Benefits and Dilemma of Offshoring - Essay Example

? OffShoring [Pick the Introduction The successful working of a company demands an effective and harmonious working of the various business processes which together make up the company. Before the product of a company is showcased for sale, it has to go through various checks and processes to maintain not only the quality but also the quantity. Challenges regarding maintenance of quality and quantity often force the companies to shift some of their operations to other countries or a site which is referred to as offshoring. The objectives of offshoring may be understood keeping in view the challenges that are faced by the particular company. Offshoring, not only helps reduce the cost of operations of a company, but may also benefit in terms of promotion in overseas markets. For some companies, offshoring of selective company processes may be the solution to their problems; for others total shifting may provide the desired outcome. Whatever the purpose may be, considerable data has accumulated to support the fact that offshoring for some companies has a survival value. Discussion Although offshoring has a number of advantages, there are number of issues that arise due to its very nature. A prominent cause of disruption in business processes can be related to the distance that exists between the control center and operation center. The distance may be in terms of physical or geographical locations or in terms of cultural or social factors. The term used for a team working in geographically dispersed settings is GDT (globally distributed team). It is defined as a team of workers; (Contractor, 2011) Related to the same organization Serving a universal purpose and working in an inter-dependent manner Using communication based on technological means Located in different geographical locations around the globe Benefits Generally, the perception is that offshoring countries lose finances to the countries to which services are offshored; this is however contrary to the reality and experts are of the opinion that it is not only the offshoring country that benefits from the process but also the offshored country that gains benefit (Farrell, 2006). It therefore appears mutually rewarding for all the countries that are part of the process. It is perhaps a means of promoting the concept of globalization where every country plays its role for the collective benefit of all. The first and foremost benefit of offshoring is related to financial savings. This is clearly manifested by the fact that the vast majority of offshoring is directed towards third world countries, where labor is considerably cheaper than the source country. In addition to the financial savings, the company also benefits from entering the new potential markets of the offshored countries. Since production is often carried out in such countries, the products are easily introduced into the local market which may provide an additional source of income for the company. Using locally produced raw material of low cost, the company is often in a position to not only earn profits from local markets, but also use their own market to earn huge profits. A number of benefits for the destination countries are related to direct investment which is received in return for services offered. These benefits may be in the form of country's growth, technology transfer, job creation and in some cases the firms offering services also benefit from the process of offshoring (OECD, 2007). Although the level of benefit obtained in this regard may vary from case to case; yet the projected benefits give an idea about the possibilities of improvement related to offshoring. Dilemma of offshoring Offshoring has affected the lives of a number of people living in the developed countries. To maintain their standard of life they require higher compensation rates as compared to their equally qualified counterparts residing in third world countries. A number of companies of the developed countries are able to get the same services from experts residing in under-developed countries at a 60% lowered cost as compared to the experts from their own countries (Berry, 2005). This is a huge difference, keeping in view the intentions of company owners to earn more. This has resulted in the loss of jobs of a number of qualified personnel residing in the developed countries. However, the debate that has arisen as a result of offshoring is clearly controversial. While some are of the opinion that local jobs are the right of local service providers; other are more inclined towards protecting the rights of the employer saying that it is the employer who should decide who should work for him. Risks A number of risks are associated with the practice of offshoring. These may include factors like legal limitations, political obstacles, workforce issues, social differences, logistical challenges and some business related problems (Oshri, 2011). Legal limitations include issues like malfunctioning or failed judicial systems of offshore countries. The issue of copyrights also falls under this category. Different countries have different law governing the labor related issues; so this may not conform to the expectations of a company willing to offshore. Certain export related restrictions may also hamper the working of such companies. In some cases, changes made to taxation patterns may also make it impossible for a company to work in an offshore location. Political factors may also be a cause of problems for a company. Certain regions of the world are politically devastated to such an extent that no rule of government is evident. Moreover, in some cases where the relationships of governments of the two countries are not friendly, the price has to be paid by the offshoring companies. This may be in the form of undue taxes by the offshore government or in the form of intentional malicious behavior of the offshore employees of the company. In addition to the legal and political risks, cultural differences may also pose a significant threat to offshoring companies. Differences in timing zones are of prime importance in this regard. Another major issue is the difference of national or religious holidays that exists between the two countries. Moreover, in some cases it is not possible to offshore due to the vast religious differences that span between two countries. An example in this regard would be to offshore the production capability of a company which produces wine to an offshore Muslim country. Conclusion The essay has aimed to highlight a number of contrasting opinions that exist throughout the world regarding offshoring. Although an attractive move for most of companies that intend to lower their running costs; offshoring definitely has some negative aspects which need to be addressed on national and international levels. According to some, the availability of jobs is the right of the locals of a community and such jobs should be provided to the locals instead of offering them to individuals who are residing in far-off countries. For others, the right to provide a job lies in the hands of the employer and only he should be allowed to choose the person who should work for him. Another important aspect that should be kept in mind is the increase in operational costs that are encountered by the company to control distant operations. This not only involves considerable funding, but also requires a higher level of skills to handle daily business situations. Apart from these apparent variables, a number of other factors also affect offshoring. An important limitation is the variation in legal systems that exist between different countries. While this may favor the operation of a few companies, it may be disastrous for others. Generally speaking, it can be easily understood that although the concept of offshoring may be promising for many companies, it also brings a number of challenges once it is adopted by a company for financial gains. References Berry, J. (2005). Offshoring Opportunities: Strategies and Tactics for Global Competitiveness. Hoboken: John Wiley & Sons. Contractor, F. J. (2011). Global outsourcing and offshoring: An integrated approach to theory and corporate strategy. Cambridge: Cambridge University Press. Farrell, D. (2006). Offshoring: Understanding the emerging global labor market. Boston, Mass: Harvard Business School Press. Organisation for Economic Co-operation and Development. (2007). Offshoring and employment: Trends and impacts. Paris: OECD. Oshri, I., Kotlarsky, J., & Willcocks, L. (2011). The handbook of global outsourcing and offshoring. Basingstoke, Hampshire: Palgrave Macmillan. Read More