Global Outsourcing in Business - Essay Example

Global Outsourcing in Business

Introduction

Global outsourcing refers to the process in which barriers that may prevent the operation of a business enterprise in international markets are removed. Outsourcing has been cited by many experts to be an advantageous business strategy since it leads to reduction in the costs incurred. However, the use of global outsourcing has a variety of challenges. With the increased customers’ demand for quality in the products produced by many businesses, there has resulted an increased competition level among businesspersons.

Outsourcing usually entails the process in which businesses transfer some of those activities that are not core to their operations to those organizations that specialize in such operations. For instance, outsourcing may entail subcontracting of the manufacture of goods to offshore companies at reduced costs. Global outsourcing can in some cases also include partnerships between companies in different parts of the world. The main focus of this study is to analyze the various factors associated with outsourcing in the context of a global market. Furthermore, the paper will also address the application of these factors to the operation of a small business company (Rushton and Walker, 2007).

Advantages of Global Outsourcing

There are various advantages that can be associated with global outsourcing. For instance, it enables companies to transfer some of their operations to other world destinations such as India in which there exists low labor costs. Furthermore, such regions are usually characterized with the production of high quality products. For instance, it has been established that the same quality of products that are produced in most western countries can also be manufactured in Asia at only a fraction of the total production costs. In India, research has indicated that only about 60% of the production costs in the western countries are used.

The other advantage of global outsourcing is that it is a more efficient production strategy as compared to local manufacturing. For example, most of the professionals in those companies abroad to which the non-core functions are usually outsourced to are often well versed with the tasks with which they are entrusted as a result of many years of experience. Thus, the expertise used in making the products will ensure an efficiency in production (Iqbal, Z. and Dad, A.M., 2013).

Outsourcing will also ensure that only core issues are left with the main company after transferring the other operations to foreign companies. As a result, the company will be in a better position to develop its brand. Furthermore, the company will also be in a better position to concentrate in performing research with the aim of enhancing the quality of their products and services. Outsourcing will also ensure that the company obtains skilled resources, hence cutting on costs that might have been incurred in the training of personnel. Most of the subcontractors’ workforce usually have the required levels of expertise in their fields of specialization. Outsourcing can also be advantageous due to the existence of differences in time zones between world regions. The advantage of this phenomenon is the fact that subcontractors can often operate during those periods when the parent companies’ workday is finished (McIvor, 2010).

Economic Perspective

Many western countries are experiencing a growth in the labor market. As a result, most local based organizations are seeking foreign labor markets as they usually provide more qualified personnel demanding much less payments for their services. From the view of Asian countries, many employment opportunities are consequently gained by their citizens as a result of outsourcing. Asian countries, such as India, have many educated individuals. Outsourcing therefore ensures that only the best among these individuals are used to perform the subcontracted operations. Outsourcing can also lead to specialization of different countries to production of specific products and services in which they have better competitive advantages as compared to other countries. However, this fact implies that those regions that are involved with outsourcing will not only have improvements in productivity levels, but will also have increased employment rates. However, countries that outsource their operations will be faced with loss of job opportunities and lower levels of productivity. Finally, global outsourcing has also aided smaller companies to compete with larger companies on the same levels.

Political Perspectives

Some of the strategies that have been utilized by most western governments in addressing the impacts of global outsourcing of production include putting emphasis on provision of education to the work personnel, and also safeguarding the existing intellectual property within the local companies. Furthermore, the strategy involves upholding innovations and infrastructural developments. The main reason for this strategy is to induce a healthy competition between the onshore companies and the outsourcing countries so as to curb unemployment issues in western countries. However, the strategy does not address the fact that some industries, having certain interests in some offshore companies, do not often protect their innovations and intellectual assets (Lussier, 2009).

Social Perspective

The other issue relating to outsourcing of operations to foreign countries is the extent of cultural diversity that exists within the outsourcing countries which may not be fully addressed. Furthermore, withdrawal of the services offered by the foreign companies may also break ties with offshore professionals, who usually have a great deal of information and experience regarding the production of the goods and services. Most labor professions in many countries are in many cases not members of labor unions. Thus, joining of labor unions will also enhance the social value of organizations.

Challenges of Global Outsourcing

Despite the fact that a variety of positive implications of outsourcing exist, there are also some challenges involved. One of the challenges faced by businesses is the existence of varying governmental regulations within the outsourcing countries. The business is therefore often required to comply with the rules and regulations governing trade in those countries. For instance, a company has to adhere not only the tax rates of the foreign countries, but to also the regulations governing export. In some countries, strict rules exist over the kinds of businesses that ought to be conducted within them. For example, these can often include the application of strict rules when businesses hire foreign personnel (Gupta, 2008).

