Final answer:
Companies outsource or offshore labor to reduce costs, increase efficiency, and remain competitive in the global market. Outsourcing allows companies to hire exterior firms for specific roles, while offshoring moves operations to countries with cheaper labor.
Step-by-step explanation:
A company might choose to outsource or contract out labor for various strategic reasons, primarily focused on cost savings and efficiency. Outsourcing is the process of hiring outside contractors to perform tasks that a company once performed internally. It allows businesses to reduce costs by eliminating the need to hire and train employees for specific roles, especially when these can be done more cheaply elsewhere. This strategy often involves jobs such as accounting, payroll, and customer service. Offshoring, on the other hand, involves moving a company's operations to another country to take advantage of lower labor costs.
Global market pressures and competitive needs drive companies to seek out low-cost labor markets. For instance, the trade agreements like NAFTA enabled companies to offshore manufacturing to Mexico while still serving the US market efficiently. This pursuit of cost reduction can lead to relocation of jobs, resulting in decreased job availability in developed countries but potentially also leading to the rise of sweatshops in developing countries. Outsourcing and offshoring become part of strategic management to maintain competitiveness in a globalized economy.