Outsourcing - a Key Component of the Global Economic System - Essay Example

outsoucring: effects on communication and satisfaction Globalization is an international phenomenon which has dramatically changed in the ways in which people do business around the world. Economic globalization is the dominant engine of global economic growth and is responsible for the spread of both consumerism and capitalist-inspired economic growth throughout the word. Global economic interdependence is a feature of a new world in which borders have shrunk and international trade has become the modus operandi in a new international system. The collapse of the Soviet Union in the aftermath of the fall of the Berlin Wall in 1989 effectively paved the way for the economic liberalization of countries of the former Eastern Soviet bloc. The result today is a capitalist international economy which has made inroads into the formerly socialist states of eastern and central Europe. Global interdependence is now a feature of the world system and whether one thinks that globalization is a good or bad thing it remains here to stay. Outsourcing, meaning the subcontracting of employment to other countries, is an increasingly common phenomenon with global ramifications (the terms “offshoring” and “outsourcing” will be used interdependently here). As the jobs of the first world make their way to the developing countries of the third world, the forces of globalization have had many unintended consequences. The loss of manufacturing jobs in the countries of the Western world and their movement to lower paying countries of the developing “third world” has restructured the global economy. While outsourcing has had variety of consequences, both positive and negative, this research paper aims to provide a holistic analysis of the outsourcing phenomenon in the twenty-first century. What have been the effects on customer satisfaction of outsourcing between customers and companies that outsource? The following will now explore this important question in light of the offshoring phenomenon. Ramifications of Outsourcing in the Twenty-First Century Seeking to understand the correlations between customer satisfaction and the offshoring of tasks, duties and responsibilities in the twenty-first century, a recent article in the Wall Street Journal highlighted the important concerns raised by customers when customer service is offshored. Have you ever called a company with a question or complaint and been redirected to Bangladesh, India or the Philippines? Arguing that this is an increasingly common phenomenon in our era of globalized trade and that outsourcing primary customer service functions have a wide variety of ramifications on a company, academics Whitaker, Krishnan and Fornell sought to explore the phenomenon. Admitting that outsourcing has received much poor attention the United States as well as around the developed world, the authors site poor language skills of offshore customer service representatives and the belief within the developed world that the export of jobs hurts the Western world domestically, as the reasons for this bad media publicity. Offshoring is primarily driven by a cost benefit analysis and the lower labor costs overseas are seen by companies which engage in offshoring as the major reasons behind it. Despite a little bad publicity, these scholars argue, outsourcing overseas will continue as labor costs in the developing world remain low. With the aim of understanding the effects of outsourcing on customer satisfaction, Whitaker, Krishnan and Fornell undertook substantial research on the phenomenon and publishing it the Wall Street Journal (Whitaker, Krishnan and Fornell, 2009). Analyzing the outsourcing activities of 150 North American companies over an eight year period from 1998 to 2006, these researchers found a positive correlation between the active outsourcing of customer service functions and a decrease in the overall ranking of customer service functions as outlined in the American Consumer Satisfaction Index, or ACSI, created by the National Quality Research Center. Furthermore this article highlights in the importance of customer service on market capitalization and the poor customer service rankings as a result of offshoring can lead to a drop of between 1% and 5% of a company’s market share, dependent of course of which industry the company works in. Thus, this research points to the negative ramifications of outsourcing on overall customer service and satisfaction (Whitaker, Krishnan and Fornell, 2009). Aiming to explore the ethics surrounding outsourcing in the 21st century, Bruce Weinstein sought to explore the ethical issues associated with overseas labor in a global world. Arguing that outsourcing can slash labor costs by up to 25% to 50% but that it can hurt the reputations as well as ethical standings of customers, Weinstein argues that it is also “bad for business”. Outsourcing hurts customers’ opinions of a given company and results in negative word of month. Short-term risk can have negative long term ramifications and the result is that companies loose in the long-term. The inability of customer service representatives to speak proper English is the most oft-cited complaint by disaffected customers, and it is absolutely imperative that front-line customer service people are able to speak the language of the customer. When faulty English becomes an issue, it is the company that suffers. When communicating in English is essential, it should strike one as odd that the important function of customer service - essentially the face of a given company – is outsourced to someone who cannot even communicate in the language of the client (Weinstein, 2007). Ramifications of the Outsourcing Backlash Many people in developed countries argue in favor of protectionism as a result of outsourcing and the flight of jobs overseas. Outsourcing has gained credence in recent time because foreign wages are much lower abroad. The result is that jobs at home are lost as employment trends shift overseas. Protectionism is the anti-thesis to the free trade neoliberal ideology espoused by the forces of globalization today. What is protectionism and is it a threat? (Bendor-Samuel, 2000). Protectionism is an economic policy which promotes a strong role for the state in regulating economic policy and