Is Outsourcing the Greater Evil?

The engulfing rage that outsourcing is met with across the US has cooled down several degrees on the Canadian side. Even as the Royal Bank of Canada faced disdain and is embroiled in controversy surrounding its decision to outsource some of its operations, some entrepreneurs believe that outsourcing will bring new jobs in to Canada.

Corporate social responsibility v/s economic benefits

The Royal Bank of Canada seemed to have a determined focus toward maximizing their own economic potential while turning a blind eye toward the social responsibility of providing jobs for the Canadian society. Most experts argued that there had to be some sort of a balance between economic needs and social responsibility.

On the flip side of the argument, some Canadian entrepreneurs hold steadfast to the belief that in order to capitalize on efficiency, companies often have to look outside of themselves, sometimes outside the country itself.

Breaking down the idea of outsourcing

Mario Zelaya, an entrepreneur responsible for running Majestic Media, a marketing and technology agency in Toronto Canada was rooting for outsourcing. He was of the opinion that running a startup with a limited budget meant very few financial options for hiring employees.

A team of four, including Mario Zelaya run the company’s strategic development and have the client and sales meetings in Toronto. The creative work and the technological innovation is carried out in centers located in Venezuela, Poland, Costa Rica and Argentina by a total of only 21 employees.

The driving force for Mario Zelaya was the reduced cost of running the business. He could pay lesser for the same quality of production and therefore receive higher return for the same work. He was quoted as saying, “Originally when I got started, I was the only employee in Canada, but now I have project managers, I have marketing people, I have sales staff here in Canada. I can’t afford a quarter million [dollars] to pay a creative director; I can’t afford a million to have 10 engineers. But what I can do is afford hiring them externally and still have them (sic) be of the same quality.” He also said that offshore outsourcing was not necessarily a negative notion. He was quoted as saying, “When people say that hiring people overseas is costing us millions of dollars here, it’s not, because these are jobs that I could have never have been able to offer in Canada. I never would have been able to scale the company to where it is right now if I hadn’t made those decisions early on.”

Mario Zelaya, like numerous other entrepreneurs, believes that outsourcing boosted his company’s progress to a position where he could hire Canadians without affecting his profit margins.

A question of efficiency softens the blow of outsourcing

CORE, a Canadian not-for-profit organization lead by President and CEO Ray Lavitt, helps companies find avenues to outsource. Lavitt is of the opinion that companies outsource to either local or offshore locations for a number of reasons.

Lavitt was quoted as saying, “Perhaps it’s to solve a particular business problem, trying to reduce costs, maybe trying to enhance their own market competitiveness nationally or globally. It’s thinking that an external company can do [that particular job] more cost-effectively than what a company can do for itself.”

The reasons for outsourcing, however varied they maybe, boil down to cost-cutting measures according to Ron Babin, Professor of Business at Ryerson University and the Ted Rogers School of Management located in Toronto, Canada. He is of the opinion that outsourcing can reduce as much as 30 to 40 percent of the running costs. The lower cost is the motivation and the economic driver that pushes companies to outsource processes.

Outsourcing – A means to hire specialists at a fraction of the cost

Specific countries or locations seem to have developed traits of being specialists in certain arenas. Silicon Valley for example is a teeming hub of software companies. Likewise, India has established itself as a specialist in handling new technologies. Engaging skilled workers with special capabilities at a fraction of the cost is a benefit that can be accessed only through outsourcing.

The cost differentiation comes not from the quality of work but from the economic surrounding of the location. Employees are paid according to the economic norm of the area. Babin says that Canadian entrepreneurs save money because the workers are paid according to their economy, a significantly lower market rate for the same capabilities.

Against the grain of the underlying assumption that most people make, it is not that the Canadian employees do not possess the capabilities that companies are looking for. On the other hand, Canadian employees are perfectly capable of executing the outsourced operations themselves, but they come at a cost. The cost will then hold the company back from realizing their full potential. It is a question of what the company can afford to pay and still grow.

Babin relied on the Y2K bug as an example for the pressing need that outsourcing fulfills. He was of the opinion that outsourcing became popular when a lot of companies were looking for skilled technicians to handle the anticipated computer problems and they did not have the requisite number of employees available locally. This need for outsourcing, Babin said, is not likely to ever disappear completely. The outsourced projects will merely ebb and flow like the endless tide.

He was quoted as saying, “Outsourcing will not go away because the economics behind it are so well-established and it flows like water over the internet anywhere in the world within seconds.”

Cloaking or answering the question of responsibility

The Royal Bank of Canada CEO, Gord Nixon, in an open letter to the bank employees affected by the company’s outsourcing decision promised them “comparable job opportunities within the bank”. The CEO also spoke about the bank’s intentions to invest in more job opportunities for the young Canadian populace.

Babin identified Nixon’s letter as being a positive step towards social responsibility. It was a first step toward the bank assuming responsibility and creating more jobs for the Canadian population.

The Canadian economy requires domestic businesses to thrive and compete with local and global companies in the same domain. Outsourcing ensures profitability that gives local companies an edge over the competition. On the flip side, companies also need to be aware of and fulfill their social responsibility.

Babin was quoted as saying, “We must take care of our citizens, we must take care of our income earners, our wage earners, working people, because we are the ones that pay the taxes, we’re the ones that support families and the economy and the government.”

While Babin’s views are completely supported and ring true, for entrepreneurs like Zelaya outsourcing was the only means available to hire more Canadians. Zelaya was quoted as saying, “It’s a fine line of finding the right balance for what works for your company.”

Like all else in the world, outsourcing cannot be clearly compartmentalized as being black or white. There are situations where outsourcing certain processes is inevitable and certain situations where outsourcing is the only way to boost a company clear past the competition.          




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