Outsourcing and Insourcing Jobs in the U.S. Economy: Evidence Based on Foreign Investment Data

The impact of foreign direct investment on U.S. employment continues to attract national attention. While local communities compete with one another for investment projects, many of the residents of those communities fear losing their jobs as U.S. companies seek out foreign locations and foreign workers to perform work that traditionally has been done in the United States, generally referred to as outsourcing. Some observers suggest that current U.S. experiences with outsourcing are different from those that have preceded them and that this merits legislative actions by Congress to blunt the economic impact of these activities. Other observers argue that investing abroad by U.S. multinational companies impedes the growth of new jobs in the economy and thwarts the nation’s investments in high technology sectors. Some opponents also argue that mid-career workers who lose good-paying manufacturing and service-sector jobs likely will never recover their standard of living. Economists and others generally argue that free and unimpeded international flows of capital ultimately have a positive impact on both domestic and foreign economies. Direct investment is unique among international capital flows because it adds permanently to the capital stock and skill set of a nation, but it also challenges the general theory of capital flows because of the presence of strong cross-border and intra-industry investment. Supporters contend that to the extent that foreign investment shifts jobs abroad, it is a minor component of the overall economic picture and that it is offset somewhat by the investment of foreign firms in the U.S. economy (referred to as insourcing), which supports existing jobs and creates new jobs in the economy. Broad, comprehensive data on U.S. multinational companies generally lag behind current events by two years and were not developed to address the issue of jobs outsourcing. Many economists argue, however, that there is little evidence to date to support the notion that the overseas investment activities of U.S. multinational companies play a significant role in the rate at which jobs are created in the U.S. economy. Instead, they argue that the source of job creation in the economy is rooted in the combination of macroeconomic policies the nation has chosen, the rate of productivity growth, and the availability of resources. This report addresses these issues by analyzing the extent of direct investment into and out of the economy, the role such investment plays in U.S. trade, jobs, and production, and the relationship between direct investment and the broader economic changes that are occurring in the U.S. economy

The effects of outsourcing practices conducted by organisations in Nairobi

The purpose of this study is to investigate the relationship between outsourcing and development in Nairobi. The key research question for this study is what are the impacts of outsourcing practices conducted by organisations in Nairobi? Data were obtained from questionnaires distributed in December 2010. A total of 85 profit-making firms in Nairobi with a sample of 165 management employees were selected for this study. The empirical findings obtained relate to four outsourcing theories. Transaction Cost Analysis (TCA) Theory focuses on the cost savings that result from outsourcing. Agency Outsourcing Theory centres on outsourcing firms hiring agents to achieve productivity. Hiring agents may result in permanent staff being retrenched and additional outsourcing personnel being contracted and job creation and/or job loss results. Expectation Confirmation Theory (ECT) emphasises the importance of an outsourcing provider conforming to quality management principles. Resource Based Theory (RBT) proposes that organisations need a collection of resources and capabilities to execute outsourcing successfully. Findings further suggested that outsourcing can yield positive and/or negative outcomes depending on risks encountered, the business environment, company policies, function/s to be outsourced, and the competence and commitment of an outsourcing vendor. To further enhance the positive impact of outsourcing three improvements need to be executed: formulation of standard policies, price regulations, and commitment of outsourcing firms in adhering to set contract deadlines. It is suggested that the following would allow organisations to gain more from outsourcing in the future: the adoption of international/offshore outsourcing practices, more commitment by outsourcing consultants, the standardisation of charges for outsourcing contracts, and the use of new technology that would improve how outsourcing is conducted. It is concluded that the positive impacts of outsourcing would foster development to some extent while the possible negative impact of outsourcing would impede development

The Politics and Economics of Offshore Outsourcing

This paper reviews the political uproar over offshore outsourcing connected with the release of the Economic Report of the President (ERP) in February 2004, examines the differing ways in which economists and non-economists talk about offshore outsourcing, and assesses the empirical evidence on the importance of offshore outsourcing in accounting for the weak labor market from 2001 to 2004. Even with important gaps in the data, the empirical literature is able to conclude that offshore outsourcing is unlikely to have accounted for a meaningful part of the job losses in the recent downturn or contributed much to the slow labor market rebound. The empirical evidence to date, while still tentative, actually suggests that increased employment in the overseas affiliates of U. S. multinationals is associated with more employment in the U. S. parent rather than less.

Technological Knowledge and Offshore Outsourcing: Evidence from Japanese firm-level data

This paper empirically examines the effects of knowledge capital on offshore outsourcing choices based on original survey data of Japanese firms. The results of a multinomial logit model demonstrate that firms' offshoring is positively correlated with knowledge capital measured by their R&D activities or patenting, even after controlling for other firm characteristics including productivity, capital intensity, firm age, and export status. Further, knowledge-intensive firms are more inclined to choose foreign insourcing rather than outsourcing, suggesting that firms tend to internalize their technological knowledge in offshore sourcing.