American Companies and Why they Outsource
There has been a lot of controversy in recent years over American companies that outsource parts of their business. Let’s face it, companies outsource because that’s what is best for their business. Since China entered the World Trade Organization in 2001, a variety of manufacturing industries, including computer and electronic parts, textiles and apparel, and furniture started outsourcing.
In an article published in Forbes by Merrill Matthews, a resident scholar with the Institute for Policy Innovation in Dallas, Texas said, “Economists refer to this process of turning to those who can produce a product or service at a lower marginal cost as ‘comparative advantage,’ and it’s the key ingredient to an efficient and productive economy.”
If a company outsources jobs to another country, that’s off-shoring. However, companies can also build stores or factories in foreign countries and hire the people who work there. That’s also off-shoring, but it isn’t necessarily outsourcing. Those are company employees, both American and foreign. “From an economics standpoint, it makes no difference whether or not that outsourcing is with a person or firm in the same town, state or country. Economics is unconcerned with national borders; politics, on the other hand, is very concerned, and especially in this economic climate,” Matthews explained.
Some U.S. companies produce their products overseas in order to take advantage of lower labor costs — the comparative advantage.
Hundreds of major American corporations are shipping thousands of jobs overseas, according to an analysis of Trade Adjustment Assistance (TAA) filings made to the U.S.
Here are some of the companies outsourcing to Asia:
- Joy Global
- Phillips Lighting Company’s
- Hewlett Packard
- Charles Inc.
- PDM Bridge
- Tyco Electronics TE Connectivity/ ICT Division
- Sensata Technologies
- Sealed Air Corp.
- Omega Engineering
- Atlas-Copco Drilling Solutions LLC / Dynapac
- Boeing Co.
- General Motors Powertrain
- Kingston Technology
- Hasbro Inc.
- Keithley Instruments,
- Cameroon PCS,
- Wonik Quartz International Corp.
Outsourcing can be a controversial topic, as you have different views among consumers, investors, business owners, and even politicians. Indeed, a large percentage of Americans are concerned about jobs shifting from the United States to other countries. And they don’t put much stock into whether those jobs stay within a particular company or are contracted to a third party when the ultimate outcome is jobs lost at home.
However for business owners and economists, it’s much easier to see the benefits of outsourcing.