The Concept of Outsourcing in Contemporary Economy - Literature review Example

Running Head Outsourcing Outsourcing Inserts His/Her Inserts Grade Inserts 05 March 2009 The modern economy depends upon international labor supply and international business relations. Taking advantage of technology transfer opportunities, their rapid industrialization has been aided by the introduction of advanced (but standardized) technologies that result in labor costs substantially below those in similar industries in the developed economies. This in itself would contribute to the surge in exports to the developed economies. There are several problems with outsourcing faced by the state and companies. Recent years, a large number of engineers have been sent abroad by SMEs and TNCs. Thus, critics admit that the USA needs these research projects to be kept ay home. Critics admit that there are both pros and cons of outsourcing based on unique nature of every industry and current state of economy. In cases where this is technically possible, the cost advantage of outsourcing will probably apply to component parts of production processes, leading to outsourcing by the developed economies. Indeed in the current period the large growth in merchandise trade relative to merchandise production in the less developed economies can be attributed both to the increased number of exporting final goods to the developed economies, and also to growth of the latter's outsourcing. Both developments act to reduce the bargaining power of labor, especially union labor. When rules limit direct investment and outsourcing, both producers and labor want enforcement of labor standards abroad to maintain competitiveness for their product. Once the rules are relaxed, the interests of producers and consumers diverge, as low wages and lax labor standards make foreign production more profitable (Cadena, 2007). The threat to move all or part of production abroad can be used at home to exact reductions in labor compensation (wages plus benefits). Moreover, the threat of significant job losses allows large firms to demand changes to labor legislation that further weaken labor. In addition to endangering jobs, wages, labor standards and union powers, globalization also hastens the decline of social safety nets. Citing international competitiveness, business has been able to shift the tax burden to labor. But job losses and low wages will erode this tax base, reducing governments' ability to finance welfare programs. Globalization thus undermines labor strength, reinforcing the impact of higher levels of overall unemployment on capital's ability to control the workplace in the developed economies (Aalders, 2001). Such researchers as Cullen and Willcocks (2003) suppose that globalization and communication revolution (via the Internet) opens new opportunities for developed countries to outsource. Cheap labor and favorable economic conditions are the main factors of successful outsourcing strategies. The core places of outsourcing are India, China, Malaysia, Czech Republic and Singapore. With economic support, people will pursue careers to achieve stability, security, relationship with others, personal growth, and ultimately status, prioritizing these goals according to their personal value system. For much of the past century, when the drive for careers matured as a goal in offers of employment and in vocational development, this was a very tenable and fulfilling pursuit (Engardio 2006). Careers provided opportunities for individuals with potential and determination to aspire toward goals that enabled them to achieve comfortable economic status. It provided employers with dedicated employees. As the new millennium approaches, the pursuit of careers appears to be in a state of flux. The turmoil in industry brought about by global competition and industrial consolidation has shaken the concept of stability and the idea of lifelong employment in a single occupation for a single employer. Employers are less able to offer lifelong employment in a clearly defined occupational niche. Outsourcing is so popular today as it proposes low cost resources and allows modem businesses to expend their businesses faster and with low financial investments. The main benefits of outsourcing are free up resources, minimize financial expenditure, possibility to redirect personal to core businesses, a focused use of resources, access to professional and specialized skills, savings on training and operational costs. Technological change and the enormous expansion of knowledge have blurred the lines of career content. Today, it appears, nothing less than lifelong training and education are necessary to stay current let alone get ahead in a career field. It is not that the idea of pursuing a career is no longer feasible. Rather, a career--in the sense of achieving stability, security and personal growth-must be pursued differently. The primary locus of these goals has moved from the employer, industry, or profession, to the individual. An individual can no longer rely on a career label, even a licensed one, to provide the niche of security, stability, and status. Instead an individual must be able to deliver high performance in highly changing situations (Fisher and Activism 2006). Following England and Christoper (2001), the main causes of outsourcing are prices and wages, communication and transportation costs. For many companies, capacity building to develop appropriate skills is a dynamic process. As technologies change at increasingly dramatic speeds, so do the skill requirements of people in businesses and in their everyday lives. Lifelong learning is becoming the essential prerequisite for lifelong employability and there is growing emphasis on multi-skilling and the ability to learn new skills. The main factors to reject outsourcing strategies are lack of financial resources and the size of the company. For a small company, it would be more difficult to expend its activities and sustain stable growth rates and flexibility (Cadena, 2007). The benefits associated with outsourcing involve strong competitive advantage and cost savings, cost restructuring, improve