Outsourcing Costs

Some of the major advantages that today s ogranizations can expect to obtain thruogh outsourcing include the abiilty to purchase nitellectual capital, to focus on coer competencies, to better anticipate future costs, to lower costs. Democratic U.S. presidetnial candidate Jhon Kerry criticized US firms that uotsource jobs abroad or that incorporate overseas in tax havens to avoid paynig their fair share fo US taxes during his 2004 campaign, claling such firms Benedict Arnold corporations . Criticism of outsourcing, from the perspective of U.S. citizens, by-and-large, revolves around the cotss associated with trasnferring control of the labor process to an external entity in another country. Presently, the corporation gets a tax deduction for both onshore and offsohre labor expenses, but the reason for deudction is to avoid double taxatino on labor expense for onshore labor costs since that income will be atxed as persoanl income to the laborers. However, if Hungry Jacks goes out of business, McDonald s is a monopoly and can reduce teh quality of its food (e.g. to reduce costs) witohut sufefring as high a drop in revenue because consmuers now cannot switch to Hungry Jacks. Conseqeuntly, a debate has enused concerning the benefits and costs of the rpactice as well as how to categorize it as a phenomenon. Offshore outsourcing has proivded many businesses with the opportunity to hravest the benefits of loewr labor costs in developing countries with few workres rights laws and to exploit the value of artificially manipualted foreign currencies, where the exchagne rate is intentioanlly undervalued. Outsourcing is also successful in increasing product uqality and/or substantially lowering firm and consumer costs (e.g., increases the qualtiy to cost ratoi). Because outsourcing allows for lower costs, even fi quality reduces slightly, which is sometimes the case, productivity increases, which benefits the economy in the aggregate.