An Evaluation of Outsourcing Networks Dynamics amongst Partner Firms - Literature review Example

An Evaluation of Outsourcing Networks Dynamics amongst Partner Firms An Evaluation of Outsourcing Networks Dynamics amongst Partner Firms Literature Review The modern business environment has remained intense with hyper-competition in the marketplace. In light of this, current business enterprises have resorted to means, strategies, possibilities and methods to enhance and develop their activities. Outsourcing, cooperation, contracts relations, and partnerships are some of the means adopted by companies to improve their activities in trying to satisfy the needs of their customers. Network outsourcing entails a company assigning a certain phase of a technological process to a partner in an attempt to improve its activities and services. According Chang and Xu (2008), outsourcing is specifically said to help firms perform well in the areas of core competencies, as well as rectify the shortage of expertise and skills in the areas they want to outsource. China is on rapid growth and economic development. As such, most telecommunications, banking, manufacturing industries as well as service companies have turned to the country for outsourcing. Even though, the economic environment of China remains competitive, Chabowski et al. (2010) reveals that there are a number of opportunities available to be outsourced. In fact, for the past two decades China has become the choice of destination in supply chain outsourcing for many companies across America, Asia, and Europe. Companies or business organizations receive several key benefits in outsourcing business processes to China. Chang and Xu (2008) attribute this to the greater economic growth and development. Arguably, China is the fastest growing economy in the world and has the fastest growing GDP at a rate above 10%. Figueiredo and Brito (2011) argue that most businesses prefer cutting on their costs as means of increasing their profit margins within the current competitive business environment. With China’s population remaining over 1 billion, the availability of low cost of labour attracts multinationals. China’s labour costs are estimated at 1/5th of the many European countries as well as American. This means that companies or business organizations save up to 50% to 60% considering the existence of telecommunications, infrastructure, telecommunication and other project management costs. In addition, China has the most experienced and educated workforce. According to Chang and Xu (2008), China has over 200,000 graduates per year and over 800,000 IT professionals. On the other hand, China has the most relaxed legislation that attracts establishment of new businesses in the country. Sometimes back companies could establish businesses as joint ventures but currently the legislation allow even those who assemble the products in China to register as Wholly Foreign Owned Enterprises (WFOE). This is advantageous to the organizations since they are independent of the local partners and have complete management control, easier strategic alignment, and better protection of their valuable Intellectual property. Specifically, China has adopted laws and legislations that conform to the WTO’s Agreement that eases the concern of IP protection while outsourcing to China. In summary, with the increasing cost of doing business in the current competitive business environment, outsourcing of services and activities has remained a strategic disposition of many companies. With the availability of infrastructure, cheap labor, and many services in China, most multinationals have moved to outsource to the country. More importantly, China as well, serves as a wider marketplace for the products and services of the outsourcing companies. Partner Companies Partner selection in network outsourcing is a critical issue in building successful international joint ventures. Ideally, foreign firms or multinationals commonly select local partners with unique network structural advantages within the local alliance network. The centrality and brokerage are some of the key factors considered in determining the network positions of the partner. According to Figueiredo and Brito (2011), there are various partner companies in the Chinese marketplace. Microsoft is one of the companies that have a meaningful engineering and IT offshoring operations in China. Having strongly operated in the United States, Microsoft followed other Multinationals in building strategic alliances outsourcing in China. According to Borgatti et al. (2002), Microsoft Corporation is one of the companies that has benefited from the strategic outsourcing in China. Bjerregaard and Lauring (2012) believed that the company strategically works with other corporations to construct sourcing strategies to meet its business needs in the world. The Corporations outsourcing focuses on IT and engineering as a means of improving its services. As a strategic franchising deal, the Microsoft Corporation established a subsidiary company in China to exploit the opportunities and increase profit margin to the mother company. Microsoft (China) Co. Ltd is the strategic company installed by the American Corporation to operate and outsource structural networks in China. The Company assemblies software products for computing devices and sell them across the world. In fact, the Corporation has signed various Memorandum of Understanding with various China’s local companies including Xiomi to manufacture other products for market consumption (Figueiredo & Brito, 2011). Microsoft (China) Co. Ltd. provides software products for computing devices in the Chinese region. Its establishment occurred in 1995 and with a location in Beijing, China. Microsoft (China) Co. Ltd. operates as a subsidiary of Microsoft Corporation. The company outsources senior management teams and other stakeholders that run and operate the organization. Chabowski et al. (2010) found that Microsoft indeed partners with the local companies to provide them with some activities that facilitate their operation in the country. Subsequently, Google Corporation is in strategic alliance with various multinationals and local companies in China to produce various products for world consumption. Chang and Xu (2008) note that the Google technology is being used to produce smartphones that are widely purchased across the globe. In the previous five years, most companies have moved with speed to manufacture smart electronic products that are widely preferred by the customers in the business place. Google has partnered with