Subcontracting and Its Benefits - Research Paper Example

Table of Contents Table of Contents 1 Governing Global Business – An Introduction 2 What Is Subcontracting 2 The Benefits Of Subcontracting 3 The Reasons for The Increase In Subcontracting 3 1) It Is Mandatory By The Government 3 2) Sub Contractors Can Now Bid On Large Projects With Areas Outside Their Expertise 4 3) It Leads To Specialized Skill Sets 4 4) Sub Contracting Is Increased Due To Bundling 4 What Are Strategic Alliance Between Firms 5 Stages Of Strategic Alliance Formations 5 Why Have Strategic Alliances Increased 6 The Role Of Advertising 7 The Importance Of Brands In Our Daily Lives 9 Global Shift In TNC Production 10 TNC Relationships With Communities 11 Measures To Stop Further Marginalization 12 Global Regulations 14 Conclusion 15 Works Cited 16 Governing Global Business – An Introduction Whenever we try and formulate a local phenomenon into a global context, it is said to be governed by global business. Here, people from all walks of life and from across the globe stand united as a single society and function as a team. Globalization is the sum total of economic, technological, socio-cultural and political forces and can be considered as an integration of national economies investments, trade, capital flows, migration and the spread of technology. What Is Subcontracting A work contract which seeks to outsource certain types of jobs is called subcontracting. This occurs when a contractor does not have the desired skills to fulfill certain tasks. Subcontracting is considered important for manufacturers as it allows a number of products to be made through complex components. The concept of subcontracting is prevalent in a number of industries, with special regards to the construction industry. Subcontracting can either be permanent, situation based or simply on a one time basis-this in turn depends on the company as well as the subcontractor. (Jones, 2005) The Benefits Of Subcontracting There are three fold benefits of subcontracting. The first benefit is that it encourages quicker completion as numerous aspects of a single project can be fulfilled at the same time. The second advantage is the cost effectiveness of a subcontracting procedure. As a subcontractor has the required expertise, he/she has the benefit of getting the job done through the means of an expert institution. Lastly, a long term relationship is in the making as the manufacturer has the advantage of fulfilling his/her requirement through the means of a subcontractor. This way, the manufacturer not only saves money, he/she also has the benefit of executing his/her task to perfection at a lowered cost. The Reasons for The Increase In Subcontracting Listed below are four reasons why manufacturers choose subcontractors on a regular basis. 1) It Is Mandatory By The Government One of the main reasons why the subcontracting rates are on the rise is because of the mandate. Unless and until a prime contractor parts a share of his/her assignment to a subcontractor, he/she is not eligible for a contract through the government. An ideal subcontracting plan, as per the government rules, must include and involve small disadvantaged business, historically underutilized business zones, women run small businesses and a business which is owned and run by disabled veterans. 2) Sub Contractors Can Now Bid On Large Projects With Areas Outside Their Expertise Prime contractors are by and large massive organizations which fail to understand the concept of systematic work utilization. Regardless, they take on numerous assignments and in order to fulfill the additional areas of work, they involve subcontractors as well. 3) It Leads To Specialized Skill Sets If a manufacturer wishes to improve his/her design and manufacturing procedures, he/she needs to utilize the specialized knowledge of subcontractors. For example, Lockheed Martin, a leading jet engine manufacturer, regardless of possessing a suitable in-house designing staff, prefers to subcontract his work to various third parties in the hope of getting the best design. (Jones, 2005) 4) Sub Contracting Is Increased Due To Bundling Bundling of contract implies that the Federal agencies combine more than a single contract. Bundled contracts are complex to handle and hence the prime contractors often give them away to various smaller groups. (Galbraith, 1973) What Are Strategic Alliance Between Firms A strategic alliance can be defined as a tie up between two or more business organizations to fulfill certain goals and objectives, while managing to retain their independence. Strategic alliance may be provided through the means of products, manufacturing capabilities, capital equipment, intellectual property, project funding and expertise. A strategic alliance involves both technology transfers as well as economic specialization, which involves, apart from other things, shared expenses and shared risks. Stages Of Strategic Alliance Formations Alliance formation follows four basic steps. 1. Development Of Strategy - The very first step involves studying the feasibility, rationale and objectives of the alliance. It is a judicious merger of alliance objectives and the overall corporate strategy. 2. Assessing The Partners - The second step is assessing the strength and weakness of a partner. From accommodating partner management styles, preparing apt selection criteria and gauging a partner’s motive, the partner assessment process is all about understanding a partner’s true motive behind joining an organization. 3. Negotiating The Contract - The third step is to negotiate contracts. Over here, it is important to set realistic targets, formation of teams, defining partner contributions, looking into issues pertaining to termination, poor performance and penalties and addressing arbitration procedures. 4. Operating The Alliance - The fourth step to setting up a strategic alliance is to readdress managerial commitments, calibrating resources pertaining to the alliance, linking budgets and strategizing priorities besides gauging and commemorating alliance performance. 5. Termination Of An Alliance - The final step of alliance formation is to wind it down. Poor performance, inability to meet objectives and re allocation of resources can be the major causes behind this phenomenon. (Korten, 1995) Why Have Strategic Alliances Increased Strategic alliances have increased in the recent past. It is owing to the following reasons. 