quality, knowledge and operational expertise, capacity management and commoditization, customer pressure, time zone, risk management. Of these, entry into the niche, customized software development market including systems integration services is probably the most costly and carries the highest risk. The distancing of relationships with organizations in developed countries and the removal of opportunities for learning about the operation of markets and businesses in the industrialized country context, could have less positive, longer-term ramifications. The factors affecting India's software exports are the relatively low skilled IT professionals. The globalization of IT production has included outsourcing work to developing countries that was once done in the industrialized countries. However, demand for software labor exceeds supply in the industrialized countries and will continue to do so for the foreseeable future (Center for Global Outsourcing 2009). Similar to other researchers, Greaver, (2000) state that the outsourcing solutions are more effective because they are based on the idea that a healthy personality grows in parallel with the 40 or so years that many people spend in their careers. In fact, work impacts on and helps to shape an individual's personality in many ways, for better or for worse. The general direction of this development is toward a more complete, unified whole--a person who has dealt successfully with the challenges laid before him or her and has moved on to the next level of personality development. These stages of change in the human personality are in response to a person's inner potential as well as the demands of the environment at critical points in his or her life. Throughout much of this growth and development, a person's work life plays an insistent and ongoing role. Two themes developed, trust and wholeness of an individual in the work situation, are integral to the development process. The task of the corporations and the government to motivate professional staff remain at home and do not look for better pay or conditions abroad. This could be stated: integrity is achieved by those who have acquired insight into their potentials, developed them to their optimum, and effectively adapted to managing conformance and change to the environment (Center for Global Outsourcing 2009). In contrast to positive and favorable perception of outsourcing strategies, some critics admit that it has a negative impact on economy. In spite of great benefits and opportunities proposed by outsourcing for national companies, Aalders (2001) admits that it has a negative impact on labor market and employment opportunities of the population. Job loss and unemployment rates are the main threats of outsourcing. The main solution to the problem of outsourcing is to introduce laws and regulations aimed to reduce number of professional employees working abroad, but create supportive working environment allowed them to work in home country (see appendix 1). Transferring authority will not solve the problem, but it may leave the president without sufficient discretionary authority. That will create total havoc, in my opinion, in the negotiating ability of any administration. For example, one might say it is an unfair trade practice for countries like Korea and Taiwan to peg their currency to the American dollar. That could be called a trade policy, though it really isn't. Those currencies should be handled in the market, not pegged in an artificial way. The deregulation of human capital movements is a second example of globalization's negative effect on labor power and the prospects of improved employment (Cadena, 2007). Under an international monetary regime of deregulated financial capital and flexible exchange rates, the inflation costs are immediately increased in any economy attempting to pursue a full employment goal unilaterally. Inevitably, market considerations come up and force the issue of whether or not the presumed need is real. Somewhere among these ruminations, a determination needs to be made as to where the product will be produced. Unfortunately, worker efforts to improve the workplace often go unrecognized and unappreciated by management. Even worse, management frequently censures workers when they redesign their work in ways management has not foreseen (Bateman and Snell 2004). The second solution is to create better conditions for engineers and motivate them to stay in the home country, propose affordable housing and stable work. In the current turbulent HRM scene a number of rather imposing and portentous phrases have gained currency, such as "downsizing, "restructuring the workforce," "reengineering the corporation," and "reinventing work" (Cadena, 2007). Other solutions may involve strict laws and regulations prohibited international companies to send high professional staff abroad or contracts which obliged engineers to return to their native country in 5-6 years, thus these regulations will limit human rights and freedoms and prevent fast economic growth of the country. In sum, outsourcing is a temporal problem affected the US labor force. To help individuals visualize their potential as well as likes and dislikes in the world of work, and to empower them in seeing themselves as whole persons, the state and corporations should help young workers adapt to the environment. Although individuals choose to focus on one or another functional area, they tend toward whole-person involvement in their work and private lives. Affordable housing and stable work are the main priorities of many families. In spite of these threats and weaknesses of outsourcing, the career development of the future will more likely resemble global nature of workforce. In such situation, employees require the personal flexibility and self-determination that can be honed by career development programs. The global environment suggests that fewer and fewer workers are likely to be of a mind to give it (Bateman and Snell 2004). At the beginning of the 21st century, IT is viewed as a strategic tool which helps organizations to expend their activities and increase profits. IT