Second thoughts on outsourcing

by Russ Roberts on April 19, 2004

in Trade

Not on my part, but on the part of America’s businesses. So reports Newsweek. Turns out, some outsourcing experiences don’t go well.

…many American companies are discovering that sending work to low-wage countries is not as easy or as inexpensive as advertised. In hotspots like Bangalore, wages and real-estate prices are soaring to record levels—though still generally a fraction of U.S. costs—which cuts into potential savings. As U.S. companies move from exporting call centers to outsourcing more complex work like software development, they’re finding overseas workers are often ill-equipped to deliver consistent, quality work. The bad experiences are creating a boomerang effect—the return of jobs to the United States—which some have dubbed “onshoring.”

Many of the policy critics who have railed against outsourcing have argued that the strategy isn’t as good as it looks. But as reader Cora Barnhart points out, this kind of problem is self-correcting. If businesses lose money from outsourcing, they’ll stop doing it. Overzealous outsourcers or faddish outsourcers will bear the costs. This feedback loop is very powerful.

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