Why Do American Companies Outsource?

by Eryn Travis ; Updated September 26, 2017
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Outsourcing is a controversial and polarizing issue. American companies argue that outsourcing is critical for survival. On the other hand, 71 percent of Americans believe that outsourcing harms the U.S. economy and 62 percent want the U.S. government to stop corporations from taking jobs overseas, according to a Zogby International Poll reported by Bloomberg Businessweek.

Lower Wages

Cutting costs by paying lower wages is a popular reason why American companies send jobs abroad. In 2009, the federal minimum wage was $7.25 per hour. By contrast, in 2005, most Chinese manufacturing workers made 60 cents per hour and the average manufacturing salary in Mexico was $2.46 an hour, according to data compiled by Industry Week. Even if Chinese and Mexican rates increase, companies have plenty of spots around the globe to send low wage jobs including Vietnam, Bangladesh and Thailand.

Escape U.S. Regulations

Worker benefits required by the United States Government is another reason why American companies send jobs to other countries. In the United States, companies must contribute to Social Security, Medicare, FICA as well as spend time and money to comply with OSHA regulators and other federal mandates. On the other hand, companies are not required to pay U.S. costs for outsourced jobs and regulatory requirements required by countries receiving outsourced jobs are either non-existent or significantly less.

Freeing Resources for Priorities

Some American companies outsource non-core jobs to reinvest savings into a company's main functions, which increases profit. For example, a giant pharmaceutical firm may send its accounting work overseas and reinvest its savings into its research and development functions.

Cheaper Talent

Many think of jobs that are outsourced as those requiring little or no skills. However, American companies also outsource to pay less for highly skilled workers with college education and experience. More than 350,000 students graduate from Chinese engineering schools each year compared to 90,000 students of U.S. engineering schools. Due to the severe competition for jobs, these young Chinese engineers are typically willing to work for far less than their American counterparts, according to "An Evaluation of American Countries that Outsource Manufacturing to China," by Michael Favreau.

Because Everyone Else Is Doing It

One reason for outsourcing, that usually is not discussed as much, is pressure to send jobs overseas because it's what a company's competitors have done. For many companies, outsourcing has become synonymous with lower costs, which may or may not be true, according to an article titled, "Gartner Analysis: Stop Outsourcing Now," by Sharon Gaudin. Gaudin explains that some U.S. companies are addicted to "compulsive outsourcing" as a means of solving any crisis that comes down the pike instead of carefully considering alternatives.

About the Author

Eryn Travis has over 15 years of freelance-writing experience. She has written for "Aviation News Today" and was the managing producer and host for the cable TV news show of the same name. She has a Bachelor of Arts in journalism from the University of Maryland and is finishing up a master's degree in communication studies from West Chester University.

Photo Credits

  • billion dollar corporation image by Augustus Saxton from Fotolia.com