Why Do Developed Countries Oppose Outsourcing?

Before we get into the nitty-gritty, let’s first understand what is outsourcing? Outsourcing is the process of leveraging overseas or out of business resources to lower operational costs and maximise profits.

Companies from the developed economies have done an immense amount of outsourcing in the past in the form of customer service jobs, development roles or any other form of work that can be done by leveraging the power of the Internet.

Usually, outsourcing is done by developed countries to developing countries due to the cost advantages that developing nations provide. The reduced labour costs and the technical expertise that offshore workers provide entails a significant cost advantage.

Businesses around the world are adopting outsourcing means to streamline business functions and maintain a level of cost-efficacy in their organisation. Moreover, outsourcing any department leads to a tremendous level of cost savings and management easement.

When outsourcing was in its heydays, there was a lot of pessimism surrounding it. This was due to employment that was eroded away from the developed nations. Additionally, the capital outflow from the developed economies helped the developing nations to grow at the expense of developed nations.

Outsourcing leads to an effective reduction in the employment rates of a developed nation and on the other hand, generates employment opportunities in the developing nations. This also leads to an increase in the standard of living in developing countries.

Developed countries see this development of developing nations that are financed by the developed countries hence they see this as an effective loss to the GDP of the developed nation.

The availability of multi-national outsourcing in India has given birth to an entire BPO sector that specialises in dealing with an outsourced business process. These sectors have employed millions of individuals and serve a variety of industries such as customer care, back-end support, software development, auditing professionals, etc.

These sectors thrive on the monetary allowance received from the developed nation and reduce their foreign capital surplus. Moreover, this multi-billion dollar BPO industry has been a major employment generator in a developing economy such as India.

Developed economies oppose this economic development of developing economies that comes at a cost that is borne by the developed country. Suppose if a company did not outsource any of its digital processes. This would lead to the generation of job opportunities in that nation itself.

However, if that same job is outsourced to a developing nation, it leads to the generation of jobs in the outsourced nation. Developed nations see this as a weakness and hence oppose outsourcing.

The cost benefits that outsourcing entails has pushed companies from developed economies to outsource their business processes. The constant endeavour by these firms to lower costs and drive profit margins up is pushing the boundaries of outsourcing.

Companies are looking to deploy additional means to outsource more non-critical business processes and maintain a significant level of profitability. Outsourcing is very beneficial for developing countries, but not so much for developed countries.

These are a few reasons why the governments of developed countries oppose outsourcing and are on a constant lookout to get these jobs back home. It will not only lead to a significant employment generation but also raise the living standards of the people living in those countries.

Although the companies may suffer on the cost front, the increased economic activity that domesticating business processes entail can be very beneficial for the nations’ economy in the long run. Therefore, outsourcing, in a way, harms the economics of a developed nation and is proven to be very beneficial for developing countries.

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Written by Ketan Arora

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