Bussiness Management and Outsourcing - Essay Example

Business Management Introduction Outsourcing is one of the main strategic approaches used by modern organizations to reduce production and operating costs. The UK 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 UK needs these research projects to be kept ay home. Outsourcing Defined 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. In general, "Outsourcing refers to the process whereby activities traditionally carried out internally are contracted out to external providers" (Domberger 1998, p. 12). 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. "An increasing number of engineering jobs are being moved overseas by UK companies, yet it's not clear if the offshoring trend will erode our competitiveness or provide long-term benefit" (Cullen and Willcocks 2003, p. 43). 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 (Becker, 1993). 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 (Bateman and Snell 2004). Service Industry Analysis 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. 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 (Cullen and Willcocks, 2003). 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 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 (Schuler, 1998; Geneen 1984). With government 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. 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 (Becker, 1993). 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. 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 (Becker 33). 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 (Fill, 1999). 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 (Schuler, 1998). Risks and Weaknesses of IT Outsourcing The main risks associated with IT outsourcing are reduced flexibility, low cost savings and low quality. The problems of structural adjustment are even greater for developing countries which lag far behind the advanced industrialized economies in their flexibility to cope with these challenges. This strategy requires the development of local infrastructure and the provision of support for business. 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 (Aalders, 2001). 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 (Cullen and Willcocks, 2003; Drucker 1974). In addition, industrialized countries retain the most highly-skilled tasks of analysis and design, thus creating and international skill division of labor. IT facilitated a globalization process that not only leads to direct employment impacts but also to technology and knowledge. Not all countries will be equally well positioned to catch up in all industries. This ability will depend on 'created' and 'natural' assets including the availability of skilled human capital and information infrastructures (Cullen and Willcocks, 2003). The time/storage and space factors of the new technologies are likely to bring about the further opening up of many service activities, increasing both their domestic and international tradability. It is likely that the 'new' emerging computing and other electronics manufacturing sectors ultimately will be relatively small compared to the growth and size of new information and communication services sectors. The competitiveness of service enterprises, as for manufacturing, will be determined increasingly by the business and macro-economic environment in which they operate and by the extent to which they are individually competitive (Rosow and Casner-Lotto, 1998). Insoursing For It industry, insoursing will lead to increased financial burden and high operating costs. Products and services delivered by IT professionals will not be able to compete on the international area. The main solution to the problem of outsourcing is to introduce laws and regulations aimed to reduced number of professional employees working abroad, but create supportive working environment allowed them to work in home country. 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 (Domberger, 1998). The deregulation of human capital movements is a second example of globalization's negative effect on labor power and the prospects of improved employment. The potential implications to the business organizational structure involve greater centralization and standardization of all services and operations. IT outsourcing will have a great impact on productivity growth in the industry. If the company is big, there are many different ways that the potential improvements in efficiency (Aalders, 2001). Market segmentation, types of applications, modes of delivery, and levels of commercial viability vary considerably from one service to another. Second, IT department offers new delivery mechanisms that customers find more convenient (for example, call centers and interactive data exchange) (Reed, 2006). After the preceding information is thoroughly evaluated, the entrepreneur should have a more realistic estimate of his or her market potential. In order to actually attain that market potential, the entrepreneur should develop a marketing plan to effectively attract the target market and persuade it to switch to the entrepreneur's new offering. Most marketing textbooks agree that a successful marketing plan must be directed at a well-defined target market, and it must offer a superior product/service relative to the competition (Paley, 2006). Or, if the new business involves a "me too" product/service, it should be priced lower than the competition and/or offer some other obvious advantage to the target market. A successful marketing plan should also include a good promotional program and good "product positioning" (i.e., what is communicated about the product/service in order to make it more appealing to the target market than any of the competitors' offerings). Equally important to the success of the new service is that the plan includes a method of distribution that can effectively reach the identified target market (Bateman and Snell 2004). Verizon Wireless and AT&T introduced new services for customers aimed to improve communication and interaction processes. These companies recognize that markets for a new 's product are typically not homogeneous. The idea of a market structure pinpoints this fact. Market structure is the arrangement of groups or segments of buyers comprising a total market. Notably, each segment differs from the others in the way its buyers will respond to a marketing strategy. In fact, this structure exists, for the most part, because customers in different groups have at least somewhat different market requirements. Market requirements are the benefits that buyers expect from sellers as a condition of buying. Probably the most important and difficult challenge for Verizon Wireless and AT&T is to find out what the market structure is and what its customers' market requirements are (Kotabe and Helsen 2007). Example of