outsourcing is often seen as an opportunities to provide a competitive advantage and increased value for the enterprise. The absorptive capacity based on appropriate technology related skills needs to be measured against both the demands of the international economy and the local environment where a skills base for using IT is even more important (Cadena, 2007). Changes in management philosophy are giving opportunities to the small and medium-sized enterprises that cater to the demands of national and internationally operating companies. However, the businesses that fare well under the new management organizational scenario are those which acquire the necessary business, commercial, and technological skills. The main risks associated with IT outsourcing are reduced flexibility, low cost savings and low quality. The problems of outsourcing are even greater for developed countries and can be explained by their inability to cope with these challenges. (Aalders, 2001). The element of outsourcing organizations is the substantial reliance of such organizations on outsourcing as a competitive and cost containment strategy. In the extreme case, enterprises have become "hollow"; that is, have contracted for most of the operational activities such as manufacturing, marketing, and so on. In the business context, administrative leaders need to develop a model to support outsourcing decisions in a systematic fashion. The network model is an organizational vision and form that is optimized for flexibility, speed, and service. In this vision, the management of staff will need to be comprised of sophisticated problem solvers who have easy access to their "customers" and the authority to act. Where multilayer hierarchies can diffuse accountability for decisions and actions and retard the flow of critical information and decisions, network organizations eliminate layers of hierarchy through the use of sophisticated information technologies and control processes. In this vision, central administration provides general administrative leadership by undertaking "strategic thinking" and by developing policies and guidelines for the conduct of campus business. Emphasis in this new environment is on control and accountability, not on procedure (Cullen and Willcocks 2003). For the outsourcing organization to succeed, the personnel programs of the campus must recognize explicitly the need for talent at the lowest decision-making level. These programs must be configured to recruit, develop, and reward departmentally based employees (Engardio 2006). Employee training is a key element of the empowerment process. The empowering of the individual is best accomplished by the central administration's aggressive management of an organizational culture that stresses collaboration, merit pay, and management by objectives. Another attribute of the network organization is the relative geographic independence of administrative units. Traditionally, management functions are clustered together as a means of achieving organizational integrity through geographic proximity. As in the case of vertically organized corporations, organizations of this character can foster the growth of the segregated fiefdoms that while self-optimizing, are typically suboptimal from the institutional perspective (Cadena, 2007). In addition to providing the information-processing capabilities needed by a twenty-first century campus, the outsourcing organization enables leaders to develop and foster a service culture. By establishing departments as the centers of administrative operations, effort is directed at enhancing productivity at service points where the administrative and academic environments intersect. The active management of the service culture, through enabling strategies described below, can leverage both the academic strategy and faculty time in direct support of the university's mission. To enable the network vision of the administrative organization, a number of strategies must be employed (Culpepper eBulletin April 2007). In sum, outsoaring propose great benefits and opportunities for modern business but it should be strictly regulated and controlled by the state in order to protect national workers. One strategy that is central to the achievement of the university's productivity goals and that preconditions the establishment of a outsourcing organization is an information technology strategy. In order to shift the locus of administrative activity to the departmental level, where services are typically consumed, departmental administrative staff requires easy access to central campus administrative choices. In order to introduce outsoaring strategies effectively, the organization should take into account uniqueness of business and industry requirements. References Aalders, R. (2001). The IT Outsourcing Guide Wiley. Bateman T.S, Snell S. A. (2004). Management: the New Competitive landscape. 6th edn., McGaw Hill Irwin. Center for Global Outsourcing. (2009). Retrieved on March 07, 2009 from outsourceglobal.org Cadena, Christine. (26 April 2007). Outsourcing: Pros, Cons and Alternatives. Retrieved on March 07, 2009 from Associated Content: http://www.associatedcontent.com/article/218623/outsourcing_pros_cons_and_alternatives_pg2.htmlcat=37 Culpepper eBulletin, (April 2007). Complimentary subscriptions: Retrieved on March 07, 2009 from www.culpepper.com/eBulletin/" Cullen, S., Willcocks, K. (2003). Intelligent IT Outsourcing: Eight Building Blocks to Success. Butterworth-Heinemann; 1 edition. Engardio, P. & Arndt, M. & Foust, D. (2006) The Future Of Outsourcing. Retrieved on March 07, 2009 from BusinessWeek: http://www.businessweek.com/globalbiz/content/nov2006/gb20061108_738883.htmchan=top+news_top+news+index_global+business England, Christoper M. Outsourcing the American Dream. Writer's Club Press: October 2001. Fisher, D. Activism, Inc.: (2006). How the Outsourcing of Grassroots Campaigns Is Strangling Progressive Politics in America. Stanford University Press; 1 edition. Greaver, M. F. (2000). Strategic Outsourcing: A Structured Approach to Outsourcing Decisions and Initiatives. AMACOM. Appendix 1. Outsourcing Risks Read More