Group+8A

= Mexico: The Outsourcing of US Jobs and Effect on Our Economy =



What is outsourcing?
"The practice of having certain job functions done outside a company instead of having an in-house department or employee handle them; functions can be outsourced to either a company or an individual" (entrepreneur.com). Outsourcing refers to a company that contracts with another company to provide services that might otherwise be performed by in-house employees. Many large companies now outsource jobs such as call center services, e-mail services, and also payroll. These jobs are handled by separate companies that specialize in each service, and are often located overseas (outsourcing.com). For our own purposes, we will be examining the effect and roles of outsourcing of United States workers’ jobs to Mexico.

United States and Mexico's History of Outsourcing
Between the strong dollar and increasing foreign competition, American car companies found themselves in a desperate situation and were forced to resort to a radical measure to insure cost equality and prosperity. In the mid 1980’s, General Motors took what was then a very unusual step and closed 10 factories in Flint Michigan and moved them to Mexico, thus beginning the trend. (Moore, 1989) The United Autoworkers Union reacted and made the transfer of jobs overseas a major issue of contention in negotiations with the big three auto manufacturers (No Author, Auto Worker). However these measures were not put into place and United States companies began to look at outsourcing more and more favorably due to profits rising. On January 1, 1994 the North American Free Trade Agreement or NAFTA agreement was signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America (No Author, 2010 NAFTA). With NAFTA signed, American firms began looking at Mexico as both a market for export and a potential center of production. Chrysler, GM, and Ford expanded their Mexican production capacity and soon many other American companies followed. Foreign owned plants staffed by Mexican labor factories called Maquiladoras sprang up everywhere along the U.S./Mexican border. Today there are, “Over one million Mexicans working in over 3,000 maquiladora manufacturing or export assembly plants in northern Mexico, producing parts and products for the United States” (Rosenburg, 2010)

Why Outsource?
There are many reasons that companies outsource various jobs, but the most obvious advantage seems to be the fact that it saves money. Many of the companies that provide outsourcing services are able to do the work for considerably less money, as they don't have to provide benefits to their workers and have fewer overhead expenses to worry about. Outsourcing is a lot cheaper for American companies, however it also saves money for consumers of these products and services. Rebecca Leung, a CBS reporter stated that outsourcing, "May have cost hundreds of thousands of American jobs, but it's made American products more affordable." (Leung, 2004). When you have tons of workers in Mexico that are willing to work for a small fraction of what American workers demand, companies flock to them to help expand their own business.

Positive Impacts on U.S. Economy:
Due to hard economic times in the United States and cheaper labor across our borders, corporate America has turned to outsourcing to cut costs and increase revenue. Outsourcing to Mexico is a positive way in which America can ensure the maximum amount of utilization of all of its resources. “Outsourcing enables the business to focus its energy on its core competencies and avail the benefits of others dexterity in operations, in which other companies have efficiency” ([]). The advantages of outsourcing on the American economy include business cost sharing, reducing costs, creating tax benefits, making companies more competitive, and executing more control over business outcomes. The close proximity of Mexico to the United States further aids in cutting costs of American corporations. Due to NAFTA creating the loss of Mexican tariffs, American industries have experienced ease in expanding in Mexico. Exporting to Mexico has become cheaper and American goods are now able to compete with domestic Mexican goods. A positive aspect due to NAFTA is that “the US Commerce Department computes that every $1 billion in exports supports 10,000 American jobs" (@http://www.ilovelanguages.com/tyler/nonfiction/nafta2.html).

Negative Impacts on U.S. Economy:
One of the most negative impacts of outsourcing to Mexico is the dramatic increase of unemployment and loss of jobs throughout the United States. Due to Mexican industries fluxing into the American market, many American industries are disadvantaged and cannot compete with cheap Mexican-produced goods. Many of these industries have found themselves put out of the American market resulting in job loss for many Americans. NAFTA has “forced[d American] workers into more direct competition with each other, while assuring them fewer rights and protections” and has “served to widen U.S. trade deficits and has indirectly pushed some of U.S. workers into lower-paying jobs” (@http://www.cfr.org/publication/15790/naftas_economic_impact.html). Though there is data stating that American exports to Mexico have dramatically increased, it is oftentimes not mentioned that many of these exports are raw materials from from the United States that are shipped to Mexico where lower-paid Mexican workers can finish the products and then import them back to the United States. This process dramatically decreases the need for American workers because they are being replaced by cheaper labor across the border of Mexico. Wages of Americans have been driven down because of the workers competition with Mexican workers who work for much less an hour oftentimes with no benefits, workplace protection laws, or environmental protection laws.

