Government and ethical issues of outsourcing

U.S. Government and ethical issues of outsourcing

Description of Ideas-5

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U.S Government and Ethical Issues of Outsourcing

USA is at present one of the fastest growing countries as a target for outsourcing. Of late outsourcing which was once the buzzword of corporate America has been looked down upon in recent years because of growing concerns of ethics involved in outsourcing the same. Majority lament the outsourcing of jobs to low-wage economies like Asia, Philippines and elsewhere. In a slowing economy with unemployment figures hovering around 10%, outsourcing jobs is viewed as extremely undesirable. However some experts are of the opinion that outsourcing per se is not bad as it helps business to lower costs to remain in business, particularly during periods of recession. When outsourcing permits a company to cut down on costs and make production at less cost, it augurs well for the company in the long run. After all it is the bedrock of comparative advantage. But the ethical concerns far outweigh the benefits that companies gain. By outsourcing, individual privacy is compromised, the cost of educating an American student is wasted when his job is outsourced to a different country thereby destabilizing the wage economics of America and in turn harming the economy in the long-term.


USA is the single largest country having the maximum requirement for outsourced services in various sectors from providers across the globe ranging primarily from IT services to legal services, medical record keeping etc. Cost advantages, speedier productivity, leveraging the benefit of time zones of outsourced geographies are cited as the major drivers of outsourcing. American companies stand to garner substantial competitive advantage from outsourcing which reinforces the U.S. industry and its constituents. Outsourcing is a strategic move by an enterprise to save valuable development time which can be otherwise devoted towards its core functions. For instance, a U.S. company outsourcing to India enjoys round the clock productivity due to the 12-hour time difference between the two nations. (Miracle Technologies, 2012)

According to a latest research study by Forrester, jobs worth 3.3 million U.S. dollars will possibly be outsourced by 2015 with IT outsourcing leading the pack wherein 4,72,632 jobs are likely to be outsourced in the next four years. The concern lies in the fact that the face of outsourcing has changed over years from low-skilled jobs to extremely professional ones. Although, outsourcing benefits both the nations, there are ethical issues which is enough to alter the practice of outsourcing into a contentious issue. Congruent with any business practice in a globalized world order, outsourcing is neither right nor wrong per se. But the manner in which outsourcing strategies are implemented and extent to which the participating nations integrate social responsibilities and ethical practices in their strategies is what matters most. (Miracle Technologies, 2012)

Description of Ideas:

The practice of outsourcing is primarily advocated due to economic reasons and some are of the opinion that additional jobs are created in USA as the outsourced nation benefiting from outsourcing stand to gain more spending power. Nevertheless the issue of job displacement coupled with social costs should be considered before the drift of outsourcing risks the long-term viability of U.S. economic and educational systems. According to a report published by the U.S. administration, 3 million jobs have been lost since the last three years, with the percentage of outsourcing component being 15% which is rising. And outsourcing by the technology sector is surging fast with an approximate 10 billion USD in net contracts that were outsourced. (Mintz, 2004)

US economists expect that in the coming decade at least 14 million service sector jobs stand at risk of being outsourced. It is crucial to perceive the long-term effects of this trend as ‘responsibility’ is the vital issue involved here. For instance should a college professor advise his students not to go for computer programming since these will be outsourced in any case? Taking the case of accounting and filing of tax returns, privacy is compromised when it is outsourced. This led to the introduction of a Bill SB1451 by Senate Liz Figueroa which addresses the threat of privacy when personal, medical or financial information is outsourced. (Mintz, 2004)

The Bill ensures that personal and confidential information like Social Security Number, Bank Account Numbers, and Tax Information as also Health information which enjoys legal protection through confidentiality laws will not be disclosed during outsourcing. Ethical issues involved in outsourcing surfaced when a transcriber of medical information refused to hand over the completed work unless a hike in fees is made upfront. The above is not an isolated situation altogether. According to Dobbs, U.S. software major SolidWorks Corp discovered that a worker appointed by an outsourcing concern even attempted to sell its property to a competitor. Benefiting from cost advantage at the expense of losing confidentiality of personal information is unethical. (Mintz, 2004)

