The Rush To Outsource: The Interplay Of Location And Dislocation

Abstract

In their quest for economic efficiency, American firms are increasingly outsourcing their processes as well as their products.  Companies may outsource operations themselves or use the services of special outsource firms such as contract manufacturers and external service providers (ESPs).  The present study focuses on evolving dynamics within these intermediaries, particularly their accelerated move to offshore operations.  This paper examines the causes and effects of this trend.  The first casualties register in the American workforce.  Though U.S. firms and consumers enjoy some near-term benefit from this job transfer, long-term implications are ominous.  By broadening their geographic locus and hiring local professionals, ESPs unwittingly expedite the emergence of an indigenous labor pool to replace them.  Already domestic providers are encountering local ventures that offer value-added technology in “upstream” areas like architecture, development and integration.  If such firms continue to gain recognition in high-end activity, they may credibly lay claim to the commodity work of product assembly and transaction processes.  American firms are targeting these same areas, especially the nascent realm of business process outsourcing (BPO).  As U.S. outsourcers rush relentlessly “downstream” and transplant their backend support services to overseas locations, they may be outsourcing their own future.  The paper will give three case study examples at each end of this labor food chain.  As domestic examples we include a domestic contract manufacturer and a BPO provider.  Both firms have established an overseas presence.  Lastly, we examine an overseas competitor leveraging its upstream success in high-value IT services to secure a beachhead in BPO.