For an effective execution of businesses overseas, a company’s managements should ensure that it is well conversant with the foreign aspects pertaining to the existing culture. For instance, language can play a major role in the overall success of a business venture. The cultural considerations will also ensure that products are tailored for a company’s target market. The technological aspects can also pose a great problem when it comes to communication. Issues with communications can often lead to slow progress in the overall operation of the company and the subcontracted companies. Access to important information can be affected as a result of technological deficiencies. The other challenge that a business might face while undertaking global outsourcing of is the impacts of its production activities on the environment. For example, most developed countries consider recycling as a way of disposing its wastes. In globalized outsourcing however, businesses have to consider adoption of efficient recycling techniques. The reason is, most recycling techniques might not only be inconvenient, but can also be expensive to implement. Furthermore, the companies have to consider an effective utilization of scarce resources, and using materials that can be recycled in the manufacture of their products (Narasimhan, R. and Narayanan, S., 2009).

Outsourcing in the Context of a Small Business

For a small business company to have the right amount of economics of scale, it needs to consider outsourcing some of its operations to foreign companies that have better abilities to perform the required tasks. The company will eventually be able to effectively compete with other bigger competitors. Furthermore, most small businesses do not have the financial capacity to purchase all the required materials, machinery and hire the all the required workforce in order to compete in the highly competitive market. Since a small business is more likely to experience greater challenges in terms of outsourcing, there is need to adopt only the best applicable outsourcing option from all the available alternatives.

The company should also ensure that the work system is set out. For instance, a portion of work can be done within the company, while the remaining is outsourced depending on the company’s ability. Furthermore, these work systems need to be structured to ensure that only the most cost effective approaches are implemented. The available alternatives should also be analyzed with the aim of selecting only the most cost effective strategies of subcontracting duties to the oversea companies.

An entrepreneur owning a small business should also ensure that the technology is kept up to date. For instance, global outsourcing is greatly dependent on the efficiency of communication between partnering companies. There are a variety of ways in which efficiency in communication can be enhanced. For instance, one of the ways involve the simultaneous use of media devices such as videos and other messaging facilities. The use of such devices will enable bridging of spatially separated workforce in different regions. The main importance of communication between onshore and offshore organizations is the resulting exchange of knowledge that can be used to enhance their operations. Furthermore, it allows the onshore organizations to familiarize themselves with the procedures that are being adopted by the subcontracting firms offshore. Since foreign subcontracting firms are usually situated in regions with different cultures from that of the outsourcing company, communication will ensure that bridging of different cultures is done (Elnadi, 2010).

In order to correctly identify the specific job components that should be undertaken in the offshore countries, the small business company should also ensure that an investigation is performed over the foreign sociocultural factors. For instance, this can include mastering the local languages to an intimate level. Furthermore, it can include focusing on the education systems and also seeking an insight on the technicalities of the jobs that need to be outsourced. The social factors, once analyzed, will ultimately ensure that every type of job to be performed is designated to specific locations (Barrar and Gervais, 2006).

The other strategy that can be used by a small business company is ensuring that all the work personnel within the main company are properly educated. Since not every aspect of an organization is usually outsourced to foreign companies, it is important that the main company is competent enough in performing its core functions efficiently. Educating the work personnel will also ensure that the small business company greatly save on financial resources that could have possibly been used in further global outsourcing. Furthermore, it is important that the management of the small business company invests in proper planning techniques. Also, the outsourcing nations cannot be fully relied upon due to the constant economic changes. For instance, when production costs increase, the small business company should have a fallback plan that will enable the company to change its subcontracting country (Herz, T.P., Hamel, F., Uebernickel, F. and Brenner, W., 2011).

Furthermore, the management of a small business company should also conduct frequent research with the aim of developing work models. Such work models will analyze the shortcomings and strengths involved in outsourcing of certain elements of production. The outcome of the studies will be used in making decisions over how to divide the work locally and abroad.

The other consideration that the management of a small business company needs to make is joining a labor union. For instance, many labor unions such as the IBM usually advocate for outsourcing of professions. A small business company will therefore be in a better position to secure professionals needed to execute its non-core tasks overseas. Outsourcing should also be utilized by a small business company with the purpose of managing and mitigating risks. For instance, the market environment is often characterized with constant changes that can only be addressed by contracting duties to professionals overseas. Furthermore, the professional are usually better informed on methods of risk aversion on their areas of specialization (Babin and Nicholson, 2012).

Conclusion

In conclusion, there are many factors that affect the global market. The factors range from social, political and economic. Since there are many benefits of outsourcing, a small business company can utilize global outsourcing so as to ensure success in its operations. For an entrepreneur, the positive effects of outsourcing can lead to the success of the small business company.