Outsourcing and Offshoring in the 21st Century - Literature review Example

Business s Submitted by s: Introduction Throughout the past decade, many academic scholars as well as policymakers have concentrated their attention on the integral role that technological innovation plays in terms of the growth of the economy (Szostak, 1991, p. 4). There are two distinctive reasons that have lead to this escalated interest. To begin with, the economists have always identified the importance of technological innovation in microeconomic and the macroeconomic processes. In addition, the leading models and structures that are meant to develop an understanding of economic growth and national competitiveness did not include in a straightway the economic drivers that are involved in the processes that deal with innovation until the late 1980s. Consequently, the dramatic political changes that came about as a result of the cold war as well as the growth of economic activities to a global scale have increased the salience of the growth of productivity as the main objective that the policymakers have throughout the OECD. Through concentrating their attention to the sources and the outcomes that are related to technological innovation, the academics as well as the people who are tasked with coming up with policies have to deal with a variety of issues. Since activities are relatively distributed throughout the world, innovation can be seen to be concentrated in a few countries at any particular point. Clusters and innovation Clusters are considered as the geographical concentrations of companies, which are interconnected and mainly operate in a specific field (Karlsson, 2008, p. 234). Clusters entail a variety of connected industries and other entities that are vital in relation to competition which encompass the dealers in specific inputs like components, equipment and services and sources of infrastructure that is specific (Pike, Rodríguez-Pose and Tomaney, 2006, p. 110). More often than not, the clusters also extend downstream to the channels and customers as well as laterally to the manufacturers of the products that are considered complimentary and the companies that deal with the same skills, input and technology (Porter, 2007, p. 78). Contemporary clusters are dependent on productivity rather than the access to inputs or the degree of the individual enterprises and the productivity is based in the manner that the companies compete and not in the specific fields that they compete in. all the industries can be able to adopt advanced technology and therefore make themselves become knowledge intensive. The quality of the prevailing business environment will have a huge impact on the sophistication of the companies that will be operating in a specific place. It is impossible for companies to adopt high quality logistical techniques when the transport system that exists is not of a good quality. Businesses cannot be able to operate in the best way possible if they are hindered by red tape regulation and a court system that has no capacity to deal with disputes in the fastest way possible (Porter, 2007, p. 80). Apart from enhancing productivity, clusters also play a huge role in the innovation capacity that a company will have and some of the characteristics that enhance the productivity in these companies apply when innovation is considered (Meier-Comte and Hummel, 2012, p. 291). Since the buyers who are sophisticated are included in the cluster, the companies that are within a cluster have a better market than their competitors who are isolated (Furman, Porter and Stern, 2000). The role of the clusters goes beyond exposing the developing opportunities that are linked with innovation since they also provide the capability as well as flexibility for rapid action. A company that is part of a cluster can be in a position to source its requirements for the implementation of innovation in a faster way since the local suppliers and partners are closely involved in the process of innovation, which makes sure that there is a better match with the requirements that the customers have. Offshoring and outsourcing There has always been a significant difference of opinion over the causes and the outcomes that are linked with Offshoring and part of this argument are the disagreements over the basic assumptions that are in the economic theory as well as management decision making. Basically, Offshoring is a source of challenges to the main theories that support international business such as the ease with which corporations are able to shift operations as well as employment among countries has direct impact on the relevance of a traditional comparative advantage view of worldwide competition. The revolutions that have taken place in the digital world coupled with the decrease in the cost of telecommunication globally have developed great opportunities for various businesses to be able to take advantage of low-wage workers who are in the emerging markets but have a high level of skill (Farrell, 2005, p. 680). As a result, this distribution of labour that is occurring globally has developed disquiet in many countries but it is important to understand the offshoring can create wealth for both the companies and countries that are involved (Kehal and Singh, 2006, p. 200). There have been argument that companies decide to shift their businesses offshore since this present an opportunity for them to make more money in that there will be a creation of wealth in the country that is outsourcing as well as the one that is given the jobs. In essence, the equation that involves corporate profits and national wealth has no ground as far as economics is concerned and is ideological in its attempt to create universal corporate interests. Reducing wages does not necessarily increase the income of a country, but simply shifts the income from the workers to the shareholders, which will consequently make a few people to become wealthy (Herr and Kazandziska, 2011, p. 221). The same consequences can be seen if the workers agreed to take pay cuts and therefore earn the low-wages that the people that are in the countries that provide the outsourcing services earn. Actual income in the countries that are industrialized would increase if the workforce that