Outsourcing and off-shoring - Research Paper Example

Outsourcing and off-shoring Outsourcing or off-shoring is considered to be one of the important business strategies in organizations lately. Some of the advanced countries of the world such as UK, USA and Japan are seen to be undertaking outsourcing activities recently since 1990. Generally known as the process of subcontracting some portion of the business processes in production to firms abroad, primarily to the low income and developing nations, outsourcing is treated as a tool in organizations for attainment of higher efficiency, productivity and profitability. The outsourced goods, services and inputs enhance an organization’s capacity to participate and compete amidst an increasingly competitive global business environment. This consequently has the potential to improve and enhance the overall efficiency of the economy and improve its welfare significantly. This is one of the reasons why extensive outsourcing is undertaken by the developed nations like USA, Japan and UK where the price of human labor is quite high in comparison to the developing nations (Yabuuchi, 2011, p.706). Thus the stretch of outsourcing activities and exploiting low salaried personnel has acted as one of the top priorities of the advanced nations. There is argument in this context as out forth by researchers. Researchers have commented that outsourcing is another form trading between two nations and that it also has beneficial impact on the developed nation and its workers. It has been termed as Mankiw-Yellen hypothesis by Batra and Beladi (2010). On the other hand, research results conducted by Bardhan and Kroll (2003) and Burke et al. (2004) have shown positive relations between outsourcing and levels of employment in USA (Yabuuchi, 2011, p.706). Jones (2005) has put forward the finding that outsourcing along with immigration can serve the purpose of raising the domestic wage rate of the home nation. However, there are ambiguous and contradictory implications of the impacts of outsourcing activities on the labor market of the home country. This was suggested by Eggar and Eggar (2005) (Yabuuchi, 2011, p.706). In this context outsourcing has been considered to be detrimental to domestic labor in terms of wages and jobs even though it can have beneficial impacts on the economy on the whole. Kohler (2001) has come up with an alternative perspective of the international fragmentation which is based on the specific factors model. He has shown that outsourcing can have a welfare loss on the economy. Recently research conducted by Batra and Beladi (2010), tried to explore the impactions of outsourcing on factor prices with the help of the two sector specific factor model along with intermediate outsourced inputs. Their finding was that outsourcing can have negative implication on the domestic market; however, it benefits the capital of the country. However it can have positive impacts of the domestic labor in case there is completely no production of the outsourced work or activity in the home country. However, the studies assume that there is full employment in the economy (Yabuuchi, 2011, p.706). Problems of Outsourcing Despite the numerous advantages associated with outsourcing in developed countries, certain problems have also been noted. For example, researchers have identified problems related with outsourcing India which is considered to be one of the most preferred countries across the world for outsourcing. Companies making great investments in India have now been pulling back their investments. This is because of the dramatic escalating wage structure in the country. The attrition rates in the software firms in India averages around 50% per year. The larger American firms which had established their presence in India had been immune to this attrition for quite some time which now has changed. The smaller firms have been experiencing attrition rates of 100% in a year. Thus the focus has now been shifting towards Eastern and Central Europe where the work quality is high and attrition rates are low also (Viteri, 2010, p.1). India has also been blamed for being notorious with their approach towards protecting the source code of their customers and rather calling it their own. The nation also does not provide any administrative remedies in favour of implementation of property rights. It is seen that more than 75% of the global information and technology initiatives fall short of their expectations. It is also seen that the experienced personnel keep receiving 70% of the salary compared with their US counterpart. In addition to this they also have to bear the costs or inefficiencies of establishing a development shop in a different part of the world away from the home country. Moreover, a huge talent pool also present in the country which is quite expensive and this talent pool are high in demand all across the world (Viteri, 2010, p.2). There is often seen to be culture clash between the service provider and the client. With regards to the corporate culture of the client and service providers it is essential to understand that there can be differences between the two in terms of speed, decision making, style and even organizational structures. Also the fact that outsourcing demonstrates a commercial relationship between two complete different entities must also be considered. There can be instances when the two different entities take up completely inflexible positions which can have the chance of creating distrust and dissatisfaction between them. Some other aspects have also glaring consequences inn outsourcing activities. There can be regional and national inhibitors such as language and understanding of subtleties in written, verbal and non-verbal communication which can be extremely problematic. This is particularly prominent when the work activities are conducted offshore with very little or no direct communication between the entities. Moreover expectation with regards to extent of open debates, acknowledgement of cropping potential problems and the eagerness to change directions and veer from the defined process can be significantly different between nations and regions (McCray, 2008, p.7). Uncertainly exists among employees of the client and also among contractor which provide services towards the client organization. Out of this uncertainly staffs can be tempted to look for alternative employment and leave the organization. This consequently requires the parent organization to either fill up the vacancy or reduce the work conducted by the organization (McCray, 2008, p.7). New Learning The assignment has generated extensive new learning on the subject. Apart from the theoretical knowledge of the subject of outsourcing, its practical application in the real world and the associated advantages and