Outsourcing. It's a big economic boom for some and a big nightmare for others. Outsourcing has been a hot topic of debate among politicians for a long time. Turn on your TV and you'll see many a show, especially "The West Wing" tackle the issue of outsourcing.

So what exactly IS outsourcing?

Simply put, outsourcing is the practice of subcontracting various jobs to outside of the country that you live in.

The first question most people would ask is, "What are the advantages of sending jobs overseas?"

Well, the answer to that question isn't a simple one because it depends on who you're talking about. See, outsourcing is good for some people and bad for others. So just who gains and who loses out?

Let's start with the people who make out. The companies themselves are at the top of the list. Okay, why? Well, the best way to explain this is with an explanation of how business works in the United States as opposed to a country like India.

In the United States companies pay relatively high taxes and wages. The minimum wage in the United States is one of the highest if not THE highest in the whole world. The taxes companies have to pay are also very high. So to manufacture a product, say computers in the United States, would cost a considerable amount of money.

Now, take that same company, set up an office overseas in India where taxes are lower and the wages are lower and have them make the same product and what happens is the product can be manufactured for less and ultimately sold for less. This allows the company to be more competitive in the market place, pay lower wages while doing it and making more money in the long run. The end result is the companies that manufacture items overseas to sell in the United States make more profit.

From the above example it is clear to see that the companies stand to make out very well with outsourcing. Other people who make out well are the consumers. They get to purchase these products for less money. Certainly that has to be a good thing as well, which it is. Plus, you're giving jobs to people outside of the United States who probably wouldn't be working otherwise. So obviously that is good too.

So who ends up getting the short end of this deal?

That would be the American workers who lose their jobs because they have been outsourced overseas. Most people can't just pick themselves up and move to India. And even if they could the wage they would have to live on would be nothing compared to what they were used to. So ultimately what happens is these people lose their jobs and with outsourcing we're sometimes talking about a hundred thousand people suddenly out of work.

The question becomes, what do these people do? For most, there aren't enough jobs available in their field to get a new job. Some do. But what about the rest? Many are too old to be retrained. It's hard to be a 55 year old steel worker and try to get trained in computers and actually get a good job. It isn't that easy.

So the people who suffer are the ones who lose their jobs, and this number is substantial with the amount of outsourcing that goes on.

But it doesn't end there.

See, when these people lose their jobs that means they don't have as much money to spend, usually having to accept a job for less money. So by spending less that affects the companies around them because THEY are now not making as many sales, especially small business owners like restaurant owners who now serve fewer people. So now they make less money, have to lay off people, and so now there are even fewer people spending money. And the cycle goes on and on until eventually we run into a recession.

Some people would say that outsourcing is great. Some people would point to the downside and say that it's bad.

I guess it depends on what side you're on.

-------------------------------------------------------
Michael Russell
Your Independent guide to Outsourcing
-------------------------------------------------------