is rendered jobless by the outsourcing were able to move to employment that would be more productive. This is because the opportunities to train labour as well as the investment in capital that is meant to come up with the opportunities that exist in occupations that have benefit for instance research and design are a source of wealth creation. Essentially, outsourcing and offshoring have the impact of generating complementary job opportunities that are meant to provide support for the worldwide operations of multinational corporations in areas such as international IT and general management (Levy, 2005, p. 686). Offshoring depicts a continuation of a process that has taken place for many centuries but ironically, the evident escalation of offshoring exhibits both the successes and failures that are associated with economic globalization. Labour and capital have developed to become mobile factors that have the ability to be deployed and also redeployed in the shortest time possible. Other rules and regulations that are institutional and intended to pummel the possible negative overflows of capitalism do not have the characteristics of being portable. Even though all the human capital is now able to move from one place to another, the social factors that address all the collective productive capabilities have not been able to achieve uniformity. The outcome of this is an asymmetrical distribution that has impacts that are disruptive and dislocating on some of the regions as well as the employees while giving others the advantage of an added economic stimulus. The growth worldwide corporate responsibility standards as well as the taking up of agreements and codes of conduct that are meant to regulate labour and environmental practices control these norms. As a result, the initiatives may provide assistance in migrating those who are most anxious about the most acute disruptions that are linked with offshoring (Doh, 2005, p. 703). Global competitiveness Foreign direct investment as well as the political economy play a big role in assisting to develop the understanding of the manner in which offshoring has an impact in the worldwide competitive strategies that are embraced by the multinational corporations. Foreign direct investment assists in the consolidation of the activities that are carried out by the multinational corporations in a vertical structure while offshoring serves the production chains that are in the lo-cost regions. Offshoring also gives the guarantee that through the foreign direct investment there will be the transfer of the concerned technology from the foreign to the local countries. This can be seen in the importation of intermediate products and services to by the United States from India, China and Brazil since these countries have made great strides in terms of technological advancement as well as human capital that have become highly competitive (Snowdon and Stonehouse, 2006). The legal infrastructures that are present in these countries also motivate and facilitate the conducting of business. Even though is offshoring and outsourcing mainly takes place in the countries like China and India (Carmel and Tjia, 2005, p 28), other services that were private came from Latin America as well as other Western countries in the decade between 1993 and 2003. Offshoring is integral in the commercial trade that countries take part in with the other countries in the world and the access to markets is the most vital element in the choice of the multinational corporations to locate production outside their borders. The sectors that are associated with being most dynamic are those that are linked with information technology as well as business processes and the business services that are exported whose origin is the OECD countries are generally from the European states as well as the United States. Since 1995 the exports that came from the developing countries that include India, China as well as Brazil have shown considerable growth and this can been in the reputation that India has developed in the computer programming industry. Globally, India is ranked top as far as Information Technology services are concerned and this robust tendency that is related to offshoring of services drives some countries to adopt policies that are protectionist (Jumah, 2007). Conclusion There has been growing discourse that has originated from the media about the escalating offshoring activities that involves the exportation of services and the jobs that are require high skills to developing countries (Collins and Brainard, 2006, p. 266). Many economics have argued that offshoring is the latest incarnation that is associated with international trade, which is intended to be of benefit to both parties. When organization and management theory is considered, the concerns that come up about the loss of jobs and erosion of wages are valid meaning that the offshoring wave that has been experienced recently possesses a character that is original. Companies have an escalating organizational and technological capability to coordinate a set of economic activities that is distributed and this has enabled tasks that are complicated t be located in remote regions while still being integrated with the rest of the activities associated with the multinational. It can be concluded that offshoring and outsourcing are the worldwide approaches that are increasingly being embraced by the multinational corporations and through the process of offshoring, the corporations are in a position to recognize the countries and regions that have the greatest capability for absorption (Chow, 2002, p. 96). This strategy compliments that vertical activity that the multinational corporations prefer to be a part of and specifically India, China and Brazil while making contribution to the intensifying of professional services and ensuring they are more dynamic. Bibliography Carmel, E. and Tjia, P. (2005). Offshoring information technology. 1st ed. Cambridge University Press. Cambridge. Chow, P. (2002). Taiwan in the global economy. 1st ed. Praeger. Westport, Conn. Collins, S. and Brainard, L. (2006). Brookings trade forum 2005. 1st ed. Brookings Institution Press. Washington, DC. Doh, J. (2005). 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