The Problem of Outsourcing - Essay Example

OUTSOURCING Problem Outsourcing, outplacement, global sourcing, and offshoring are all important factors to regard in assessing the impact of restructuring in the business environment of the present and the challenge of the future. Outsourcing is more of an organizational paradigm which refers to the movement of labor or service providers to a point outside of the organization, which may reflect a shift in organizational structure that moves jobs domestically or globally. “Outsourcing refers to the process wherein a business contracts with a third party service provider to provide services that might otherwise be performed by in-house employees of the business” (Outsourcing, 2010). Outsourcing may differ according to specific factors which measure the business’ ability to grow and maintain attention to its customers and stakeholders in terms of providing products and services through partnerships and joint ventures as well, and it is important for management to recognize that in this type of situation, effectiveness is multiplied by a shared vision between the companies that are working together. The domestic economy has been restructured many times throughout history, and right now, there are new technologies based on computers and the global economy, as well as job outsourcing and the decline of manufacturing in the face of an information and/or service economy. This has made new technological stratifications in the US that increase the gap between the rich and the poor, and have also moved production and manufacturing sectors globally. The ongoing debate between protectionism and free trade has caused many problems in the forum of debate regarding outsourcing, especially with the relatively recent political polarization caused by pro- and anti-globalization advocates, and various resolutions have been attempted through various methods to seek a balanced trade policy that takes the arguments of both sides into account. Opponents of outsourcing tend to argue that prohibitive regulatory measures ultimately hurt the national economy, whether it be from further regulation internationally or by raising the prices of commodities. Those who favor deregulation state that regulations tend to lower a nation’s GNP, because they inhibit trade with other countries. Regarding those who support regulation by stating that it protect national jobs, proponents of free trade, including outsourcing, would argue that those jobs lost to increased competition within a particular industry would be better kept through training programs and institutional reorganization to meet the new global economy, as well as the new job markets that are often created by dynamic free trade players. “Typically, companies have been known to outsource those functions that are considered non-core to the business or such functions which needed specialized skills unavailable in the open market.  Of late, outsourcing has been attracting a lot of debate” (Outsourcing, 2010). National spending and national employment remain government priorities, and opposition to outsourcing can help to create solutions for national business by taxing extra-national business. Fewer industries may need this help, but those who oppose outsourcing argue that those that do should still be able to ask the government to intervene on their behalf. Labor unions may view trade deficits in strictly negative terms. This fosters a sort of crisis atmosphere in which protectionism is reassessed so as to shield threatened national industries, and may set up barriers within domestic organizations, as mentioned, without the formation of a global union structure or an accurate understanding of the global economics that underlie such current trends as outsourcing labor. Solution To come to terms with the reality of outsourcing in today’s global business environment, firms must realize that the economy has changed, and become educated regarding the emerging new status quo. For example, one set of authors state that, “In the analog economy, most companies operate three different businesses: a product innovation and commercialization business, a customer relationships business, and an operations and infrastructure business” (Kotler, et. al, 2002, p. 22), and then go on to note that in the new or digital economy, these three different businesses are still present, even if they must be dealt with more dynamically than in the past. Generally, the authors see the old economy as a place of stability and control, and oppose it to the new economy, which is a place of constant change and increasing recognition of customer needs. Using concrete examples as well as rhetoric, the authors seek to provide a framework of understanding as to how businesses can adapt and change their marketing strategies to operate in this new type of economy, which requires them to outsource more than ever and build relationships based on teamwork, as often as not, rather than competition. At the same time, however, the new market is portrayed as being inherently competitive, and those businesses that have not been able to adapt and change dynamically to new environments and embrace new opportunities are seen to be stuck in the old economy way of thinking, which is dangerously aligned to maintain cost effectiveness rather than embrace and seek out change. Offshoring and outsourcing is very much affected by external market factors as well; the company that outsources CSR to another is also involved in this process of making the business more cost effective, by splitting operations between the home nation and the other nation to be more effective in outsourcing. “Increasingly clients expect that the services they outsource will improve over time and provide them with some