The History of Globalization - Term Paper Example

Financial Management and Information System Perspective Abstract Globalizing the operation of organization is the most efficient way to distribute goods to where the market is. It is also the most effective way to ensure that all parts of the world benefits from all the natural resources albeit for profit. International organization such as the WTO has made globalization its operating onus, paving the way for more countries to open its market as its membership increase. The new opportunity provided by WTO made organization go global to save on cost while taking advantage of the fresh market. However, globalization also exported the jobs including the benefits that go along with it to other countries. On the surface it may make good business sense to transfer non-critical back room operation to where it is cheaper. However, the cost of setting up, the effect of quality and reliability issues of the output of these outsourced processes more often than not increases the cost of operation rather than reducing it. Transferring or outsourcing the back-room operation of organization to other countries also presents security issues for these organizations that could affect their clientele. The government in its effort to protect the privacy of its citizen have enacted laws that call for elaborate ways of protecting the privacy of its citizen. Given the recent cases of fraud in the corporate industry the government also enacted the SOX that also call for additional security measures to be mandatorily implemented to ensure compliance. The overall impact of SOX, Privacy Laws and ensuring the reliability and quality of the output of outsourced processes translates to an increase in operating cost. Contents Abstract 1 Contents 2 Introduction 3 Financial and Economic Perspective 4 Outsourcing back-office operation 5 Social Responsibility Perspective 6 Regulatory GOvernance Perspective 6 Service Level Reliability Perspective 7 Conclusion 8 Bibliography 10 Introduction There are so many aspect of globalization that its definition is dependent on the context of what is being discussed. Within the finance and economic industry globalization means setting up operations that would include manufacturing, distribution and regional offices in other parts of the world where the market is most abundant (Osterhammel, Petersson, & Geyer, 2009). Within the context of information system globalization pertains to the ability of organization to communicate and operate seamlessly with the help of technology (Emerson, et al., 2011). Asia, practically have two thirds of the population of the world at more than six billion (Newbold, 2006). It would make financial sense therefore to move the manufacturing plants near to where the market is. The strategy would save a lot in terms of cost due to the shorter travel time between the manufacturing plants and its distribution centres that would eventually bring it to the end users. The strategy would also provide a shorter turn-around time between production cost and profit that would provide a healthy cash flow for the organization. Another aspect of globalization is take advantage of the cheap labour provided by the Asian labour market by outsourcing back-office operation to these countries. For operations that require twenty four by seven presence and availability to its clientele rely on the cheap labour provided by other countries to meet this demand. Enabled by technology the organization’s clientele would not even know the difference if they were speaking to people within their own country or some contact centres in India. Outsourcing is not limited to back-room processes or even customer relationship management it is also prevalent in services. Back-up data or records are also maintained and managed by outsourcing companies dedicated to data security and back-up to ensure that company records do not get lost or damaged in case of disasters. Legal and Medical transcription services are often outsourced to countries that offer lower rates. Digitization of manuscripts, books even magazines and newspaper are also outsourced to other countries to capitalize on the lower data conversion rates. The advent of technology made it easy and mundane to operate globally. However, does its promise of lower operating cost really hold true? Is the social cost of transferring manufacturing plants from towns that owes its existence to these manufacturing plants really worth it? Financial and Economic Perspective It could be considered financial suicide not to consider globalization in an organization’s future development plan. With more than half of the world’s viable economic market living halfway around the globe it is not practical to rely on the local market much less manufacture locally and ship products to where the market is. The cost of shipment alone would increase the shelf cost of products originating off-shore that it may not be competitive to similar products that is manufactured locally. The operation of the World Trade Organization made sure that products manufactured from other countries are taxed and treated in the same manner as the local products by the country’s economic policy. In retrospect the WTO made it more attractive for large organizations to transfer to other countries so as to capitalize on the large market, cheap labour and shorter turn-around time for profits. With the above in mind, it is prudent to consider globalization as a means to arrest inflation. It is also important to note that manufacturing where the market is not only shorten the revenue cycle it also ensures that the product is available on the shelf for a much longer time than when the products are manufactured halfway across the world. Given this rationale it would also make sense to manufacture products within the United States if the target market is within the United States. Outsourcing back-office operation The primary consideration in outsourcing back-office operation abroad is the manpower cost. An eighty dollar an hour American is clearly much more expensive than a ten dollar a day worker from another country. But are these the only cost associated to outsourcing? Outsourcing back-office processes also means making the source data needed for the back-office processes available in the country where the process will be outsourced. In the case of medical transcription, the practice of making patient data available in any form be it voice or digitized record outside the United States is against the law since it violates the privacy of the person (Centers For Medicare and Medicaid Services, 2003). In the case of other back-office processes that include the exposure of financial records of clients to the person doing the outsourced process in another country is also a violation of the law (Moore, 2004). Lastly, organizations that are registered in the United States are also mandated to follow the data security provisions of the Sarbanes Oxley Act (Addison-Hewitt Associates, 2002). The cost of implementation alone to ensure that all the requirements of the mentioned laws are met by the offshore outsourcing company could negate the perceived savings of the outsourcing strategy. Due to the increased complexity of the back-office operation including its criticality, the