Verizon Wireless and AT&T shows that marketing and new product launch have some similarities, operationally, conceptually they are different and may not even interface. There are several reasons for this. For entrepreneurship, the real focus is on the innovation, being innovative, and the drive for independence. Although marketing should also be innovative, this frequently is not the case. In fact, much of marketing is more duplication than innovation--with companies merely following a successful pattern established by the market leader in such areas as advertising appeal, product design, sales promotion techniques, and the distribution system. Divergence between the two also occurs in the area of internality/externality. New product management is much more internally oriented in focus than marketing. All the aspects of the service must come together in order for a successful launch to occur (McDonald and Christopher 2003). This aspect, as well as the other commonalities and differences, is often affected when external financing is involved. The presence of external financing can significantly change the entrepreneurial process by impacting the activities of the entrepreneur and the new business. With external financing, often an entrepreneur can no longer freely direct and guide the business as there is now a need to satisfy another party--particularly when it is the one providing the needed capital. This can eventually lead to less innovative, creative behavior, and a more controlled entrepreneurial process similar to that which occurs in many marketing situations (Kotabe and Helsen 2003). IT outsoursing introduction reflects strategies and goals of the companies. Because the economic model of strategic management serves as a guideline for modern companies, perhaps these processes ought to be considered from other perspectives (Doyle and Stern 2006). Service approach of this central authority is frequently given to a new product manager or director who has a staff position and likely reports to a vice president or executive vice president of the company. Here, the manager of the new service reports to the executive vice president who, in turn, reports to the president of the firm. Although in this simplified chart, the new service is a staff rather than a line function, some feel that new product development should be a line function with the accompanying authority (Lafferty and Hult 2001). History has shown that economies of scale are relevant only in markets where all the participants are playing by the same set of rules: as soon as someone invents a new - better - set of rules, it does not matter how efficient you are, you are still going to be outmanoeuvred. Moreover, more and more brand-based companies are being forced to provide information because this is what their consumers expect. Technology and the Internet have both meant that the amount of information available to individuals is increasing exponentially: if you are not sure what you are buying from one manufacturer, you can check out the rival products quickly and cheaply. Information - as IKEA has realised - is empowering consumers. In the future, they will need to rely far less on the high-level image created by a brand but will be able to make far more informed purchase decisions (Hollensen, 2004). Giving consumers information changes the balance of power from the corporate manufacturer to the individual purchaser. It means that consumers will be able to specify what they want more precisely rather than accept what the supplier or retailer offers. As home shopping for groceries takes off, critics predict that the existing supermarket chains, whose brands at the moment are linked to choice, quality, freshness and so on, will develop information-based brands that will emphasize different qualities - the amount of information they have on a customer's previous purchases, being able to recommend recipes based on an individual's preferences and so on (Fisher, 2006). In other words, the supermarket's brand will be orientated around being able to deliver to an individual the items which that individual wants. This is a trend that will not be confined to retailers: given not only escalating consumer expectations, but also the highly automated production lines and just-in-time supply chains of most manufacturers, the days of mass-production must be severely limited (Hollensen, 2007; Gardiner 2005). Looking back over the past 20 years, one of the most common routes to competitive advantage has been to establish a set of proprietary standards, which you keep from your suppliers and competitors, but which you use to tie in your customers to you because of the cost involved in switching to another standard. However, it is clear that this is an approach that is much less likely to succeed today (Hollensen, 2007). IT outsourcing does not recognize national boundaries but walks unquestioned through accepted check-points and customs halls. Similarly, it crosses the traditional divide between industries without a backward glance, just as it can flow around an organization without regard to the niceties of departmental responsibilities. It is therefore inevitable that, the more that companies and economies become virtual, the less will they be able to maintain the internal distinctions to which they are accustomed (Greaver, 1999). Conclusion In sum, IT outsourcing helps companies to improve their main operations and service quality, gain competitive advantage and save costs. It proposes company opportunities to reduce labor costs and increase service volumes and a number of traditional services proposed to customers, restructure business and invest in personal growth and development. Indeed, it is this very transferability of information which virtually guarantees the demise of traditional industry boundaries. Companies are increasingly finding that, if they combine their information assets with those of other companies, the combined information resource is considerably more useful to all sides: two and two, in this instance, can make a lot more than four. Put together a social security or tax database with another database of people who owe debts and you have a means of tracking individual debtors over long periods of time and collecting the debt from them when they finally have the money to repay it (a process known as debt surveillance and already being offered by some companies). This is the virtual equivalent of the synergies that merging companies have traditionally sought, and its compelling economics mean that companies in the future are more probably going to be looking for ways to combine their information with others than looking to maintain the conventional barriers between industries. Moreover, in this new environment, small companies may have advantages created by outsourcing. 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