Outsourcing

Outsourcing is typically the domain of trade economists, whereas nonstandard work arrangements are the province of labor economists. Temporary work is one aspect of nonstandard work arrangements just as are part-time work, contract work, and other work forms. Although there are many polemics on the positive and negative results of outsourcing and nonstandard work on productivity and personal well-being, industrial/organizational (I/O) psychologists have paid scant research attention to either.

In the early 1980s outsourcing referred to the situation in which firms expanded their purchases of products (such as automakers buying car seat fabrics) rather than making them themselves. By 2004 outsourcing had taken on a different meaning. It referred to the specific segment of the growing international trade in services. This segment consists of arm's length or long-distance purchase of services abroad. Thus X-rays made in Boston can be transferred to Bombay for reading, and call centers in Deli can serve customers in Denver. This move is accompanied by the debate about whether the United States is weakening its economic power by shipping jobs abroad.

All in all, outsourcing is a growth industry and takes many forms. Some firms have partnered with competitors in some fashion for decades. Among the reasons firms team up with competitors are to secure sophisticated, cost-driven contracts; to fend off threats from other industries; to evaluate a partner's suitability for long-term joint ventures; to set industry standards for product compatibility in hopes of expanding markets for everyone; and so on. One study of a company's outsourcing partners found that approximately 50% were with competitors. One observer noted, “In today's complex, intertwined economy, the business-as-war, winner-take-all mind-set doesn't cut it. Better get a piece of the pie than no portion at all.” In war, outsourcing cuts it. Outsourcing has been done in every war the United States has fought. In the second Gulf War, the U.S. military outsourced everything [Page 593]from feeding troops to providing heavy machinery. Both the numbers and types of coopetitions are rising.

Partnering has a number of advantages and disadvantages. Some operational benefits accrue from partnering. Partners can teach new things, perhaps through access to best-of-class processes. Perhaps partnering competitors can learn technology secrets from one another. Where industry benchmarks aren't wellknown, partnering with a competitor can offer insights on a company's productivity, quality, and efficiency.

But there are also obvious disadvantages. Lack of control is a critical disadvantage. If a U.S. oil company operating in a foreign environment outsources security to an in-country organization, and the in-country security force comes in contact with drug traders, it can start a war that the United States will then have to deal with. The demise of ValuJet, for example, happened because the company outsourced cargo handling to a company where they could not control quality standards. In another form of outsourcing, competitors learn from each other's operations, which may be detrimental to one or more partners. Or a coopetition may self-destruct before the renewal option dates arrive. A new company board for one of the partners may not approve of the other partner. The strategic aims of partners may change midstream, causing failure. These are just some of the reasons for outsourcing failures.

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