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INTRODUCTION

“You’re stealing our jobs.” a regular catchphrase that each customer service representative
(CSR) working for a Business Process Outsourcing (BPO) company in Manila had heard at
least once, if not a dozen times from clients who were not very pleased to receive customer
services outside their own countries. 

Being one of the thousands of Filipino CSRs in the Philippines back in the late 2007,
securing a job in a call center as an undergraduate university student was a life-saver. It was
then a miraculous solution to a family that lost its main resources and a hope to a student
who aimed to finish the university programme in order to permanently enter the working field.
The day starts at dinnertime, because the people living in the US had just finished their
breakfast. That was the first job, a job that was apparently stolen from someone else. 

Fast-forward to 2020, while doing the hackathon during the kick-off in the Master’s
Programme in Hanze UAS, the subject of outsourcing triggered a different reaction from the
students. They were not concerned about the jobs being stolen, but rather emotionally
invested in the exploitation practices of companies offshoring their services to the third
world, citing the building collapse that killed more than a thousand factory workers in
Bangladesh, and common practices of child labour in textile and other outsourced
industries. 

While it’s such a relief to witness the new generation clearly becoming more aware of
corporate malpractices that are happening globally, what also became clear was the fact that
the two different sentiments which are even opposing in nature seem to agree on one thing: 

Offshoring is bad.

It’s a noticeable trend in the shared thoughts of people from developed countries to have
negative connotations in the subject of jobs becoming available in the labour market outside
the  country of their own, even more so during the recent years with the rise of populism.
The ‘stealing jobs’ sentiment has been the major political and economic discussions in
recent years, particularly in the context of immigration. 

 Offshoring as by-product of a globalized economy 

However, outsourcing and economic immigration are just two facets of globalization. A much
bigger phenomenon that covers free trade of products and services, in which developed
countries are benefiting from. 

The United States for instance, with a significant number of its population being vocal
against issues of outsourcing and immigration, ranks 2nd in the overall exports, in particular
number 2 in manufacturing exports, and at the top nation exporting agricultural products.
The United Kingdom, after the Brexit referendum in 2016 ranked 4th in total export with a
total of $629 Billion within the same year. In 2019, the UK ranked lower at 11th with $468
Billion (Worldbank, 2021). 

The global trade of goods also directly affects the farmers and  local manufacturers but
somehow, these are something that’s more widely acceptable without much controversy and
further discussions as much as the talks about immigration.

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PURPOSE OF RESEARCH

The aim of this paper is to explore the pros and cons of offshoring. What does the literature
say about its risks and benefits on all stakeholders? What are the perceptions of various
stakeholders involved in the entire process of offshoring? How do developing countries
perceive the jobs provided by multinational companies? Is the negative connotation of
outsourcing in the perspective of the developed countries justifiable?

METHOD

Existing literature from Business Source Premier and ResearchGate were obtained to
conduct this literature review. The keywords related keywords used in searching for articles
are offshoring, outsourcing, business process outsourcing, pros and cons of offshoring,
globalisation, history of outsourcing, sustainability, developing countries, dangers, risk,
information technology, and textile industry. 

RESULTS OF THE LITERATURE REVIEW 

The definitions of key terms such as outsourcing and offshoring are presented in this
chapter, as well the distinction between the two business concepts. In order to understand
further these business practices, the origin and evolution of outsourcing were summarized
and the major types of offshore-related outsourcing were enumerated and defined. Lastly,
the detailed benefits, risks and dangers of the said practices were explored.  

Definition of Outsourcing

Outsourcing stands for a strategic procurement of products and services (which were
traditionally done in-house) by an enterprise to an outside service provider for a variety of
organizational and economic benefits Andone (2010). In more simple definition, it’s the
process of farming out of the company’s services or job functions to a third party, whether it’s
located locally or abroad (Overby, 2017). 

The Origin and Evolution of Outsourcing

While outsourcing emerged as early as 1905s, it wasn’t until 1989 that it was formally
identified as a business strategy (Mullin, 1996). The standard for large integrated companies
in the most of the 20th century are those that can own, manage, and directly control” their
assets. (Handfield, 2006).

The widespread of “focus on core competency” as a newly-introduced strategy triggered the

growth of outsourcing in the 1980s. It began as ‘traditional outsourcing’ where businesses
contract out non-core business operations to external suppliers mainly to reduce costs. In
the late 1990s, ‘strategic outsourcing’ where the outsourced activities can revolutionize
business operations emerged. The current state of outsourcing evolution which started in the
early 2000s is called ‘transformational outsourcing’. At this stage, external service providers
can not only directly impact the performance of the company, it can also play a major role in
delivering innovation and operational enhancement benefits (Usifoh, 2019).

