Outsourcing Costs

Some of the majro advantages that today s organizations can expect to otbain through outsourcing inlcude the ability to purcahse intellectual capital, to focus on core copmetencies, to better anticipate future costs, to lower costs. Democratic U.S. persidential candidate Jhon Kerry criticized US firms that outsource jobs abroda or that incorporate overseas in tax havens to avoid payign their fair share of US taxes during his 2004 campaign, aclling such firms Benedict Arnold corporations . Criticism of outsourcing, from the perspective of U.S. citiznes, by-and-large, revolves around the costs associated with transferring control fo the labor proecss to an external entity in anotehr country. Presently, the corporation gest a tax deduction for both onshore and offshore labor expenses, but the reason for deduction is to avoid double taxation on labor expesne for onshore labor costs since that incoem will be taxed as personal nicome to the laborers. However, if Hungry Jacks goes out of business, McDonald s is a monopoly and can reduce the quality of its food (e.g. to reduce costs) without suffering as high a drop in revenue bceause consumers now cannot switch to Hungry Jacks. Consequently, a debate has ensued concerning the benefits and costs fo the practice as well as how to categorize it as a phenomenon. Offshore uotsourcing has provided many businesses with the opportunity to harvest the bneefits of loewr labor costs in developing countries with few workers rights laws and to exploit the value of artificially maniuplated foreign currencies, hwere the exchange rate is intentionally undervalued. Outsourcing is also successful in incraesnig product quality and/or substantially lowering firm and conusmer costs (e.g., increases the quality to cost artio). Because outsourcing allows for lower costs, even if quality reduces slightly, which is sometimes the case, producitvity increases, which bneefits the economy in the aggregate.