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Skills Gap Why is Your Company Outsourcing?

By definition outsourcing is—to obtain goods or services from an outside foreign supplier, especially in place of an internal source.

So what are the reasons outsourcing has become such a huge trend in North America?

I think the biggest reason is due to the cost savings. In Canada and the US it costs an average of $40,000 – $100,000 to employ an IT specialist. If we outsource the same job to India, that contract only costs a company $4,000 – $23,000. Due to the nature of a contract you wouldn’t have to provide that employee with any sort of medical, benefits, or office space.

In North America we typically outsource services such as Manufacturing, Management Processes, Communications and Customer Service, Security, IT, Accounting and Engineering.

Over the years we’ve experienced the impact this has had on the Manufacturing industry. The simultaneous industrialization of developing countries and deindustrialization of North America. The more work we send overseas, the cheaper manufacturing becomes, but what impact does this cost saving initiative have on our long term economy? As we build other countries’ economies, we are crashing our own!

Due to the rising unemployment rates, and a dwindling skilled work force, our taxes are being driven higher and our economy is feeling the crunch. Yet we still continue. The government cannot fight these issues on their own, we have to take a stand to keep work and manufacturing in our own economy! Once a skill has moved offshore it is extremely difficult to regain. There will be fewer people with that skill, and even fewer people willing to learn that skill due to lack of opportunities. The biggest complaint I hear in the Manufacturing and Sawmill industries is that we cannot find enough skilled workers, or even people to train.

Now, not only are we slowly crippling our own economy, we are relying on foreign relations for our goods and services. What happens if that country chooses, or can no longer provide those goods and services? For example, if you were importing parts manufactured in Japan when the tsunami hit, you suddenly couldn’t get those parts made or shipped out of Fukushima. Still, almost 5 years later, we are struggling to get goods from that region. The tsunami didn’t just affect the people of Fukushima, but people and companies around the world for years to come. This is due to the amount of outsourced goods that come from that region.

There is also a major loss of intellectual capital. Outsourcing began as a way to transfer low skill jobs offshore and keep high skill jobs in North America. This is no longer the case, as we are increasingly contracting Accountants, Engineers and IT Specialists to countries such as India and Russia, instead of supporting and training our own people. Unfortunately this is an extremely short term solution. It could be decades before developing countries reach saturation point and wages are driven higher. There is no end in sight.

Even though it could be decades before businesses take a financial hit from outsourcing, we’re blind to the fact that we’re already taking major hits, in addition to the immediate issues within our economies. We’re giving other countries mass amounts of innovation and knowledge, which eventually will give other countries a huge leg up, depressing our economy even further.

There are also hidden costs a company takes on when sending employment to developing countries, such as a decrease in customer satisfaction and customer loyalty due to language barriers. Not only are our customers affected, but employee morale as well. Outsourcing can mean job elimination, resulting in a negative culture among remaining employees.

Outsourcing is a short term, short sighted solution to a much bigger picture. Our companies need to start looking ahead to their futures, and the future of our economy.

Are you outsourcing? Why?