It’s a presidential election year in the U.S. and yet again politicians are positioning outsourcing as a bad economic policy for America. Every day there are ads on television of one candidate attacking the other for their position on outsourcing. The media loves the controversy and feeds the frenzy by representing outsourcing as an economic peril. But is the problem really outsourcing? Or is it really offshoring? And is outsourcing really such a bad thing? Most people would say yes, but it could be argued that our economy and many of the jobs in our society depends on outsourcing for sustainability. Yes, I know that’s a controversial statement to many. But the only reason it’s controversial is because we don’t understand what outsourcing really is.
So let’s examine a few simple facts to understand it better. We’ll begin with the definitions of ‘outsourcing’, ‘offshoring’, ‘insourcing’, and ‘nearshoring’.
Outsourcing is defined as the “practice of purchasing or sourcing goods or services from an external supplier or contractor”. It is the opposite of ‘insourcing’, which is simply the “practice of managing processes with resources inside the organization“. There is no mention here of the use of suppliers in other countries or continents. Outsourcing is simply the use of an external supplier for the delivery of services or goods. Which basically means outsourcing can be done with companies that are within our own geographic boundaries, or ‘nearshore’.
Offshoring is defined as the “practice of sending work, or processes, that were once done within the organization to a facility in another country”. It is the opposite of ‘nearshoring’, which is the “practice of managing processes with resources in the same geographic country”. In offshoring, we do have the transfer of work or processes to another geographical location.
So ‘offshoring’ is the issue people are really referring to when they say ‘outsourcing’. It’s a mistaken identity. Offshoring is really what people are upset about. And I completely agree with those who believe we should be debating the risks and rewards of offshoring policys that may hurt our economy.
With that said, let’s dig a little deeper into the concept of outsourcing.
In the American economy, it’s estimated that more than 70% of the US GDP (gross domestic product) comes from revenues generated through some form of outsourced services. Here are a few simple examples. When we flag down a taxi, we are outsourcing transportation – the alternative is we could choose to walk to wherever we want to go. If we choose to go out for dinner, we are outsourcing meal preparation – we could choose to insource meal preparation by cooking our own meal at home. When we choose to use an accountant to prepare our taxes at year-end, we could choose to do it ourselves. I know these examples seem petty, but they help explain the true meaning.
So why do we make those choices? For many reasons. Basically, we choose to outsource because we don’t want to do it ourselves, or we may not have the expertise to do it. Or maybe it’s cheaper to have someone else do it for us.
Besides for companies, guess who is the largest outsourcer of goods and services in our economy? Would you have guessed our Government? What – Blasphemy! How could I make that statement? Because the truth of the matter is the U.S. Federal Government sources billions of dollars worth of goods and services from external suppliers.
It is such a large effort that our government actually has a large staff and administrative office that manages outsourcing of goods and services. This office is called the US General Services Administration (GSA) and they award GSA contracts to companies and individuals all around the world; even training. Yes – not all of those contracts are to organizations inside the U.S. And let’s not forget about our military that outsources billions of dollars of services; like the design and development of defense systems. I actually believe all of this is a GOOD thing. Because millions of jobs are created because our federal government OUTSOURCES goods and services.
With all this said, should we assume that training outsourcing is a good thing or bad thing?
Well, I believe it can be both good and bad. Outsourcing is not an all or nothing proposition, it’s not always good, nor always bad. Some things make great sense to outsource. And some parts of the training function do not.
Our research shows that global 2000 companies outsource on average about 42% of their spend for training. This creates thousands of great jobs on the supplier side of the industry. And there are many examples of where companies use external suppliers improperly and waste corporate dollars.
And of course some companies use offshore resources for training services. For example, content development is sometimes offshored to countries like India while training administration services goes to countries like Sri Lanka and Malaysia.
So when you hear politicians and the media bashing outsourcing, please remember that outsourcing is not always bad. I believe if we educate the public more about the real advantages and disadvantages of outsourcing, we’ll recognize that doing it right can be a great job creation tool. And my goodness i hope that the people who lead our country can at least get the words right and stop bashing what makes our economy tick!
As always, I welcome your comments. Or you can contact me at firstname.lastname@example.org