Outsourcing is a good thing--mostly.

• Author: Weidenbaum, Murray L.
• Position: Economics

"Cost reductions from outsourcing ... open up new market opportunities for U.S. companies and generate additional jobs here at home... Outsourcing and the savings it generates are the beginning--not the end--of the adjustment process."

OUTSOURCING IS NOT a new phenomenon--although the subject has hit the headlines only recently. Many service companies started creating jobs overseas to gain access to foreign markets. They audit, consult, and repair where customers are located. To put it mildly, they do not tell the overseas customers to come here. Moreover, many foreign markets are growing quickly as numerous domestic ones have become saturated. Approximately 60% of the revenue of American information technology companies is estimated to originate overseas. That is not unique. In various industries--ranging from banking to consumer products to .job placement to aerospace-leading firms report that their overseas revenues exceed their domestic sales.

Remember, too, that some businesses hired specialized workers overseas to adjust to U.S. immigration limits. When they could not get those workers here, they had to send the work to them. While doing so, the companies learned how to use modern technology to shift the location of work economically. They become accustomed to taking advantage of lower costs, domestic and foreign. Telecommuting from employees' homes may have paved the way for some enterprises to extend the process to new suppliers, at home and abroad.

Most fundamentally, a great many companies are focusing their efforts on their core competence. They subcontract out most of their activities to domestic suppliers. Viewed from that perspective, overseas sourcing is a minor part of the trend to decentralize business operations. In addition, these companies have learned that, in many cases, the higher productivity of U.S. workers offsets the wage differentials and other costs of operating overseas.

Outsourcing can help a company operate in an increasingly competitive global marketplace. Lower costs are key to maintaining a firm's position in the modern global economy. Outsourcing can enable a business to provide 24/7 coverage, especially for customers who need around-the-clock support. On the other hand, it is impractical for a firm to adopt a unilateral policy against outsourcing work--especially when its foreign and domestic competitors are doing it.

The specific decisions are made on hard-nosed business grounds--including balancing...