Why do Companies Outsource?

Have you ever wondered why companies outsource? You think you know the answer? Well it is not only about labor costs. It is also about over regulation in the United States, lawsuits and raw material supply chains.

You see efficiency is the name of the game and also it appears sales in international business are also very wise to consider. Ask an executive with Boeing Commercial Aircraft Manufacturing Division; outsourcing for instance to India or China where they will be buying 1000’s of new jets in the next decade.

So if some of the components are outsourced there and they can be made cheaper, and you get the sales you win times three and it also provides for good trade incentives and lowered tariffs on other imported goods. It makes fair trade more possible and likely. Also aids in stability to political cooperation and that means fewer wars and fewer disruptions as well.

I think we should apply some Plato Philosophy to the mix when we talk about “Outsourcing” for instance in the Republic he stated that each member of the society should do what they are best at [excel] and be alleviated from responsibility of that which they are not good at.

Now if you look at the world of Corporations, one company should do what it is best at and buy those things it needs from other companies who are the most efficient at doing those things.

Think of a team; the team needs the best players in the right positions; consider a soccer team. The goalie should not be a forward or a halfback. Each member of the team should be a specialist. It really is the best for efficiency models and more companies should look at it this way and companies, which fail to do so will probably be beat by those who understand this concept. I hope you will consider some of this in your economic and labor thoughts as you address this issue. So think on this in 2006.

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