combination of cost, quality and functionality improvements. Transformation competency represents how well a supplier can deliver on these formal or informal expectations. Suppliers use several potential levers for achieving radical change” (Aronet al, 2007). Rationale Many global firms pay little attention to global physical distribution issues because this operational structure is often outsourced and seldom has anything to do with what the company is actually doing in terms of goods and services. Therefore it does not fit easily in the company vision, and can be ignored in too many cases. Ignoring global physical distribution and the reality of outsourcing in the modern global economy is a big risk for a company to take, however, because not paying attention can mean that a company is in danger of losing significant revenues. These revenues are expanded the further a company has to ship its products. But in too many cases, companies do not view outsourcing manufacturing and distribution as an important part of their organizational structure, because it is not directly related to company goals and product motivations. These can be seen as significant cons in the pro/con dynamic of the question of outsourcing jobs, particularly customer service jobs. “Businesses try to lower operational risk by tackling its twin causes, the first of which is an organization’s ability to codify the work… companies should transfer processes that possess high levels of operational risk to nearby countries rather than distant countries overseas… it is about companies redrawing organizational boundaries to achieve collaborative supply chains”(Aron et al., 2007). Success or failure of outsourcing and offshoring may rely on dissonance between expectations and reality, as well. “According to several studies, half the organizations that shift processes offshore fail to generate the expected financial benefits (because of) too little time appraising the appropriate business processes to be outsourced, failure to identify the risk involved, and not understanding that outsourcing can be accomplished utilizing many options… both location and organizational form decide the fate of offshoring” (Aron et al., 2007). Ethics There are generally two kinds of companies that can be differentiated by looking at how they view supply in their external environments. In one situation, the company is directed from the perception that the supply environment is dynamic and unstable, and that the company must do its best to keep up with constantly-changing circumstances. In the other situation, the company is directed from the perception that the controllable supply environment is stable and static, and that the company would do better to look internally to cut costs than explore new dimensions. In terms of strength and weakness being polarized in correlate culture in response to a dynamic environment, it would have to be along respective lines of dynamism and cost-effective stability. Looking at outsourcing from an ethical perspective, cultural sensitivity also comes into play. Cultural diversity is a potential obstacle or source of conflict to both the manager to the client relational group and the client to company group. The inherency of conflict in these groups, and also in other relational groups within the business environment during outsourcing operations, may be related to authority roles and other factors such as the problems of some clients in overcoming personal emotions and personalized conflict roles with each other, and other firm members in doing the same thing, as well as looking into the ways in which they communicate with clients and vice versa. For example, if a client comes into the meeting from a cultural perspective or region that is unfamiliar to everyone else in the firm, the firm’s representative is going to have to work extra hard to reduce conflict and stress how everyone can communicate and help each other no matter what the cultural differences are. Conclusion Outsourcing is a by-product of globalized free trade, and as such, it is controversial. This is why protectionism is often thought of as being prohibitive to free trade and global expansion. From an internal perspective, if a developing country has a protectionist system internally that does not allow outsourcing, it will not be able to open up its domestic markets to global capital and its consumers will suffer from a limited choice of products. In many cases, protectionism in developing countries has led to the government taking over many industries and not doing a very good job controlling them because of internal corruption. From an external perspective, if other countries are trade protectionists, they are not going to want to expand into the developing country and help its economy by facilitating improved trade. Instead, they are not going to be trading globally at all, instead focusing on their own domestic markets. This is why protectionism is potentially negative towards developing countries from both an internal and an external perspective. “Unlike the popular belief that outsourcing is a recent phenomenon, it actually has been in existence as long as work specialization has existed. In fact, companies have been known to have used outsourcing in some form or the other for some time” (Outsourcing, 2010). REFERENCE Aron et al. (2007). Getting outsourcing right. Harvard Business Review. Greenspan, A. (2001). International Trade. International Business: Annual Editions. New York: McGraw-Hill. Kotler, Philip, Jain, Dipak C., and Suvit Maesincee (2002). Marketing Moves: A New Approach to Profits, Growth, and Renewal. Boston: Harvard Business School Press. Outsourcing: Pros and cons (2010). http://www.prlog.org/10181084-outsourcing-pros-and-cons.html Read More