advocates restrictions on the international flow of goods. Tariffs and restrictive quotas are important components of protectionism behavior and this concept has its roots in the early theories mercantilism, prevalent during the early years of US Independence. Aimed at discouraging imports and the prevention of foreign goods flooding domestic markets, protectionism today stands in stark contrast to free trade and the policies of economic liberalization. National barriers to global trade are enforced through protectionist policies and this phenomenon has gained new credence in an era of anti-globalization. Prior to the modern globalization phenomenon, key Asian countries such as South Korea employed Import Substitution Industrialization (ISI) as a form of protectionism to shield domestic producers from foreign competition. In today’s global economic marketplace, there are increased calls for the imposition of tariffs and other regulatory measures to protect domestic producers and jobs from foreign take-over. Although detractors exist, as has been evidenced above, many economists argue for strong international trade to provide competition and stimulate domestic producers (Bendor-Samuel, 2000). Outsourcing can have a variety of drawbacks from a business perspective, despite the fact that it remains prevalent in our global marketplace. In addition to the national issues surrounding protectionism, individual employee motivation with a developed country could be diminished due to the acknowledgement that his or her job could quickly be lost and shipped overseas. Thus, this is an important ramification of outsourcing which is often negated in any discussion of this phenomenon. In addition to the whole host of negative aspects surrounding the outsourcing of jobs in the new increasingly interdependent globalized world, how can outsourcing be saved? (Bizbrim, 2009). How to Save Outsourcing? How can companies which outsource improve their standing vis-à-vis their customers when offshoring is an economic imperative? For one, companies which engage in outsourcing can strive to improve the training as well as the language skills of the employees who work in the outsourced office, furthermore additional powers can be given to the outsourced staff with respect to solving customers’ questions and concerns. Thus, customer dissatisfaction often stems from the fact that outsourced staff cannot give credit or do not have the authority to revise an invoice; giving these outsourced staff members more responsibility can thus have a positive impact on customer service and satisfaction. From another perspective as well, outsourcing can utilized for more back office functions, such as information technology, as opposed to front-line customer service and support. Thus, there are a variety of important ways in which outsourcing can be improved when markets dictate that companies need to control costs and outsource some important functions to overseas workers. Choosing to offshore an important function such as customer service to people with poor English language skills, poor product knowledge and little responsibility, does more to harbor resentment and customer dissatisfaction than anything else (Whitaker, Krishnan and Fornell, 2009). Concluding Remarks Outsourcing is an integral component of the globalization phenomenon and a key aspect of the global division of labour. Thomas Friedman, in his immensely popular book The World is Flat (2005), describes offshoring/outsourcing as an integral component of the worldwide spread of capitalism and the global division of productive labor. According to Friedman, outsourcing is primarily done in response to keep costs low and restructuring ones’ labor force in order to keep production costs at a minimum. Accordingly, while a non-skilled manufacturer in Illinois can expect to earn a minimum of $14 an hour, in a country such as India could earn less than a $1 an hour. Thus, companies who seek to maintain their competitive advantage and keep cost low, ship their productive facilities overseas where costs are significantly lower. There are also important tax advantages to outsourcing jobs overseas and companies can often expect certain tax benefits when utilizing productive labor in the developing world (Friedman 2005). Outsourcing is a key component of the global economic system and represents an entirely new international division of labor. Despite numerous detractors on all corners of the globe, outsourcing remains an important force in our modern interdependent world and remains a key component of continued and sustained economic growth on a global scale. Protectionism represents a backlash against the forces of globalization and is a result of the power of outsourcing today. We have shown that outsourcing can have negative ramifications on a customer’s perceptions of a company, leading to poor word of mouth, customer anger and an overall decline in a company’s market share. Poor English skills remain an important complaint for customer service professionals and it remains highly suspect that companies will outsource their front-line customer service functions to people who have difficult communicating directly with the customer. This strikes one as odd and should certainly be understood as something which could be corrected. Accordingly, language skills remain the largest complaint from a customer’s perspective with respect to the negative ramifications of outsourcing in the twenty-first century. Despite proponents and detractors, outsourcing is here to stay but remains a significant challenge in the world of business today. References Negative effects of Outsourcing. 2009. Bizbrim.com. Last Accessed October 24, 2009,http://www.bizbrim.com/outsourcing/negative-effects.htm Bendor-Samuel, P. (2000). Turning Lead Into Gold: The Demystification of Outsourcing. New York: Executive Excellence Publishing. Friedman, T. (2005). The World is Flat. New York: Farrar, Straus and Giroux. Weinstein, B. (2007). The Ethics of Outsourcing Customer Service. Last Accessed October 24, 2009, http://www.businessweek.com/managing/content/sep2007/ca20070927_836850_page_2.htm Whitaker, J, Krishan, M.S. & Fornell, C. (2008). How Offshoring How Offshore Outsourcing Affects Customer Satisfaction. Last Accessed October 24, 2009 http://online.wsj.com/article/SB121441852405104029.html Read More