The Social Implications of OffShore Outsourcing in the Knowledge Network: Diversity in Decline By Design(?).

March 8, 2023

In a modern multicultural society and business environment, workforce diversity is regarded as a valued asset, and many corporations strive to project a commitment to inclusion and equity within their organizational culture. For the last 30 years, organizations have sought and grappled with ways to expand opportunities to underrepresented groups. Years later, the problem only shows an intermittent pattern of wax and wane. Infact, in researching materials for this article, research into causes of this ongoing social dilemma the writer notes virtually a complete cease of resources examining the crucial forces impeding on progress in corporate diversity expansion after 2012.

Some three decades later, an entire generation of ethnic minorities remain underrepresented in many professional, administrative and, particularly, senior leadership level positions in a variety of fields of which they have sufficient education and training. It is clear that vested organizations must thoroughly evaluate more than the obvious ‘diversity’ barriers in the workplace.

They must now examine conflicting gender or cultural norms, lack of advocates, role models and sponsors, stereotyping and issues surrounding work-life integration, to name a few, but explore other internal and external confounding elements, as well.

As the global industrial economy continues to rebound and workforces re-configure to meet new labor demands, companies can capitalize on this opportunity to look for innovative ways to improve diversity, equity and inclusion engagement. Moreover, this can be an ideal period to examine whether certain operational policies, practices and growth strategies have unintentional bias built into them.

Offshore Outsourcing as an Operational Strategy

Offshore outsourcing or offshoring has become familiar in the workforce planning vernacular evermore within the last two decades. The terms pertain to the practice of largely US companies contracting overseas based personnel for traditionally inhouse operational functions. Outsourced human capital could consist of both high-level knowledge workers such as computer programmers, system designers, accountants human resources managers, and rank and file workers assigned to textile and auto assembly line positions, for example.

Offshoring from US manufacturers to service providers is controversial and has been subject to scrutiny by policy makers due to its potential impact on local job markets and lack thereof, particularly for underemployed populations.

Data from the U.S. Department of Commerce revealed that the leading ‘U.S. multinational corporations that employ a fifth of all American workers… cut their work forces in the U.S. by 2.9 million during the 2000s while increasing employment overseas by 2.4 million’.

A significant consensus lists financial sustenance as the key impetus of workforce offshoring. Full Scale Developers compiled a more comprehensive list of some of the key economic benefits identified by companies for relocating business operations to offshore locations. These include:

• Lower labor costs

Companies state that is more affordable for companies in the United States to pay foreign employees who have lower salaries compared to employees within the country.  Employers propose offshoring will make a good business practice for business owners if offshore workers can do the same type of work as their American counterparts for much lower labor costs. This is especially important for labor-intensive businesses such as manufacturing and service jobs where reducing labor expenses can help in reducing costs of operations, increasing revenues, and maximizing income.

• Cost savings 

Aside from salaries, employers pay less for other types of compensation and benefits in offshore countries compared to the United States.  Moreover, employers can save from lower costs in Medicare taxes, Social Security benefits, health insurance, workers’ compensation, and other costs associated with employees based in the U.S. It is reported that costs of utilities, infrastructure and materials are also lower in developing countries like the Philippines, India, and other countries that are cost-effective for labor-intensive industries such as manufacturing and call centers.

• Tax benefits and financial incentives

A number of offshoring destinations such as the Philippines have been found to offer tax holidays, financial incentives, and fewer business regulations to attract foreign direct investments and stimulate growth in industries such as offshoring and business process outsourcing. Those tax holidays and financial incentives make it more affordable for companies to relocate to offshoring destinations.

• Returning earnings back to the U.S.

A company earning more revenues from tax benefits, financial incentives, and other cost savings from offshoring can achieve its goal of more income and maximum profits. In turn, it can return those revenues to its US operations by making additional wages and benefits for local employees, investing in research and development, returning the profits to investors and shareholders, and paying state and federal taxes.

• 24/7 operations.