Analysis of Concepts:

As a typical concept, IT outsourcing is the dominant one within the gamut of outsourcing as there are strategic advantages of IT outsourcing. The benefits cover widespread IT process formalization resulting in continuous competitive advantages which sometimes outweigh the cost savings. It is a fact that offshore IT workers earn $25 on an hourly basis compared to $70 to $90 which Americans earn. However, not all IT positions are suitable for outsourcing. It is important to note that it is usual for one U.S. IT worker to accomplish a variety of roles within a given job. For instance, an individual’s work may comprise the roles of IT programmer, tester, maintenance programmer and quality assurance, technical mentor etc. Huge U.S. enterprises which are sufficiently large enough to offshore jobs due to their volume required to render it profitable as an IT delivery model, hardly ever offshore in excess of 10% of their IT organization. (Gold, 2012)

Coming to the broader analysis of the ethics of outsourcing, it is imperative to focus on the contribution of Niccolo Machiavelli which is perused more out of curiosity rather than to serve any type of ethical or moral guidance. According to Niccolo, the ends justify the means. However the U.S. culture by and large acknowledges that the ends do not justify the means. The U.S. administration has a Bill of Rights and a robust legal system designed to support that philosophy. But in corporate America and more and more in Government it is observed that cost as an ‘end’ is used to justify several decision and admittedly it does not justify the means and outsourcing definitely figures among them. In the outsourcing industry, in order to increase profitability by minimized costs (end), corporations are off-shoring the same. It is important to note that reducing the huge economic intricacies and rationale to a simple set or means and end is unfair. (Breslin, 1999)

Evaluation with Reasons:

The ethical problem of outsourcing is concerned with the bigger scenario of free trade. It is found that polices supporting free trade and outsourcing is one of them more often that not is engaged in conflict situation with labor and environmental activities who are perturbed that labor and environmental benchmarks are not required to be adhered to by the outsourced nation. They point out that U.S. corporations have found out a way to circumvent following these expensive union and environmental requirements. During 2005, almost all states suggested to make laws which would either ban or restrict outsourcing. But a few laws were passed and majority of these bills delineated restrictions regarding state contracts that are outsourced and take steps to restrict usage of offshore call centers. Since outsourcing is perceived as harmful to American workers, it is among the issues taken on by the AFL-CIO and others. Since 2004, as many as forty states have contemplated various anti-sourcing bills out of which majority have been bans on foreign or outside state bidders competing for state contract. (Ching, 2009)

The repercussion of outsourcing experienced in USA is extremely debatable due to our moral responsibility to conform to a system of value in society and promote human development. Promoting capitalism through cost cutting measures, and earning higher profits comes at a cost to society when values and moral benchmarks are sidelined. Although outsourcing on the face of it is not illegal or unethical, but the backlash of outsourcing experienced in USA are regarded unethical. This is because U.S. citizens having completed their education in USA to be recruited in their homeland are displaced from jobs by foreign workers. (Torrance, 2006)

Besides, in outsourcing there is an absence of regulation to safeguard personal and classified information, and the U.S. Govt is unable to provide any effective solutions to handle these repercussions through the process of re-training and re-employment of displaced persons and through offering of incentives for business that abstain them from outsourcing. When outsourcing is viewed through the eyes of capitalism, it is effortless to sideline the ethical issues associated with the activity. On the contrary, the outsourced nation benefits from sustained employment and training, and the corporations require the leeway to expand on a globalized basis to be capable to augment growth within USA’s economy. (Torrance, 2006)

The outsourcing of jobs to other nations lowers wage cost in America and thus results in increased productivity and profits, which in turn must result in capital investment, expansion and recruitment of additional workers. This aspect concentrates on the rosy side of outsourcing like improved efficiency and productivity which raise profits, but nevertheless neglects the moral responsibilities we have to handle the impact of outsourcing on the society and economy of USA. It is a serious issue since American citizen self-finances their education either through loans or savings and are denied the scope of earning in America as outsourcing ensures that the scope is cornered by some other person. Hence it is unethical as securing an education entails government grants, subsidies and taxpayers money that goes down the drain with outsourcing. In the long-term, the value of investment devoted towards training, and in the individual to promote development and growth in American society and economy is moderated. (Torrance, 2006)