1. The first reason is that a strategic alliance enables an individual/partner to concentrate on activities which are symbolic to the required skill set. 2. Secondly, a strategic alliance teaches partner to learn from each others mistakes and develop a level of competence which few can match. 3. Finally, a strategic alliance allows organizations to expand through the means of competence and availability of resources. The Role Of Advertising Advertising has now taken the shape of a mass communicating source, through which, a brand has become iconic in status and left the product far behind. Branding is the creation of a concept which is targeted towards a specific audience. Advertising boosts the brand through the medium of product knowledge, the packaging and the media sources, which include hearing and listening and the consumer feedback. A brand image is a sum total of the above listed ingredients and it is amplified through the means of advertising. For example, Colgate Toothpaste is a brand which is symbolic to cavity prevention and although there are some extensions which pertain to the same product, such as a toothbrush or a breadth freshener, the basic image of Colgate is cavity prevention. This also happens to be its brand image. Likewise, Chanel is symbolic to perfumes, which also happens to be its brand image. Product advertising, on the other hand, is product based and it involves the features and other technical details. It has nothing to do with the reaction of a consumer and hence is said to lack in brand advertising. Although product based advertising is equally important in nature, it is not as effective as the brand itself. This is so as it has no place for human emotions. For example, IBM and DELL use product based advertisings to update their consumers with the components of a drive, the basics of CD ROM drive spins etc. this type of advertising has nothing to do with brand image. For example, you head to a local hardware store and ask the dealer for a suitable configuration. The dealer, on the other hand, instead of updating you the brand basics, starts updating you with the memory requirement, the CD ROMS etc. The reason why brand advertising is more effective as compared to product advertising is because it involves customer feedback as well and operates on the basis of the feedbacks received from the consumers. Likewise, the packaging and branding which is used by the company is also widely accepted by the consumers and thus brand advertising is often considered more important than the product itself. The Importance Of Brands In Our Daily Lives Branding is supposedly the most important tool in promoting a product. When the brand is backed by a logo, it becomes all the more easily to highlight the brand name. Here, the customers are influenced by the brand and they decide whether to use a specific brand or not on the basis of an advertisement. Likewise, the deciding factor is by far the logo. Over here, a customer is shown the true values attached to a brand regardless whether a brand is capable of being considered appropriate or not. Regardless of the fact whether the customer has used the brand before or not, the brand image, which is reinforced through the means of the logo, lingers on in the minds of the consumers like an unfinished dream. Through the means of a brand, customers are not only prompted to filter out the generic items, they are also prompted to purchase more products. A brand is improvised through the means of ads, which can either be print or online ads and of course, commercials. Likewise, the cutting edge of the customer is highlighted through the medium of reinforcing your brand. Branding is cult specific and if you are attracted to a brand name, you seem to be entering a win-win situation. This is good for both the brand as well as the consumer. Thus, consumers are driven towards a particular product through the means of a brand image. We are highly influenced by the brand and this in turn decides our overall attitude towards a specific product. Global Shift In TNC Production Global shift is often termed as a phenomenon wherein no industry is considered confined to a certain specified space. Corporate with international affiliates can now hope to reach every nook and corner of the globe regardless of the time and distance involved. The wheels of commerce continue to spin owing to the advancement of the technological web through which people can keep themselves connected regardless of their personalized time zones. Planners, through the means of global shift, can also maximize their opportunities by exploiting international markets on a regular basis. A global shift can lead to a higher rate of GDP, currency stability and inflation. An interesting example of the global shift has been provided by the Hyatt Hotels Corporation. It has announced an ambitious expansion plan by adding seven hundred and thirty five hotels and forty five spas in the next five years. The South Western Asian market, as per Hyatt’s managing director Peter Fulton, is perhaps the fastest growing zone in the market today. TNC Relationships With Communities Globalization has become a buzz word with the leading economists and if a company is to cope with it to survive, it needs to follow the laid down policies. The policies in turn may displace jobs or indirectly affect the traditional values and cultures of the affected countries. The implication of globalization is wide and in accordance to a recent analysis, the losers are more often than not the poor nations while the winners are by far the richer and the more powerful communities. There is constant fear that the recent globalization would widen the rift between the rich and the poor and while making the strong stronger, it would weaken the weak even further. Thus the gap between the haves and the have nots and the traditional and the modern would continue to rise. With the onset of the cultural and economic globalization, the gap between the rich and the poor is bound to rise and this in turn would lead to excessive wastage. Globalization is considered good for economies which are prepared to meet the challenges and vice versa. Global shift would increase the rights and powers of rich and powerful corporations. It would also lead to rollback of rights and affect the resources of the state in a positive manner. Comparable to laissez-faire, the economic and social welfare of the southern countries would be drastically affected owing to the sudden global shift. The advantages of global shift, with regards to an economy, would be the centralization of power with the private institutions, which in turn would lead to the overall economic growth of a nation and the reduction on wastage of natural resources. While the southern countries are losing hundreds of billions of dollars on an annual basis owing to resource outflows to the north, the deficit in trade losses, payment for technology use and debt servicing is also on a steady increase. Measures To Stop Further Marginalization In order to curtail the spread of globalization, with special regards to the further development of the globalization process, the following steps needs to be adhered to with utmost care. This is done so as to maintain the balance between the rich and the poor communities. 