While President Obama's re-election to the White House may not have pleased everyone, it at least draws a line under one of the most keenly contested campaigns of all time. It also allows the United States government to focus on more pressing issues, such as avoiding the so-called fiscal cliff and inspiring more rapid economic growth. After all, the nation's Gross Domestic Product (GDP) has struggled to expand by more than 2% since the global recession of 2007 to 2009, while unemployment has also taken its toll on national citizens.
The 2008 global recession sparked an increase in the number of firms outsourcing work overseas, as corporations strived to minimize their costs and create a more flexible workforce. However, this is a business practice that the Obama administration has always opposed. Especially since previous governments have offered tax breaks to companies that have outsourced their work abroad. Although it cannot be denied that outsourcing helps firms to produce and sell their products cheaper, it has also been accused of contributing heavily to the decline of the U.S. manufacturing industry and national unemployment.
The Age of Insourcing
The pace of evolution in the business world has never been more rapid, which means that outsourcing may have already become a less viable concept. There are many potential reasons for this, but the fact remains that an increasing number of U.S. firms are resolving to minimize their outsourcing activities and bring jobs back to the U.S.
A recent survey of Georgia manufacturers confirmed this theory, with the majority of respondents claiming that they have reacted to rising exports by creating a higher volume of domestic jobs.
This breaking trend has been referred to as insourcing, and it completely reverses the policy that has defined the U.S. labor market for so long. It is also having an impact across several different industries, with local government offices and firms making a similar commitment. For example, the Adams County government body has recently confirmed that it will reverse its third party IT support policy on Jan. 1, 2013, which will lead to the county employing 42 full-time ACS workers and save an estimated $800,000 of public revenue during the first year of operation.
The Advantages of Insourcing in 2012
Fundamental economic principles are behind the emergence of insourcing. These are the same factors that forced companies to outsource work in the first place. Less than a decade ago, the cost of labor in emerging economies such as China was significantly lower than it is today, which allowed firms to have their products manufactured overseas while making substantial financial savings. The subsequent growth of the Chinese economy and similar nations has created far higher wage requirements, which alongside rising freight and fuel costs has made outsourcing an increasingly costly practice.
There are other issues that have emerged through outsourcing, with poor quality control one of the most significant. Even though firms were initially saving money by outsourcing work abroad, many encountered problems with satisfying proposed delivery schedules and the finished quality of individual products. The New Jersey company Princeton Tech experienced these issues, having outsourced half of its manufacturing jobs to China, though a recent change in infrastructure has resulted in 90% of its manufacturing output returned to the U.S.
Although the popularity of insourcing is undoubtedly indicative of the economic climate, it is also compatible with modern social values. There is a growing sense of social responsibility among U.S. consumers, who are increasingly likely to purchase locally-sourced products. This minimizes the cost of shipment and overseas transportation and has encouraged U.S.-based firms to bring their manufacturing jobs back into the country. The recent introduction of the I Make America campaign has also been launched in order to promote the U.S. manufacturing industry and encourage the creation of domestic jobs.
The Bottom Line
Insourcing undoubtedly has a place in the current social and economic climate, though it is unclear as to whether it boasts genuine longevity as a business concept. Just as outsourcing evolved rapidly and then declined within a short space of time, it remains to be seen whether firms in the manufacturing, automotive and IT industries can sustain the cost of domestic labor over a prolonged period of time.