Outsourcing vs. Insourcing

Found this post on my FB page from 2012, apparently some paper I wrote at the University, but never published here.

Outsourcing vs. Insourcing – I had an interesting conversation with myself this morning related to some of my graduate work.

Last month General Motors (GM) announced it was looking to insource somewhere in the ballpark of 10,000 Information Technology jobs back into the United States (Overby, 2012). Citing benefits such as productivity, business alignment, innovation and agility, GM hopes that the benefits will outweigh the increased cost of insourcing the IT functions (2012).

Outsourcing is used to describe the process by which an organization takes work being performed by internal employees and sending it to external employees or external organizations. Insourcing is the process in reverse, taking work that was previously sent outside of a company and bringing the work back into the company.

While Outsourcing and Insourcing can be done within a single country, often in many people’s minds, the words promote a connotation of sending or receiving work to or from other countries.

Many companies are beginning to insource back from other countries, and in my opinion they are wise visionaries. From an international perspective, in these economic times, I think some organizations are realizing that it may be irresponsible and counter productive to continue to outsource so much work to other countries.

While the costs may be lower for companies initially, the slowing rate of economic growth in our country means there will be higher unemployment and fewer consumers to purchase products. Thus while initial costs go down, demand for products also go down, and as the law of supply and demand dictates companies have to begin producing less in order to keep their prices stable. By producing less, they begin to need fewer laborers, which in turn limits the number of employees they can hire. In my opinion it is a vicious cycle.

By bringing more jobs back into the country, there will be an initial higher start up cost; however, as unemployment goes down consumerism will increase. As the consumption of products increase, supply can increase with the demand and prices can remain constant. However, companies can also have more intentional control over supply. By limiting supply, they can limit supply which will in turn increase costs and in turn it will increase profit while still supporting the economic goal of reducing unemployment.

While this is a simplified view of the process, and there should be a balance to keep inflation from getting out of control, overall, I think companies are also realizing the PR benefits of bringing jobs back into the United States (Overby, 2012; Karl, 2012).

Overby. (2012, October 8). GM banks on insourcing, opens up 10,000 IT positions. Computerworld. Retrieved from www.computerworld.in: http://www.computerworld.in/news/gm-banks-insourcing-opens-10000-it-positions-31812012

Karl. (2012, May 18). The Indian outsourcing issue is back. Retrieved from www.businessweek.com: http://www.businessweek.com/articles/2012-05-18/the-indian-outsourcing-issue-is-back