Why U.S. Multinational Corporations Outsource

Globalization has made this world much smaller and customers can easily purchase goods made in other countries. Outsourcing is inevitable and many U.S. multinational corporations recognize and take the advantages of outsourcing. These corporations open offices, factories, or subsidiaries in countries such as China and India. Large IT corporations, including Apple, Microsoft, Oracle, and Google, have opened offices and hired employees in Asian countries. Similarly, retailers and chain restaurants have opened stores outside of the United States. American multinational corporations take advantages of outsourcing to maximize their profits by cutting costs, increasing sales, and avoiding taxes.

Outsourcing can help manufacturing corporations cut production costs by lowering labor costs. American manufacturing corporations like to hire employees in Asian countries because manufacturing wages are much lower there. In his Forbes article on January 25, 2012, Baizhu Chen has pointed out that Apple relies on Foxconn, which hired 230,000 assembly workers to make iPhones in China. The average manufacturing wage was seventeen times less in China, and Apple has saved billions of dollars in 2010. Similarly, Oracle, the third largest international software corporation, outsources thousands of jobs to different offices worldwide to save labor costs.

As outsourcing cuts production costs for U.S. corporations, it also makes them more competitive by increasing sales and providing outstanding customer service as well. There is a large population in China and many Chinese people like to buy famous brand products like the iPhone. It is essential for Apple to make iPhones in China. It not only saves time and money by making products there, it also improves their customer service by providing repair and maintenance services locally. American chain restaurants have open stores successfully in China, such as KFC, Pizza Hut, and McDonald’s. They usually open stores in big and rich cities, such as Shanghai and Wenzhou, my original hometown. Chinese people in these cities like shopping and eating a variety of foods outside. Many people eat outside more than at home. In China, whenever I visited a KFC restaurant, it is always filled with customers. These American chain restaurants definitely increase their sales and profits since they are popular and have large amount of customers there.

Outsourcing gives U.S. multinational corporations many opportunities to avoid taxes by taking advantage of low taxes or no taxes in foreign countries. Because the U.S. Tax Code allows multinational corporations to make profits earned by foreign subsidiaries without paying U.S. income taxes, corporations try to find loopholes between the US and international accounting rules to avoid taxes. As Robert Oak noted in the Economic Populist article on September 21, 2012, the corporate tax accounted for 32.1% of federal tax revenue in 1952, but it only accounts for 8.9% of federal tax today. U.S. multinational corporations make more than $1.7 trillion in profits without taxation and they retain these untaxed profits as undistributed foreign earnings. Outsourcing does benefit U.S. multinational corporations by helping them to avoid taxes.

As you can see, outsourcing is largely driven by competition, and it has benefited U.S. multinational corporations tremendously by helping them increase sales and maximize profits. Although outsourcing has caused a reduction of income taxes to the U.S. government, it gives the U.S. lawmakers a signal that they need to rewrite the U.S. corporation tax code, lower tax rates, and fix loopholes in the corporate tax law. The trend of outsourcing allows customers to purchase quality goods at lower prices. Thus, outsourcing can benefit customers greatly in the end.



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