Companies can cover time zones not handled by their operations through offshore subsidiaries or by hiring offshore service providers that offer 24/7 operations. For business process offshoring, the local team in the U.S. can turn over unfinished tasks to the offshore team so there is continuous work on a project until it is finished.

• Availability of skilled labor

According to Full Scale, offshoring locations such as the Philippines and India have a vast pool of skilled labor from which U.S. companies can recruit employees for their offshoring operations. These countries have a rich pool of talent in terms of English language proficiency, college degree earners, and the skills of their workforce.

In modern day industries, outsourcing of labor abroad is viewed as a product of the globalization of markets and businesses’ appeal to cut costs to maximize profits.

• ‘If workers in countries such as India or the Philippines will do the same job for a fraction of the price that domestic labor demands, those jobs will be sent sent abroad’ — Tangalin, 2023

According to some economic purists, offshoring is a quintessential business strategy conducive to allocating labor to its most efficient use. Ideally, it should cause a ripple down effect whereby consumers from lowered production costs passed on to them by buyers, on to shareholders and other stakeholders who will enjoy increased profit margins.  

It is argued that without outsourcing, the US may not have maintained its status as an economic superpower as the world became an integrated global marketplace (Hayes, 2021). Though not specified this brings to mind certain dishonorable and inhumane practices. While some of these practices proved economic empowering for the US, they had devasting and irreversible social consequences.

In the last decade, it is reported that foreign countries’ costs have been steadily increasing compared to the United States.  According to a  survey from Duke’s Fuqua School of Business, nearly three-quarters of respondents indicated labor cost savings as one of the three most important drivers leading to overseas outsourcing. This was twice the rate of response for any other option.

With regard to workforce diversity, equity and inclusion (DEI) initiatives, offshore outsourcing gainful inhouse positions could contribute to furthering the displacement of underrepresented human capital in a variety of fields. Therefore, employers sincerely vested in DEI must realistically consider the social implications of their operational framework on a holistic scale.

Long-Term Outlook for Outsourcing Knowledge Workers in the US Terrain

Economic strategists ask, what happens when there are no more cheap labor regions to exploit? Will companies turn to artificial intelligence and machine learning technology to further the displacement of ethnic America based knowledge workers to accomodate exaggerated shareholder aspirations or seize the occasion to establish a disruptive model for humanistic social corporate responsibility?

References

Barron, J. M., & Gartner, J. (2019). Outsourcing in the US: Research overview and agenda. Journal of Management, 45(6), 2393-2424. https://doi.org/10.1177/0149206318815542

Cavusgil, S. T., & Knight, G. (2015). The born global firm: An entrepreneurial and capabilities perspective on early and rapid internationalization. Journal of International Business Studies, 46(1), 3-16. https://doi.org/10.1057/jibs.2014.54

Director, S. N. A., Nadeau, S., Director, A., Shepherd Director, M., Shepherd, M., Director, Director, E. L. A., Lofgren, E., Zhavoronkova, M., Madland, D., Schweitzer, J., Glass, A., Bleiweis, R., Spitzer, E., Almeida, B., & Edmund, M. (2023, March 6). 5 facts about overseas outsourcing. Center for American Progress. Retrieved March 8, 2023, from https://www.americanprogress.org/article/5-facts-about-overseas-outsourcing/ 

Hayes, A. (2022, July 13). The unintended consequences of outsourcing. Investopedia. Retrieved March 8, 2023, from https://www.investopedia.com/articles/personal-finance/082815/unintended-consequences-outsourcing.asp 

Kim, S. Y., & Han, K. (2018). The ethical implications of outsourcing: A stakeholder perspective. Journal of Business Ethics, 149(3), 551-563. https://doi.org/10.1007/s10551-016-3029-7

Tangalin, C. (2023, January 11). Pros and cons of offshoring. Full Scale. Retrieved March 8, 2023, from https://fullscale.io/blog/pros-and-cons-of-offshoring/ 

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