Outsourcing, which is “when a firm hires another firm to manufacture its products,” has been increasing rapidly in the last 20 years. There are many effects of outsourcing which can be both positive and negative so companies must think carefully before they choose to outsource. Some positive effects of American Businesses outsourcing include cost savings, access to operational expertise, a reduction in the time to market, tax benefits and many more. Yet there are also some negative effects such as decreased data protection, different time zones and heavy internet reliance.
According to a prediction by Forrester Research, “despite the fact that only 60 percent of Fortune 1000 companies have yet begun off-shoring, over the next 15 years 3.3 million U.S. service-industry jobs and $136 billion in wages will be relocated abroad.” This could well be true and the effects of this on the American Economy as well as foreign countries’ economies will be tremendous. There could be numerous jobs that could potentially be outsourced, which could increase profits dramatically for companies, yet there are bound to be problems that surface as well.
Boeing, who was set to release their 787 Dreamliner, ran into all sorts of problems when they decided to outsource. Their approach was intended to result in a simpler assembly line as well as reduce final assembly time from 12 days to 3 days, yet they encountered major setbacks when their global contractors did not perform as expected. They ran into problems concerning language barriers such as directions written in Italian and many of the companies they outsourced to decided to outsource the work to even smaller companies. This resulted in parts being manufactured in over 15 different locations in 10 countries. Currently the planes release has been delayed till early 2011.
This exemplifies the negative effects that outsourcing can have on a company if it is not done right. Boeing stretched themselves too thin, and with manufacturing so spread out it is not too surprising that they encountered problems. If other companies learn one thing from this, I think that they need to realize that communication is one of the most important things that they must have with the businesses that they are collaborating with. If they are unable to communicate effectively, then their chances of being successful are significantly slimmer.
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