need for back up or disaster recovery plans have also become a necessity. The associated cost that would ensure an effective back-up system could also negate the perceived savings. Social Responsibility Perspective The social cost of transferring work abroad just so organizations will be able to save in terms of operation and logistic cost takes its toll in a different form. Most of the dying town or abandoned town in the United States almost share a similar story: economic dislocation. The once flourishing towns that were abandoned by the very industry that sustained it for so long will suffer the indignity of having more than half of its population without jobs. The support industry that relied on the existence of the manufacturing plant may have to close down as well (Stiglitz, 2003). Regulatory GOvernance Perspective The natural work ethics of the American labour force cannot be matched by any other nationality its deeply rooted respect for the law cannot be matched by any other nationality. Given these assertions, the fidelity of other nationality in complying with the American law may not be within the standard that would satisfy American moral and ethical code. It should be noted that the outsourcer is from another country, therefore their faithfulness and loyalty in complying with the requirement of the law should be suspect as well since for all intents and purposes it is not their society that will suffer. It is noteworthy to consider that the compliance to the law rests on the owner of the process that is being outsourced. Reviewing the capability of the outsourcing company to meet the requirements of the applicable regulation to the outsourcing client remains with the outsourcing client. The cost of such review would also have to be shouldered by the outsourcing client that could also negate the perceived savings of outsourcing. The laws were enacted to protect American interest as well as the interest of its citizens making sensitive data available to outsourcing companies defeat the purpose of these laws. Making the data travel through the internet just so it can reach the outsourcing company outside the United States already makes the data vulnerable. Making it percolate in the servers of the outsourcing company as they perform their contracted tasks doubles the risks of the data falling into the wrong hands. A determined terror organization vent on getting their hands on any data that pertains to American interest can go as far as infiltrating the outsourcing company itself. Since the client organization may not have any control over who to hire and what background to hire the risk for the client organization practically triples. These facts can make the client organization vulnerable to legal actions that may be brought against it’s by its own clients. The cost of protecting against these vulnerabilities and constantly monitoring the compliance of outsourcing companies cost a considerable amount that could negate and perceived savings. Service Level Reliability Perspective Considering that the outsourcer are only obliged to meet the standard quality that is defined in the outsourcing contract going the extra mile cannot be expected from them. At most borderline compliance to quality standard is to be expected. It is worthy to note that developing the framework that would enable the outsourcer to meet the quality standard required by multi nationals organizations also translate to cost that could negate any savings. The wastage could come in several forms: The first is when there is a need for the outsourcer to repeat the order because it does not conform to the standard quality. The second is the delay that will be incurred in correcting quality defects can also cost the company. The third is the extra cost of checking the quality that should not have been there in the first place. Infrastructure cost not only involves costly back-up systems but it also involves elaborate software and equipments that should not have been necessary if the process have not been outsourced. The cost of monitoring the process flow of the outsourcing companies to ensure that the order is progressing on schedule within the quality parameters required could also cost the company. The maintenance cost of these equipments including the needed software that is exclusive to outsourced processes could be enough to negate the perceived savings of outsourcing. Conclusion There is nothing wrong with streamlining the operation of an organization to ensure profit. But the premise and rationale of this impetus as a policy should be implemented evenly. For organizations wanting to manufacture their products closer to where the market is, should ensure that they also manufacture the products sold in the United States within the United States. Outsourcing back-office operation as a strategy should include the total financial study of the strategy. The plan or the study should include the cost of quality assurance to the output of the outsourced processes. It should also include the cost of ensuring that the entire outsourcing process is compliant to all pertinent government regulations such as SOX, HIPAA and GLBA to name a few. Ramp up cost including the roll-out cost are normally considered as capital expense, however what should be considered is the amount of time needed to recover the expenses incurred. After considering the totality of all cost associated with outsourcing, a main factor that should be considered is how to promote the organization’s image as a good corporate citizen that is responsible for keeping jobs to stay within the country. The operating cost of the technology infrastructure is not limited to the cost of the bandwidth that enables organization to keep in touch or stay connected with its remote offices. Organizations also need to realize that the cost of downtime and the recovery effort to bring the operation back to the pre-disaster level could cost more money than if the jobs stayed within the country. Outsourcing to other countries may be the prudent thing to do on the surface but considering all the associated cost in its entirety could prove that outsourcing is much more costly in the long run. Bibliography Addison-Hewitt Associates. (2002). Sarbanes-Oxley Act 2002. Retrieved December 15, 2010, from SOX LAW: http://www.soxlaw.com/introduction.htm Centers For Medicare and Medicaid Services. (2003, February 12). Health Insurance Portability Accountability Act. Retrieved December 15, 2010, from U.S. Department of Health & Human Services: http://www.cms.gov/hipaa/ Emerson, J., Littlefield, E., Silby, W., Bugg-Levine, A., Balderston, K. M., Greene, S., et al. (2011). Innovations: Technology, Governance, Globabilzation 6:3 (Summer 2011) - Impact Investing. Michigan: MIT Press. Moore, D. (2004). Gramm Leach Bliley Act. Washington: Training Pro. Newbold, B. K. (2006). Six Billion Plus: World Population in the Twenty-first Century (Human Geography in the New Millenium: Issues nd Applications). New YOrk: Rowman & Littlefield Publishers; 2nd edition. Osterhammel, J., Petersson, N. P., & Geyer, D. (2009). Globalization: A Short History. New Jersey: Princeton Univesity Press. Stiglitz, J. E. (2003). Globalization and Its Discontents. Washington: W.W. 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