Mexican economy directly affected by U.S. economy:
The United States desires a prosperous and democratic neighboring country, which is why the state of Mexico’s economy is so important. The U.S. and Mexico have strong economic, political, and social ties, which have direct policy implications related to bilateral trade, economic competitiveness, migration, and border security. In May 2010, President Barack Obama hosted Mexican President Felipe Calderón at a meeting in the White House in which the two leaders discussed key issues affecting the two countries. ([]) They agreed to continue and reinforce cooperation on creating jobs, promoting economic recovery and expansion, and encouraging inclusive prosperity across all levels of society in both countries. Congress is likely to maintain an active interest in Mexico on issues related to the North American Free Trade Agreement (NAFTA) and other trade issues, economic conditions in Mexico, migration, border security issues, and counter-narcotics.(http://www.portalfornorthamerica.org/spotlight/2010/10/crs-report-mexican-economy-after-global-financial-crisis)

The global financial crisis that began in 2008 and the U.S. economic downturn had strong adverse effects on the Mexican economy, largely due to its economic ties and dependence on the U.S. market. ([]) Mexico's gross domestic product (GDP) contracted by 6.6% in 2009, the sharpest decline of any Latin American economy. ([]) Mexico's reliance on the United States as an export market and the relative importance of exports to its overall economic performance make it highly susceptible to fluctuations in the U.S. economy. Most other Latin American countries are not as dependent on the United States as an export market. Economic reforms over the past 20 years and the government's responses to the effects of the global financial crisis have helped Mexico weather the economic downturn and improve conditions in 2010. ([]) However, sustained economic recovery will likely depend on the U.S. economic recovery and the ability to sustain this growth.

How Mexico’s violence is affecting its role as an outsourcing country:
In addition to the adverse effects from the global financial crisis and the U.S. economic contraction, Mexico's economy is experiencing numerous other challenges. Unfortunately, a surge in murders and other crime linked to drug trafficking is solidifying Mexico’s reputation as a risky outsourcing location. An increase of killings over five days in late January 2009, has served as a horrible reminder of the rising tide of drug-related violence in Mexico. The escalation in violence that has accompanied the Mexican government’s crackdown on drug cartels comes as more U.S. companies consider Mexico as an IT outsourcing destination and it is causing some outsourcing consultants to question whether to relocate business elsewhere. The number of drug-related deaths rose to 4,000 in 2008, from 2,500 drug-related deaths a year earlier. (http://www.businessweek.com/technology/content/feb2009/tc2009022_069976_page_2.htm ) Mexico’s government, politicians, police, and judicial infrastructure are all under sustained assault and pressure by criminal gangs and drug cartels. Companies that specialize in IT outsourcing in Mexico point out that the violence tends to be located in border areas and cite anecdotal evidence that demand for outsourced Mexican IT remains buoyant. Eurasia Group, a global political risk research and consulting firm, ranked Mexico as No. 7 on its list of 10 global risks in 2009. (http://www.businessweek.com/technology/content/feb2009/tc2009022_069976_page_2.htm) Increasing unemployment throughout the country has led to a growing trend towards informality and self-employment. This may present a long-term problem for the government because growth in the informal sector can lead to increased poverty levels, diminished productivity, and lower prospects for sustained economic growth.

How Remittance is affecting Mexican Economy:
Mexicans abroad are sending less money home to their families as a result of the global financial downturn and rising unemployment levels in the U.S. The rapid decline of remittances has hit the Mexican economy particularly hard. ([]) The 16% drop in remittances to Mexico in 2009 has mostly affected the poor. Remittance inflows, which are largely from the United States, are Mexico's second-highest source of foreign currency after oil. (http://worldfocus.org/blog/2010/02/16/mexican-economy-hard-hit-by-drop-in-us-remittances/9714/)

media type="custom" key="7544311"

A Promising Future in the Outsourcing of jobs to Mexico by Melissa Alatorre
Through time, Mexico has been able to gain much popularity amongst corporations looking to outsource their employees with the idea that if you cannot “home-shore” the next best thing would be to “near-shore”. Mexico’s close proximity has proven to be much more cost effective, convenient in terms of time zones and NAFTA status, and highly beneficial to the large market of bilingual customers just across the border. As mentioned by Frank J. Casale of The Outsourcing Institute the “near-shoring market has gained favor among numerous buyers keen to keep their solutions closer at hand”, reflecting the current and future trend of Mexico being one of the main chosen countries when the time comes to outsource jobs.

While investors may have been skeptical at first about Mexico’s capability in providing quality IT services they are now beginning to put more effort into supporting “the governments bid to reinforce the legal structure” (Casale, 2006). With statistics pointing Mexico’s future in outsourcing in a positive direction investors are becoming more and more willing to help Mexico in its efforts to further improve their legal structure and security. One of Mexico’s leading investors Microsoft is highly involved in this movement to help Mexico improve their businesses practices so they may insure they continue to be a leader in the outsourcing world. Microsoft Mexico’s Director General, Felipe Sanchez Romero, expresses his faith in Mexico in stating “we don’t want to compare ourselves with less developed countries. We want to compare ourselves to Europe and the U.S.”. Such confidence coming from renowned corporations like Microsoft in Mexico’s ability to prosper proves for a promising future.

For as long as outsourcing has existed the leading countries have included India, China, Brazil, and Russia but that seems to be changing with Mexico entering the picture. They are gaining credibility from major corporations aiding in their likeliness for the outsourcing of certain careers. The improvements being made by Mexico will only help them out in the future and draw in more business towards them rather than to countries located across the ocean.

