Potential Opportunity in Outsourcing of Companies Based in the UK - Coursework Example

Potential opportunity in outsourcing Name Grade Course Tutor’s Name 27/ 11/ 2010 The potential opportunity cost for companies’ base in UK outsourcing their operation to countries in enlarges European Union Many companies based in UK opt to outsource their operations to countries in the European Union. They usually get potential opportunities although they incur various costs. Some of these opportunities they get include tax processing and tax preparation services. The experts of the tax system normally outsource their services to other countries. Tax services are very competitive and therefore competent tax staffs from UK offer external services at a cost. IT services are also very much outsourced. Being an equally competitive field technical experts from UK are also in high demand. They offer external services to other European countries. This is possible due to fact that UK is in a computerized error and they are well equipped with IT facilities. UK is also famous for outsourcing medical services to most of the developing countries. African countries are the major partner with UK in human resources’ outsourcing. Being a developed country, UK has got powerful medical facilities that enable them to outsource their services. The cost incurred while outsourcing include security. The major impediment to outsourcing staff is the implied risk imposes on the organization that outsource the staff. Most of the countries in the UK place the burden to those organization who outsource the staff of any misconduct of their outsource staffs. The legal status of the outsource staff change immediately when they are transferred. Another cost is maintaining quality of service. The outsourcing firm must ensure that the quality of the service that is outsourced is not questionable. This means that the staffs must maintain high levels of quality. This is the cost that is to be borne by the company itself. It must ensure that the machines or the tools of work are up to the standard. The Cost of infrastructure also must be considered while outsourcing the cost of infrastructure which includes the cost that will cater for power problems, transport among other costs. There is also labor cost. The outsourcing staffs in most cases demands for higher remuneration more than their normal package. The claims for benefit and incentives are costs to be catered by the outsourcing company (Sir Keith Joseph, 2006). The role of world trade organization (WTO), World Bank and IMF in the UK economy The World Trade Organization (WTO) replaces the general agreement on tariff and trade (GATT) which was established in 1995. The mission of this organization was to lower tariffs and non-tariff that was major obstacle to international trade. The WTO fosters ‘free-trade’ between nations. It does this by liberalizing markets, which means ‘opening them up’ to global competition. This created a liberalize economy that facilitated a free competition environment that motivate and create innovation across the borders The World Trade Organization has to a larger extent contributed to the growth and survival of the United Kingdom’s economy. In 1994 WTO was initiated to iron out the challenges which the former GATS could not handle. It removes the dominancy of the trade policies by few UK countries and made it more democratic across the borders such that the new members could also have better say on the trade policies. Its aim was to remove any restrictions and internal government regulations in the area of service delivery that can be considered “barriers to trade”. These are barriers such as political influence, lack of free entry or exit, bans and beaurocracy in the clearance of goods for example at the port. The WHO has helped to get rid of all these barriers and has thus enhanced free trade which results to improved economy throughout the country. The world trade organization has brought desired effect in competitive world market. It force has been felt in all the portfolio of trade. It touches on fishing industries, education and health in the European countries. It has since then abolishes the negative perception of colonialism and dominancy in the trade. The WTO has also gone to the extend of streamlining various government sovereign right and turn into essential national service that in the best interest of the citizen. There has also been unrestricted import and exports of commodities between the countries. For example the export of food and drink and chemicals from UK to other European countries was made easier and this not only improved the economy of the country but also its GDP. Implementation and administration of operation of world trade organization has furthers the mission of GATS and agreement of multilateral trade of European countries. A more democratic space in trade among the partners was avail by WTO through negation among the concern members. During this negation process more sound policies was put into effect and it has boost the growth vibrant trade. The agreement allows for fast transactions and trade between the countries is enhanced (Phillips, Kevin,2007). The World Bank (WB) came into being with the objective to ensure sustainable economic development which was ruin during Second World War. The bank has grown since then and has a play major key role in building economy all over the world. The bank has become a large source of finance that has boos various developments across the world. The bank has taken lead in alleviating poverty in under develop countries. The bank has also supported the development of large projects for example, building roads, dams, pipelines, extracting natural resources among others in the effort to assist in economic development. These projects have been allocated funds to facilitate their completion. This in turn has improved the economy of the country because the fund from the UK treasury has been channeled to the development of the country’s welfare. Developing countries like the UK find themselves in a position where they do not have enough foreign currency reserves to invest in growth-promoting policies as they may have spent their reserves on imports and debt repayments (Sullivan, Arthur Steven Schifrin, 2003). The IMF was created to maintain global monetary cooperation and stability by making loans to countries with balance of payment problems, stabilizing exchange rates and stimulating growth and employment. Since then many