Weakness of Outsourcing & International Outsourcing

Aramark illustrates some of the benefits of outsourcing, but not all organizations have experienced the same. When organizations outsource, they must deal with the uncertainty of costs involved and the availability of outsourcing providers. Then they must face a possible loss of control within their company and their employees’ concerns regarding job security. Finally, most organizations stress over the possible difficulty reversing their decision at a later date and the biggest fear of all: the risk of failure (Engle, 2002).

Take the case of EDS and WorldCom, Inc., for example. In October 1999, EDS and WorldCom, Inc. signed a reciprocal outsourcing deal in which EDS was to supply IT services to WorldCom and EDS was to act as a reseller for WorldCom (the sum of which was to exceed $12 billion over an eleven year period). July 2002, WorldCom filed for bankruptcy (the biggest in US history), and the EDS share price plummeted and they suffered a $210 million loss. Some might say the outsourcing deal wasn’t all that bad because, although EDS suffered a huge loss initially, what remains of their deal with WorldCom, Inc., generated approximately $160-175 million per quarter in 2002. However, in late 2002, EDS agreed to pay WorldCom $187 million (Bierce & Kenerson, n. d.).

When an organization turns over a responsibility for a function performed in more than one country (Peterson & Maw, Oct. 2002), there many issues with which organizations must deal. From understanding business and social cultures to navigating logistical infrastructures, to dealing with time zones (Bierce & Kenerson, n. d.), building and maintaining relationships can be very demanding, and cultural differences can result in misunderstandings, frustrations, and incorrect assumptions (Davey & Allgood, 2002). Other problems associated with international outsourcing are supply chain monitoring, maintaining control of partner relationships (Robb, 2003), politics, legal issues (labor laws, intellectual property, data privacy, compliance), international taxation, dispute resolution processes, financial systems and currencies (Bierce & Kenerson, n. d.).

In 2004, international outsourcing played a huge role in the US presidential election campaigns. Although both sides were divided on the issue, Democrats and Republicans alike reacted furiously when the head of President George W. Bush’s Council of Economic Advisers, N. Gregory Mankiw stated “’that outsourcing is just a new way of doing trade’ which makes it ‘a good thing.’” Democrats accused the Bush Administration of wanting to take more American jobs overseas, and even Speaker of the House Dennis Hastert commented “outsourcing can be a problem for American workers and the American economy (Drezner, 2004).

And it’s not only manufacturing workers the politicians are talking about; for the first time, white collar workers must now also face the pressure global competition. This is due the conversion of nontradable sectors into tradable ones, as facilitated by technological innovations. As mentioned above, white-collar workers are reluctant to accept that they are now subject to global competition. In addition, the Internet has only made it easier for this group of unhappy workers and “those who blame outsourcing for their troubles” to organize politically (Drezner, 2004).