1. If we are to compare the northern and the southern states then there is disparity in terms of development catalyst and the macroeconomic policy formation. Here, it is up to the UN to act as a governing body, which would not only try and lift the southern states in terms of social and economic growth, an effort would also be made to reduce the ill effects of laissez faire orthodoxy. 2. Through the medium of the recent conferences, the UN needs to retain its policy on economic development and also continue the overall development through the means of the new knowledge which has come to light owing to the statistical analysis and the hard work. Policies and activities with regards to the economic development need to be formulated with regards to human centered development. 3. The countries of the south need to develop their analytical and negotiating skills through the means of a suitable policy. In order to undermine the international and national policies by the powerful countries, the weaker nations need to focus more on the on going negotiation procedures. 4. The weaker communities need to be aware of the globalization trends and they need to be nimble and flexible to policy options so that they can protect themselves on the pretext of a sustainable development. 5. The role of civil societies needs to be strengthened. 6. To enhance public awareness about the very nature of global shift, numerous non governmental organizations should take active interest policy makings, discussions and in spreading public awareness. 7. Weaker countries need to show their initiative by democratizing global decision process. There should be a regular review on TNC guidelines and regulations. Financial speculations, with regards to international speculations, needs to be fulfilled and the information through telecommunication means also needs to be adhered to with ease. Global Regulations In the present epoch, there are no certain “Global” regulations for TNC’s, but every country has its own policies as to which products / companies / type of companies should be allowed to deal with the respective nations. A great example for this would be the technological outsource by Japanese Companies: The Japanese government is very strict about selling Japanese technological know how’s elsewhere (geographically), such as their medical discovery of the 120 + degree knee joint, for which the Japanese authorities have strictly forbidden the Companies to keep the technology to themselves. Another in - bound example could be China, which until 2000 had blocked any foreign company to set up a manufacturing plant in China unto itself (tie - ups with Chinese Manufacturing units were allowed), which was ultimately removed after Hewlett Packard managed a deal with the Chinese Government to help the company set up a manufacturing Unit in China. So every country has individual policies which interfere or help the businesses of such Multi National Companies. Therefore, Inter country relations matter the most in case a company from any specific country wants to go cross – border. Very recently, due to the current rivalry between the U.S. and Iraq, Iraq had withdrawn all the software piracy laws there by allowing all the residents to download software free of any cost / at minimal cost due to the new piracy laws; this has gravely affected many copyright holders and is a considerably huge loss for the American / any other nation’s music / software / movie / any company that deals in virtual goods. This is just like the country has permitted hacking. Many controversies have been under investigation from time to time, owing to the fact that many organizations such as WTO, etc. claim the need of power required to regulate these companies. But unfortunately, none have been sorted till date and the battle still persists. In the mean time, the top executives of these companies have always fought for their rights over many marketplaces, and have won too; the HP example proves that any company can fight its way through any markets without war. It seems that these companies are quite exultant that no ‘supposedly big authority’ is trying to interfere with their developments in various countries. Every country has its own permissible quality standards, taxation laws, custom duties, and corporate laws (for tie-ups, self establishment, etc.) in order to manage on their own and do not feel the necessity of any other authority watching over them and taking a slice of their toil’s rewards. (Simmonds, 1979) Conclusion The author strongly believes that a need of a superior authority to look over the dealings / practices of MNC’s is an obligation, and should be implemented with immediate effect; although, it might provide certain disruptions in several sectors such as quality control / taxation due to the currency / standard of living differences. Such an authority will make sure that: 1. No one deals with a terrorist Nation. 2. Quality standards are equal. 3. Taxation is limited. (Within some countries import duties for certain products is as high as 500%) 4. Beneficial for globalization. 5. Technological know - how’s are distributed properly. 6. Companies get a higher chance to grow. These points shall be covered by any organization that take a leap forward and accepts the responsibilities to govern MNCs. A very general trend by MNCs has always been to undermine small scale industries in order to attain more profits. These small scale industries are development backbones for many nations which could go down the drains if that happens. A superb organization to take this matter into its hands would be the WTO. Works Cited Galbraith, J. K. (1973). Economics and the Public Purpose. London: Houghton Mifflin. Jones, G. (2005). Multinationals and Global Capitalism: From the Nineteenth to the Twenty-first Century. Oxford University Press. Korten, D. C. (1995). When Corporations Rule the World. Kumarian Press. Simmonds, K. R. (1979). Multinational Corporations Law: The United Nations and Transnational Corporations. Oceana Publications. Read More