change in global economy have been witness. For example the divorce of exchange rate from goal which was stable anchors of massive an economic trade. This led to dramatic increase in capital speculative and destabilizing economy among nations. The intervention of IMF safe the vulnerable nations especially in the south from economic melt down. IMF has become a solution to many economic challenges that faces many countries. UK has always turned to IMF form financial support whenever there is a financial catastrophe. Even though there have been critic that IMF have cause crippling debt to many developing countries IMF have play important in bringing economic reforms as condition for the loan. In effect the IMF takes this opportunity to render the struggling economy ‘free-market friendly’. The reform to prioritize privatization, debt repayment and liberalization has given room to countries to capitalize. The IMF and World Bank in their effort to raise the economy of UK cut social spending to reduce expenditures on health, education, among others. IMF claims it is now making sure such spending goes up, but often it’s to put in place systems to collect fees. It removes Tariffs and consequently prevent collecting duty from imports; these dues are often useful to commodities which would compete with locally--produced merchandise. It also Cut Subsidies for basic goods like bread, petroleum among others. This reduces government expenditures and thus supporting the economy of the country (Phillips, Kevin, 2007). Currency risk the companies face with the relation to global exchange rate Exchange rate risk is also called currency risk. It is the probability that a firm’s activities and value can be altered by currency exchange rates. If a firm conduct business abroad, for example, goods may be purchased from them with Euros (when Europeans buy the goods) yet ultimately needs to be changed to U.S. Dollars to become retained earnings. Export pricing is the most significant issue in advertising export and facing worldwide trade rivalry. It is important for the exporter to lower the prices and keep in mind all export profit and cost. However, there is no fixed formula for successful export pricing, it differ from exporter to exporter depending upon whether the exporter is a merchant exporter or a manufacturer exporter or exporting through an agent. Just like any other business deal, risk is also linked with good quality to be exported to abroad market. Export risk in worldwide trade is not similar to risks involve in local trade. So, it is important that all the risks related to export in international trade be given an extra measure and a proper risk management (Phillips, Kevin, 2007). The various types of risks faced by UK when exporting their commodities internationally are as follow: Credit Risk It is not easy over a long distance that separate exporter and buyer to ascertain the reputation and credit worth of the buyer. A false buyer is part of the risk that exporter is interested in avoiding. The only way that an exporter can determine the credit worthiness of the buyer is through commercial institution. Commercial institution normally gives good records of their clients borrowing and repayment behavior. Poor Quality Risk The quality of good exported may be eroded during transport. This can lead to consumer rejecting them with the reason being poor quality. This call for proper check on goods before it is transported. To avoid on giving room to buyer to further bargain on lowering the prices, diligent care should be taken to ensure safety of the goods. On well this can be carried out is through independent inspection as procedure before shipment. The inspection will protect both buyer and the exporter from unfair trade. The inspection is importer initiative and cost of inspection is met by importer. In many case the exporter sent sample goods together with to be use to contour check the quality of the import (Dougherty, Carter, 2007). Transportation Risks International trade involves handling of goods over long distances. The nature at which good are handled during transport is not guaranteed damage can easily happen. It is therefore necessary that a provision is made in order to ovoid any eventuality that might occur to goods. Logistic Risk International trade is surrounded by complex logistic which calls for professionalism. To avoid on the logistic risk firm should priorities consultancy for the organization to have better understanding of what is happening in the field. Legal Risks International laws and regulations change frequently. It is essential for every business to have a good interpretation of law and how the amendment can impact on their business. Political Risk Government policies are determined by political stand-off among the contesting parties. So policies keep changing has the leadership regime changes. This change in politics leaves both positive and negative impact on business. The negative side of the politics is what is referred to as political risk. It is therefore important for every organization to constantly be ware of any policy that may affect their trade. Unforeseen Risks In every trade there is an associated risk which are either systematic or unsystematic. Risk cause by terrorist, natural disaster such has earthquakes can not be foreseen but when it happens it leads to great losses. It is therefore important that an exporter ensure that there is a clause in the export contract addressing the risk of those catastrophes that cannot be foreseen or mitigated. Exchange Rate Risks The future value of money gives on fluctuating due market dynamic factors. The effects of the change in the market factors have both positive and negative impact on trade. To avoid this risk firm should adopt hedging schemes. References Phillips, Kevin. Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of kAmerican Capitalism. Penguin. 2007. ISBN 9780143143284. Sullivan, Arthur Steven Sheffrin, Economics: Principles in action. Upper Saddle River, . 462.2003.ISBN 0-13-063085-3. http://www.pearsonschool.com/index.cfm?locator=PSZ3R9&PMDbSiteId=2781&PMDbSolutionId=6724&PMDbCategoryId=&PMDbProgramId=12881&level=4. Dougherty, Carter, Dollar Hits a New Low, Oil Hits a New High, The New York Times. 2007. http://www.nytimes.com/2007/10/19/business/worldbusiness/19euro.html?ref=worldbusiness. Retrieved April 26, 2010. Sir Keith Joseph, Centre for Policy Studies, Stockton. (Barry Rose Pub.) Margaret Thatcher Foundation 2006. Read More