companies could do the work in-house.

Both the service provider and the client profited from this arrangement. Unfortunately, like the building of companies before it, outsourcing got carried away. Companies began outsourcing work to the lowest bidder and didn't care too much about customer satisfaction, except for their own finances.

Outsourcing this work to "foreign" or "offshore" companies, because of lower labor rates in those countries, became known as offshoring.

What Exactly Is Offshoring?

Offshoring has been going on for many years. However, it drew little attention when blue-collar jobs were being lost because of it.

Recently, US-based companies have accelerated this practice of offshoring and have extended its reach to include so called white-collar jobs. Large companies have transferred their call centers to India, for example, where labor rates can be as low as 50-80% lower than US rates.

The offshoring of professional and technical jobs by US companies is done to save them money, but it has raised concerns. As the US struggles to recover from recession, the rate of job creation lags far behind the expected pace.

There may be due to offshoring.