Title: The Unintended Consequences of Outsourcing
Headings: The Unintended Consequences of Outsourcing
The Unintended Consequences of Outsourcing
Outsourcing Lowers Barriers to Entry and Increases Competition
Outsourcing Erodes Company Loyalty
Outsourcing Can Eliminate Jobs From the Domestic Workforce
Outsourcing Affects Insourced Countries
The Bottom Line
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Content: But as with most things, outsourcing isn't all good; it does cause some unintended negative consequences. Outsourcing Lowers Barriers to Entry and Increases Competition
While increased competition is encouraged by free markets and generally benefits consumers, it can hurt businesses that can't keep up. Outsourcing allows new entrants to industries where labor would have been too expensive otherwise. A startup company seeking to manufacture electronic devices might not be able to get off the ground if it had to hire American factory workers, but can now easily find eager and cheap skilled laborers abroad. Barriers to entry that once existed due to the capital requirements needed at the startup phase can be greatly reduced. Early movers in an industry to outsource will have a competitive advantage initially, but that advantage will continue to be eroded as more competitors follow suit, and newcomers are incentivized to join. Once everybody is participating, the initial advantage is removed completely. Outsourcing also encourages new competition by causing fragmentation and disintegration of the supply chain. In other words, new entrants can arise to exploit the fact that manufacturing may take place in a different geographic region from product design and customer support in yet another region.