The Benefits of Outsourcing Imagine you’re an entrepreneur and have decided to start producing travel coffee mugs with self-closing lids to prevent from unnecessary spills. Once the coffee mugs are finished and are ready to be sold, you sell them for 20 dollars a piece. After the mugs have been manufactured you’ve established the self-closing lids costs you 6 dollars to produce yourself. The production of the lids cost 30 percent of your selling price. Another manufacturing company approaches you and claims they can make the self-closing lids for only 3 dollars. Subsequently, if you were to outsource the production of the lids, you could save 50 percent on the cost of making the lids. Thus, changing the lid cost from 30 percent of your …show more content…
The outsourcing trend began in the 1970’s, in the 1990’s it became more evident that the U.S companies needed to outsource due the opening of free trade with China, India and Eastern Europe (Pearlstein, 2012). Due to low-cost labor found in developing countries, it was clear the U.S companies needed to outsource in order to remain competitive and successful. The low-cost labor in developing countries gave companies outside the U.S. a competitive advantage. Competitive advantage is superiority gain by a company who can provide a product or services of the same value as its competitors, but at a lower cost ("Business Dictionary," n.d.). Subsequently, large companies such as IBM outsourced many jobs from the U.S to places like India. Since this began, the IT (Information Technology) industry in India has gained millions of new jobs and continues to grow larger as we speak. The competitive advantage isn’t the only reason companies seek out outsourcing. Companies also outsource because of new sales and expansion opportunities in growing markets. General Electric’s chief executive Jeffrey Immelt reported 30 percent of GE’s business was overseas in 2000; which grew to 46 percent by 2012 (Matthews, 2012). Outsourcing give companies a competitive advantage, but also expands markets and market expansion creates jobs. Expanding markets require more products and services, thus creating jobs to for fill the new demand. The need for more products and services dictates how successful the company is. From 2005 to 2010 Caterpillar’s workforce grew by 39 percent, compared to the 7.8 percent U.S increase (Matthews, 2012). Outside the U.S. areas such as India, China and Russia have the fastest growing markets where companies have the opportunity for high growth.