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Major Types of Outsourcing 

Several sources provide different sets of classification of outsourcing. Andone (2010)

enumerates two major types namely Business Process Outsourcing (BPO) and Information
Technology Outsourcing (ITO). On the other hand, Hanchar (2019) used other terms such
as professional and operational outsourcing, and added manufacturing and  project-based
outsourcing on the list. For the purpose of this paper, the types that are the most relevant to
offshoring will be defined, hence, the first two classifications from Andone (2010) and the
other two from (Hanchar, 2020). 

 Business Process Outsourcing (BPO)

One of the most common types of outsourcing is business process outsourcing (BPO). This
refers to a practice in which an enterprise contracts another firm to perform a particular
process such as customer service, payroll, accounting, data encoding, social media
marketing, and more (Smartsheet, 2021) 

 Information Technology Outsourcing (ITO)

The term for outsourcing IT applications and job functions is normally referred to as
information technology outsourcing (ITO). With the rise of technological innovation and
demand for skilled IT engineers and software developers, ITOs are considered to be a very
topical business trend in today’s generation (Andone, 2010).

 Manufacturing Outsourcing

Outsourcing manufacturing involves transactions with a manufacturing company to produce

products usually at a cheaper price and customised to the contracting company’s needs and
specifications. China is one of the major countries offering outsourced manufacturing
services to the rest of the world with its cheap labour requirements and abundance of blue-
collar labour market (Martin, 2020).

 Project-based Outsourcing 

In the event of companies requiring temporary services on specific projects, instead of hiring
part-time temporary employees, some firms opt for contracting another service provider to
perform the specific tasks in a limited amount of time. Several outsourcing companies such
as BPOs also provide project-based services to firms instead of the usual long-term
indefinite commitments (Martin, 2020).

Outsourcing vs. Offshoring

Outsourcing and offshoring are often used interchangeably, but offshoring (particularly
offshore outsourcing) is only a subset of outsourcing (Overby, 2017).

Definition of Offshoring

Offshoring is defined as the relocation of business processes and organizational products

and services from one country to another, whether they are located overseas or not. There

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are two possible ways to offshore. (Rubin, 1997; Chang and King, 2005) First, an
organization can acquire the services of another company abroad, wherein the offshore
service providers are the ones responsible for hiring, training, and overall management of
their personnel. This is referred to as ‘offshore outsourcing’. Second, a company can
establish their own service operations in other countries, with its operations being managed
as a remote service site. This is also known as óffshore insourcing’ wherein the firm is
responsible for hiring, training, and managing the business process abroad rather than by an
outside contractor (Davis, Ein-Dor, King, & Torkzadeh, 2006).

Pros and Cons of Offshoring

 Economic Benefits

Company level - the most obvious benefits and initial intention of companies offshoring their
business processes to low-cost countries is unsurprisingly, the opportunity to cut costs. With
a significant gap in minimum wage in OECD countries compared to the developing nations
and the highly appealing cost benefit of up to 60% less than the total cost of labour, if
everything goes well, companies of all sizes can financially benefit in offshoring (Tyson,
2004). 

Countries that offshore services - when the companies within the country become more
competitive with the reduced cost, higher profits and reduced prices, this will bolster demand
and inflation will be kept in check. Secondly, with flexible labour markets and high economic
growth, these countries can realign labour to higher-value activities. In addition,  McKinsey
Global Institute suggested that for every U.S. dollar spent on offshoring work in India, the
American economy profits $1.14, and India gets $33 which is a win-win situation for every
stakeholder (Tyson, 2004). 

Also, companies that move business processes overseas tend to buy additional goods and
services from other firms within their home country which creates export revenue. Lastly,
these companies repatriate the earnings back to the country of origin which can provide
funding for future business growth and in most cases, are taxed at all levels (Sheats III,
2004).

Offshoring destinations - This results in improved productivity and higher economic growth
which can immediately impact the society in a positive way (Sheats III, 2004).

 Benefits on Innovation

Áside from economic gains due to reduced costs in offshore services, the financial benefits
of the enterprises can also be used for research and development on existing product
improvement and new product development. This can spark innovation and even create new
job opportunities available to replace the lost jobs that have gone abroad (Tyson, 2004). 

 Benefits on Labour 

Thousands of jobs in developing nations are created from foreign companies outsourcing. In
addition, although low-wage jobs in the home country of offshoring companies are directly
affected in the relocation of business services, it also directly affects the increase of high-
wage technology jobs in the country Kierkegaard (2004) as cited in (Davis et al., 2006).