disadvantages are also part of the new learning. It has been a great boost to my education and would be extremely effective in the organizational context in future. Some of these learning include causes and reasons why organizations undertake outsourcing activities. It is seen that primarily the economically advanced nations are the prime outsources and the developing and backward nations are the service providers. This is primarily on account of the fact that developing nations are a great source of manpower and talented skills which are also available at low costs. They are characterized with high rates of unemployment because of which their labor expense also remain low. This is the main reasons why they can be exploited and used to the company’s advantage. The assignment will be helpful in terms of my future career. This is because I have been able to gain a vivid knowledge about the business and organization dynamics. Knowledge about the business environment of firms, the competitive forces acting on them, their competitive strengths and weaknesses, processes and strategies have been part of my new learning. The corporate cultures, organizational norms and behaviors in organizations located in different parts of the world are now clear. In addition to the above some other new learning is the cultural clashes existing between organizations in different countries, particularly those existing between the economically advanced and the backward nations. The ways to resolve them and sort out cultural and communication issues arising during outsourcing are some other learning. The learning would meet my future career aspirations of being part of the top management of a reputed multinational organization. This is particularly because of my learning to see the global context of the business environment. This would help me in making strategic decisions in a firm. I would also be able to evaluate between the different strategic alternatives before a firm considering its pros and cons before coming to any decision. The range of advantages and disadvantages associated with outsourcing activities for the home country as well as the server country has been effective in extending my knowledge base of the subject. Simultaneously the reasons why employees leave organizations and the psychologies working behind them have also become clear. The reasons for high rates of attrition faced by organizations have now become evident and clear and I shall be able to apply these concepts when I work in the corporate field in future. The various costs that the outsourcing companies have to bear and the profitability associated with the strategies and aspects which impacts and influences those strategies are also evident and would help me in my future endeavors. The class teachings have been specifically gainful in enhancing my theoretical knowledge about the business strategies of multinational organizations in the world. The classes provided instances when business strategies have succeeded and when they have failed. The learning has been with regards to when they have succeeded and when they have not, and the conditions under which they have been extremely successful. The role of the management in making decisions based on the different business conditions have been some of my learning from classes. The seminars have been gainful in attaining significant insights about corporate strategies and decision making. The instances provided by the experienced industry personnel invited during the seminars were very purposeful and helpful. They shared their industrial experiences with us and the way handled different work situations. This was particularly helpful for use as we are about to make our entry into the corporate world and are unaware of such conditions and circumstances. The way they attained success through different tough circumstances and situations is really helpful for us and would be effective when we would go through the same situation in the corporate world. This industrial exposure gave us a relevant understanding of the corporate world in which we are aspiring to be into. The experienced personnel from industries made the seminars eventful and exciting and different from the conventional classes which are based mainly on theories and notes. Our practical advancement towards the corporate world was much more through the seminars in comparison to the regular classes. Most importantly we tended to forget the theories once we left the classes but these seminars were so exciting and eventful that we remembered learning long after they were completed (Garrison & Wang, 2011, p.23). The workshops were delivered in an environment which reflected corporate life and procedures. It took to us to an environment which was realistic and brought forth situations which happened in organizations. This was primarily helpful in giving us a feeling that we were actually working in a corporate environment. There were strict work ethics which we were supposed to follow and which taught us a great deal about the future corporate rules and regulations we would need to follow. Workshops provided us with the infrastructure of the corporate world and brought forth all the circumstances and situations which happened in reality. We were allocated with individual responsibilities and also provided with group activities. Together we worked towards resolving these issues and found solutions to resolve them successfully. Teamwork greatly enhanced my ability to act as a leader and mentor and guide my team towards the purpose and goal. My decision making capabilities and problem solving abilities were also improved through these workshops. Individual activities greatly made me more knowledgeable, responsible and accountable for the work that I was doing. The workshops were extremely informative and educative. It was a demonstration of practical application of theories and models. Now I have the ability to apply the theories that I have studied in books in reality. I have also earned the capability to handle a crisis situation and act in a rational way to solve them (Geisler, 1997, p.65). Reference Garrison, L. & Wang, W. (2011). Breaking Into Acting For Dummies. John Wiley & Sons. Geisler, H. (1997). Storytelling professionally: the nuts and bolts of a working performer. Libraries Unlimited. McCray, S. (2008). The Top 10 Problems With Outsourcing Implementations (And How to Overcome Them). Retrieved on March 06, 2012 from http://www.tpi.net/pdf/papers/Top_10_Problems-with_Outsourcing.pdf. Viteri, A. (2010). What are the problems with out sourcing to india today?. Retrieved on March 06, 2012 from http://www.neubloc.com/pdf/WP_ProblemsWithIndia.pdf. Yabuuchi, S. (2011). Outsourcing, Income Distribution, and Unemployment. Journal of Economic Integration 26(4), December 2011; 705-720. Read More