by Disinvestment Supporter

Created on: April 22, 2008   Last Updated: January 23, 2011

Outsourcing is prevalent in our information-led economy mostly because it offers some major benefits for corporations. Businesses can cut costs and staff, as well as lessen liability, just by paying someone else to perform tasks like janitorial work and customer service. While the benefits of outsourcing are real, there are also risks that should be considered at the same time. Just as benefits will change depending on what task is being outsourced, so will the risks. To better understand the benefits and risks of outsourcing we should look to real examples.

In 1994 Schwan's refrigerated food service was outsourcing the transportation of their ice cream mix to Cliff Viessman, Inc. Viessman's delivery truck had, prior to one delivery, hauled a shipment of raw eggs that unknowingly were contaminated with salmonella. 224,000 of Schwan's ice cream patrons in 35 states fell ill with "fever, abdominal cramps, and diarrhea" that lasted 4-7 days.(1)

While this is an extreme example of what can go wrong with outsourcing, it serves well to remind us that this commonly used corporate tool to increase the profit margin does have its risks. A business has to give away some measure of control and surety, incurring these risks in order to reap the advantages of buying bulk items that would cost a lot more if made in-house.

Ford and other auto manufacturers outsource the task of molding and assembling interior parts like visors and arm rests to the Japanese-owned Takata Corporation which owned factories once in Blytheville, AR and Greenwood, MS but now located along the Mexican border. Ford has saved a bundle by outsourcing to Takata with its factories that make use of plentiful, cheap labor and ineffective labor unions in "right-to-work" states.

Outsourcing can save a lot on labor costs but care should be used. Increasingly the public is shunning those corporations that violate our common sense of morality. Kathie Lee Gifford was confronted about buying goods for her clothing line from factories in Honduras that used child labor and sweatshops paying below minimum wage for 60-hour work weeks in Manhattan, very near the studio that produced "Live with Regis and Kathie Lee".

Kathie Lee claimed ignorance and even cried on television, yet her profits went flop anyways. Ignorance is not a great excuse in our information driven economy. Interestingly Walt Disney Corporation was engaged in the same activities, buying Pocahontas and Lion King children's outfits made in Haitian sweatshops

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