The real long-term damage of outsourcing on future innovation and individual earning power is yet to be calculated. Income levels stagnate and inflation severely impacts the same. Workers remain at the receiving end of unable to negotiate fair wage increases or promotion. Foreign employment policies like minimum wage and conditions vary. Outsourcing companies are able to set a minimum wage in developing nations which can never be accepted as a minimum wage given the differential currency exchange rate. American workers are unable to leverage while proposing salary hike as the candidate in the outsourced country is earning a quarter of their pay. Inflation is also eating away their real income and it has become a serious issue of livelihood sustainability. (Torrance, 2006)

Possible Solutions:

Outsourcing has assumed such proportions within the American companies that completely elimination of the same does not seem a practical proposition. Hence three possible solutions can be adopted to lessen the impact of the same. (i) The 10% plan: The first approach is undertaking the 10% plan. Under this approach, outsourcing should be allowed up to 10% of an enterprise’s job volume. By adhering to this, America’s stability in workforce will be ensured besides allowing businesses to take advantage of the low production costs in foreign shores. Through increasing the volume of U.S. jobs and concurrently permitting companies to outsource, American economy will get the required boost and profit from benefits of lower consumer costs in USA. (Converse; Denenberger; Holt; Murphy; Winemiller, 2010)

(ii) Even exchange: Under this approach even trade of jobs will be undertaken. For every job that is outsourced to a foreign country, that particular country must offer a job of at least equal value back to U.S.. This will help in ensuring a continuous stream of jobs to be exchanged between the nations. This plan will ensure that greater jobs will be available for U.S. workforce as the country to which it is outsourced must compensate for Americans. This will help in building healthy foreign relations along with keep cultural ties better during the process of outsourcing. (Converse; Denenberger; Holt; Murphy; Winemiller, 2010)

(iii) Homeland onshore model: This approach will possibly help in the elimination of outsourcing. As most of the outsourced jobs are in the IT field, the Homeland Offshore Model — HOM suggests that in place of outsourcing to a foreign location, a company may outsource to another state within the U.S. For instance, an IT company based in San Francisco may like to outsource a work to California. This proposal puts a complete end to outsourcing for good to other countries. On the other hand it presents a qualitative, stable job for American workers at competitive rates. (Converse; Denenberger; Holt; Murphy; Winemiller, 2010)


Considering from an ethical point-of-view, outsourcing is seen to be causing more harm although the immediate impact is not immense to warrant notice. But the long-term effects are definitely not good for the U.S. economy as it leads to massive unemployment in an economy which is already slowing down. Although outsourcing cannot be brought to an abrupt end, addressing the ethical issues will definitely prove to be beneficial in the long run. Besides, evolving a situation where a fraction of the total job is outsourced will also help keep jobs within America.


Breslin, David A. (1999) “On the Ethics of Outsourcing” Program Manager; vol. 28, no. 6,

pp: 24-26.

Ching, Jacqueline. (2009) “Outsourcing U.S. Jobs”

The Rosen Publishing Group.

Converse, Rachel; Denenberger, Rachel; Holt, John; Murphy, Nick; Winemiller, Aimee.

(2010) “Outsourcing: Unemployment in America” Retrieved 25 July, 2012 from

Gold, Tandy. (2012) “Ethics in IT Outsourcing”

CRC Press.

Mintz, Steven. M. (2004) “The ethical problems of outsourcing” Retrieved 25 July, 2012


Miracle Technologies. (2012) “United States Outsourcing Controversy: Capitalism vs.

Ethics” Retrieved 25 July, 2012 from

You +1’d this publicly. Undo Torrance, Fiona. (2006) “The Ethics of In-house vs. Outsourcing” Insight Business,

Retrieved 25 July, 2012 from

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