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Dangers and Risks of Offshoring

 Ethical Concerns

Child labor - the current trend of fast fashion has pushed the textile and apparel industry to
seek for cheap labour which are freely available in many developing countries like India and
Bangladesh. Many girls from these said countries are willing to work for very low wages and
are easily lured into these industries under false promises of receiving decent salaries
(Moulds, 2021)

Accidents and safety of employees - more than 1,000 workers died when a factory building
in Bangladesh collapsed in April, 2013. This is just one of the many accidents and disasters
that involved the clothing factories in Bangladesh, the world’s 3rd largest exporter of apparel
(Paik, Lee, & Krumwiede, 2017). 

 Displaced workers

While some workers tend to find higher-paying jobs, it’s not always the case for the rest.
Based on a survey made by McKinsey, 31% of workers who lost their jobs in the US were
not fully re-employed. In addition, interior work quality, poor knowledge transfer and lower
morale among the U.S respondents were found to be the three primary pitfalls that  lead to
poorer overall productivity (Sheats III, 2004).  

 Quality of Products and Services

The guarantee for delivery of quality products and services in offshore processes are usually
at risk due to the limitations of trained people in overseeing the production (Socialnomics,
2019)

 Social and Cultural Barriers 

It’s not a hidden fact that there’s normally a huge contrast in the cultural norms between the
developed and developing countries involved in the outsourcing business practices. This
major factor creates significant barriers in communication between client and service
providers and employees as well as misunderstandings due to cultural differences and loss
in translations (Brown, 2020). 

DISCUSSIONS

In this chapter, the author presents her critical take on the existing literature that were
explored regarding the pros and cons of offshoring. 

Assessment of Pros and Cons of Offshoring

The literature suggests that the biggest benefit of offshoring lies in financial advantage to
major stakeholders. The offshoring companies and their country of origin, the offshore
service providers and the developing nations are all beneficiaries of offshoring practices.
There are also direct positive impacts on innovation within the companies that offshore their
services, as well as positive benefits on labour employment in the low-cost nation. 

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However, the offshoring industry faces major ethical concerns involving the offshoring of
apparel and textile industry particularly child labour and workplace accidents and disasters. It
was also indicated that while the developed countries in general benefit from the offshoring
practices, displaced workers due to process relocation are still the most affected and remain
in vulnerable positions. 

Focus of Existing Literature

A distinguishable pattern among the articles discussing the pros and cons of offshoring is
that the primary focus of the articles were to provide information to the audience in the
developed countries, most especially the businessmen who are responsible for making
decisions for companies. In particular, Sheats (2004) and Tyson (2004) which reported
about the pros and cons of outsourcing talked about the risks and gains revolving around
expectations on reduced costs vs. actual savings, effect on employees and economy of the
countries where offshoring companies came from, hence, almost all of the benefits and risks
listed in the articles lacks exploration on societal impacts and actual performance of the
business transactions done offshore. 

Point of View of Existing Literature

Another noticeable gap is the lack of another relevant perspective, particularly from the
developing countries that attract offshore services. Robertson (2010) in the article about
stakeholder perceptions talk about the views of U.S. investors and consumers. Sheats
(2004) and Tyson (2004) talks about economic and societal risks and gains of offshoring in
the U.S. and Europe. While it’s understandable that the authors tend to write based on their
target default audience, it’s still pretty clear how the perspective of the nations and people
where the outsourced products and services come from are not that much relevant to be
considered in the said articles. 

Even the article from The Guardian sponsored by Unicef about child labor in apparel supply
chain by Moulds (2021), is written under the presumption that child labor is bad, period. No
further elaboration on the social and economic status and available choices of the children
and their families involved in child labor in these developing nations. 

Suggestions for future research are as follows:

 A broader study of the effects of offshoring taken from different perspectives other
than the entrepreneurs and policy-makers. 
 A more in-depth exploration on economic status of the developing countries and the
impact of the outsourcing industries to these nations, including the citizens’
experiences and perceptions on the business process
 An wide-scale data gathering on the overall effects of globalisation, the gains and
losses of each country which will provide a clearer perspective on the effects of
globalisation and internationalisation to the citizens worldwide. 
 Further research on improving the welfare of workers and employees in the
developing countries and enhancing the need for corporate social responsibility of
offshoring companies and local service providers

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 CONCLUSION

Overall, there’s still a lot of room for improvement in the current offshoring practices. There
are plenty of significant benefits that if utilized well, could improve the overall welfare of the
global society. However, the serious risks and dangers related to offshoring practices must
be seriously addressed and paid attention to by the participating companies and government
regulatory agencies. 

It is also apparent that there is still a dire need for literature exploring the gap in the
perspective of the stakeholders coming from the developing countries in order to have a
deeper understanding of the effect of globalisation in different perspectives, particularly in
the offshoring industry. 

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