**Conclusion/what to do by Travis Lindsay** Since the 1980's the U.S. has been outsourcing to Mexico. Traditionally, the most popular outsourcing destination have been Thailand, India and Brazil. What Mexico offers that these other locations do not, is proximity. Mexico is far more convenient for American businesses, as they are in the same time zone and often only a short drive or plane ride away. Outsourcing is a mutually beneficial relationship between the U.S. and Mexico. As Mexico offers services at fractional cost, the U.S. provides thousands of people with jobs. As more jobs are created within Mexico, this reduces the need for workers to migrate to the the U.S. in search of work. Thus, keeping more money within its own boarders, which can greatly help to rebuild their economy which was hit just as hard if not harder than the U.S. during the most recent financial crisis.

As beneficial as outsourcing can be, it too, has its risks and drawbacks. Clearly the main goal of outsourcing is to save money. Unfortunately this usually ends up costing someone. What The U.S. saves on cost, the Mexicanworkers loose in wages and benefits. Also, as the U.S. employs thousands of workers, a large portion of Mexico's economy is highly dependent upon the U.S. businesses. This makes Mexico's economy highly susceptible to fluctuations within the U.S. economy. Job loss in the U.S. has directly affected those who work within the U.S. but have family still in Mexico, as they have less or no money to be sending home in helps of supporting the family. With less income in Mexico, there is less money being put back into the Mexican economy, thus giving slim chances for recovery.

As patterns predict, outsourcing is on the rise and will continue to grow. When making decision in regards to outsourcing, cost and location are the two main factors. It is important to understand, how dynamic and complex, business practices and national economies are and how they can be mutually beneficial. At the same time, as we save money by outsourcing, it is important to the consider how our decisions will impact the countries that we plan on building business relations with.

**Works Cited:**

Casale, Frank J. (2006). Mexico - the next frontier. //The Outsourcing Institute//, //8//. Retrieved from []

Economy Hard Hit by Drop in U.S. Remittances | Worldfocus. (2010, February 16).Worldfocus: International News, Videos and Blogs. Retrieved November 24, 2010, from http://worldfocus.org/blog/2010/02/16/mexican-economy-hard-hit-by-drop-in-us-remittances/9714/

Felipe Sanchez Romero. (2006). U.S. Investors Put Faith in Mexico. //The Outsourcing Institute//, //8//. Retrieved from []

 Jones, Tyler. (1993, December 4). Possible Effects of the North American Free Trade Agreement on the Economies of Canada, Mexico, and the United States. Retrieved from []. 

King, R. (2009, February 2). Mexico Outsourcing: Violence Worries Rise - BusinessWeek.BusinessWeek - Business News, Stock Market & Financial Advice. Retrieved November 19, 2010, from http://www.businessweek.com/technology/content/feb2009/tc2009022_069976_page_2.htmMexican

Leung, Rebecca. (August 1, 2004) Out Of India More American Companies Are Sending Jobs Overseas. Retrieved from http://www.cbsnews.com/stories/2003/12/23/60minutes/main590004.shtml

Moore, Michael. (1989). Roger and Me Synopsis. Retrieved from http://dogeatdog.michaelmoore.com/synopsis.html

No Author. (Date of Publication Unknown). Auto Worker Union History. Retrieved from www.ilr.cornell.edu/.../autoworker_uawHistory.htm

No Author. (October 14, 2010). North American Free Trade Agreement. Retrieved from []

No Author. (Date of Publication Unknown). The Outsourcing Institute, Outsource in Latin American Workplace. Retrieved from http://www.outsourcing.com/latin_america_marketplace/index.html

Outsourcing. (2010). In Small Business Encyclopedia. Retrieved from http://www.entrepreneur.com/encyclopedia/term/82610.html

<span style="tab-stops: 45.8pt 91.6pt 137.4pt 183.2pt 229.0pt 274.8pt 320.6pt 366.4pt 412.2pt 458.0pt 503.8pt 549.6pt 595.4pt 641.2pt 687.0pt 732.8pt;"> Parker, Kendra. (2006, June 10). Outsourcing- It's Impact on American Jobs. Retrieved from [].

Rosenberg, Matt. (2010) Maquiladoras in Mexico, Export Assembly Plants for the United States. Retrieved from http://geography.about.com/od/urbaneconomicgeography/a/maquiladoras.htm

<span style="tab-stops: 45.8pt 91.6pt 137.4pt 183.2pt 229.0pt 274.8pt 320.6pt 366.4pt 412.2pt 458.0pt 503.8pt 549.6pt 595.4pt 641.2pt 687.0pt 732.8pt;"> Teslik, Lee Hudson. (2009, July 7). NAFTA's Economic Impact. Retrieved from [].

Villarreal, A. (2010, October 26). CRS Report: The Mexican Economy After the Global Financial Crisis | Portal for North America. Home | Portal for North America. Retrieved November 18, 2010, from []

<span style="font-family: Arial,Helvetica,sans-serif;">