Some Small Businesses Suffer, Others Profit from Outsourcing

As outsourcing accelerates, it can be the best of times or the worst of times for U.S. small businesses.

Take for example Craig Schroer, president of Unitech, a tool and die manufacturer in Lee's Summit, Mo. His company’s revenues were slashed in half almost overnight when his biggest customer, a U.S. truckmaker, decided to purchase cheaper parts from a Chinese manufacturer.

"One month they were talking to us about doubling their orders," said Schroer, who until recently employed 16 workers and enjoyed annual sales of $2 million. "The next month they were gone."

Shroer’s story, reported in Fortune Small Business, contrasts with that of Ed Travis, CEO of American Predator, a manufacturer of computerized control systems for industrial and medical equipment. For years the 45-employee firm hired U.S. contractors to solder components onto motherboards, at a cost of millions of dollars.

Now a Mexican company does the work and charges 30 percent less. American Predator has shifted its attention to its more profitable software-design business. "We are able to offer more services without increasing overhead," Travis said.

A recent study of outsourcing's impact on the U.S. economy found that sending computer systems work overseas led to higher productivity and created 90,000 U.S. jobs last year. The study, conducted by the consulting firm Global Insight for the Information Technology Association of America, estimates that twice the number of U.S. jobs were created than were lost in sectors ranging from manufacturing to financial services. Companies with higher profits have more money to expand, creating new jobs.

However, many businesses are being hit hard, and the outsourcing trend shows no signs of slowing down. By 2015, more than 3.3 million jobs are expected to go elsewhere, with metal workers, call-center operators, software programmers, X-ray technicians and accountants suffering the most, Fortune Small Business reported. Experts estimate that about 14 million U.S. workers are at risk of losing their jobs to outsourcing.

Meanwhile, lawmakers are considering a bill that would protect consumer privacy as firms outsource data processing, tax prep work and accounting to foreign countries, the Wall Street Journal reported.

U.S. Rep. Edward Markey, D-Mass., who co-chairs the congressional privacy caucus, said Tuesday that he plans to introduce legislation shortly to close privacy loopholes overseas, as consumer protections are much stronger in the U.S. than abroad.

In a statement, Markey said reports he has received recently from the Internal Revenue Service and the Public Company Accounting Oversight Board are "quite troubling" and suggest offshore outsourcing puts consumer privacy into "a regulatory black hole."

Markey worries "Americans could lose their job and their privacy in one fell swoop," said spokesman Mark Bayer.

You may like these other stories...

Truckers and other owners of heavy highway vehicles take note: Your next federal highway use tax return is due on September 2.The September 2 due date, which was pushed back two days because the normal August 31 deadline...
The head of the IRS has a message for taxpayers and tax preparers who have endured long wait times while on the phone with the tax agency: Call your member of Congress.During his keynote speech at the 69th Annual Meeting of...
Regulators struggle with conflicts in credit ratings and auditsThe Public Company Accounting Oversight Board (PCAOB), which was created by the Sarbanes-Oxley Act in 2002, released its third annual report on audits of...

Already a member? log in here.

Upcoming CPE Webinars

Aug 26
This webcast will include discussions of recently issued, commonly-applicable Accounting Standards Updates for non-public, non-governmental entities.
Aug 28
Excel spreadsheets are often akin to the American Wild West, where users can input anything they want into any worksheet cell. Excel's Data Validation feature allows you to restrict user inputs to selected choices, but there are many nuances to the feature that often trip users up.
Sep 9
In this session we'll discuss the types of technologies and their uses in a small accounting firm office.
Sep 11
This webcast will include discussions of commonly-applicable Clarified Auditing Standards for audits of non-public, non-governmental entities.