Outsourcing emerged as an explicit controversy around 1980s in the dispute between American auto producers and the autoworker union. At those times, workers were afraid that larger amount of parts for car would be purchased from foreign non-unionized suppliers. Since then, the scope of issue significantly increased and became the primary topic on international agenda that opens vast opportunities for Third World countries. Lynn Reaser estimated that as much as four million of U.S. jobs in service sector will be outsourced within the next five years. Going even further then this, as much 500,000 programming job will be outsourced within the next 2 years.



Mari Amiti and Shang-Jin Way define outsourcing in several ways. When speaking broadly, outsourcing includes imports of all goods and services or, speaking technically, outsourcing is the process of transferring business functions of company to a third party including physical and human assets in order to perform activities that previously were done by the company. However, the type of outsourcing to be discussed further in the paper is generally referred to as “offshore outsourcing" or “offshoring". In this case, the third party to whom certain tasks are being outsourced is located abroad and usually in Third World Countries. Outsourcing takes diverse forms. Companies throughout the world outsource data analysis, research processes, customer support and information technology operations, engineering design and Medicare, legal and financial support services, environmental services, software development, art, animation, editorial and DTP work.

When speaking globally, in terms of economic efficiency, outsourcing is very effective, as it allows cost minimization and at the same time remains to be a legal practice that stimulates competition and improves the quality of goods and services produced by economy. Grossman and Helpman investigate the nature of outsourcing decisions. Scholars introduce a model that features a thick market externality. Given the presupposition that external suppliers have to do search in external environment for a specific service or a good, outsourcing tendencies would then be shifted to the markets with high rate of companies offering outsourcing services. While similarities in contracting environments have a positive effect on outsourcing tendencies, uniform technological advance has no effect.

At the same time, technological improvements within one country do stimulate outsourcing tendencies creating benefits for buyers and changing the composition of supply. According to the results of the study presented by Taylor, out of every one dollar work moved to India, Indian economy gains 33 cents in wages, whereas the remaining 67 are realized as profits for companies in the United States. When it comes to speaking about outsourcing of taxation, Shamis, Green, Sorensen, and Kyle concluded that the quality of accounting professionals hired abroad is even better as compared with those normally employed within the company. Lauren Bielski states that outsourcing will always be favored by companies in the future, as the process transforms fixed costs into variable and transparent, which makes the business more flexible. According to Masaaki Kotabe, offshore outsourcing has a positive impact on the level of innovation in multinational companies.

From what is stated above, it certainly appears that outsourcing is a positive stimulator and a natural process of economic development and advance on the road to a smaller world tight together by globalization. The problem is that if to think about the issue locally, benefits blur in the countries from which labor is outsourced. The restructuring process that becomes a necessity for economies, from which jobs are outsourced to foreign countries is very difficult and requires high level of flexibility from its workers. However, Mari Amiti and Shang-Jin Way consider that anxiety surrounding the issue is not supported by the factual data. As if to adjust the size of developed countries to the number of jobs being exported and imported, First World is experiencing a surplus.

Going even further then this, if a job sector is being decomposed into 96 sectors instead of 450, the negative effect disappears. This means that jobs are not being exported if to take the labor force overall, whereas some sectors do experience restructuring. Finally, the scholar arrives at the conclusion that outsourcing is beneficial for developed countries, as none of the adverse effects on the labor force are being realized.