various companies to use strategically its Android technique in the manufacturing of smartphones. According to Chabowski et al. (2010), most phone manufacturing companies has entered into strategic alliance with Google in a mutual agreement that ensures the company truly benefits from its solutions in the phase of entering the Chinese market. While Google Corporation handles the management, it collaborates with the local companies for the engineering and manufacturing of the smartphones. The companies benefits by a reduction in cost of its operations and highly benefits from the services that they outsource from the local and the multinational companies. Services provided by the Focal Firm The partner organizations do not only benefit from the improved profit margins but also benefits from a number of services and solutions from the focal firms. According to Borgatti et al. (2002), the focal firms locate facilities at the supplier’s park thereby enabling efficient operations as well as just in time deliveries. Ideally, the better mutual understanding makes it easy to resolve problems thereby reducing the time lapses. Fan, Wang and Zhu (2007) argue that, with the reduction in time lapse, the partner companies easily take the advantage to improve operations and produce in large scale. Gulati, Lavie and Singh 2009) believes that the preferential contract rates offered by the local firms benefits the partner organization. They get qualified experts that deliver skilled manpower at cheaper and lower costs. As argued earlier, China has a number of qualified engineers as well as IT professionals who are of great benefits to the partner firms. The partner firm only handles what they can do with their capacity but offers the local firms the opportunity to supply them with most qualified skills and expertise in running their operations. Besides, the focal firms provide the companies with the networking services. With the advancement in technology, Dacin, Oliver, and Roy (2007) explain that the projects are purely run on the online basis where the focal firms play a critical role. According to Gaur and Lu (2007), some of the firms entirely benefits from offshore contractors that deliver an online repackaging in delivering to the end users. For instance, the business model thrives well in providing website creation, carrying out surveys and provides analysis and marketing services. In this, these firms remotely and digitally provide vital services to the sourcing company. On the other side, some focal firms seek subcontract in those areas where the partner organization has demonstrated no special ability. According to Chang and Xu (2008), in a circumstance where the partner company lacks adequate skills, the focal firm comes in to provide such services. Even though, the phone manufacturing companies have the capacity to build a smartphone, they need the Microsoft technique as well as the Android technology to fine-tune the final products. Ideally, they take the advantage of the provider’s knowledge in improving the performance of the goods and achieve the services needed to satisfy the needs of the customers. This supports economies of scale as well as increase revenue return to the partner companies. Additionally, some focal firms provide IT service to improve the efficiency of operations to the partner organizations. According to Chang and Peng (2012), the IT knowledge gap is critically filled by the provision of such services by the focal firm. Arguably, the digital workforce is critically available in China, and this is what they move with speed to provide to the partnering companies. Most of the Chinese digital experts just telecommute from homes and provide the necessary technical knowhow to the organizations. Contraction of such services enhances flexibility in work as well as improves performance of organizations. Nonetheless, some organizations contract security services. According to Ahuja (2000), with the level of technological advancement, the hacking of data and companies’ information has been on the rise. As such, the focal firms provide security services to the partner companies. They protect their data and critically ensure the corporation’s information systems are safe (Mohiuddin & Su, 2013). Nevertheless, some engage in the provision of physical products to organizations. While the companies concentrate on production and manufacturing in China, the focal firms engage in the full production of physical goods such as smartphones and other electronics. Management of Outsourcing Relationships While it may be difficult to maintain the outsourcing relationship between firms, most firms that operate in China critically retain positive relationships to ensure the mutual benefits. For instance, both the Microsoft and Google engage in different service provider relationships to enhance efficiency in operation as a means of cost reduction. Critically evaluating these organizations, Bjerregaard and Lauring (2012) report that they maintain efficiency relationships to reduce costs while majoring in improving service delivery. According to Chabowski et al. (2010), the focal organizations are usually needed to engage continuous and effective process improvements to enhance the operations of the latter. This ensures the operations remains timely and deliveries remains effective to the entire management teams. Gaur and Lu (2007) explains that some organizations focus on enhancement relationships. Even though the enhancement relationships focus on the effectiveness of services, it entirely aims at improving the productivity of the organization. The service provision or the contracted service usually aims at improving the productivity of the organization and meeting the needs of the customers in the market. In a research carried out by Al-Laham and Souitaris (2008), it was quite evident that the enhancement relationships are incorporated to improve business processes thereby resulting in greater re-engineering of activities and process improvement. This is what result in greater productivity and service delivery in the organization. Ideally, such organizations focus on re-engineering and business process improvement. On the other hand, the firms maintain transformation relationships to improve their productivity. Ahuja (2000) explains that, in this, the organizations focus on retaining competitive advantage positioning as a means to fair well in the marketplace. In this, the focal firms and the partner firms are interested in innovations and introduction of new services to maintain their competitive edge in the marketplace (Brewer, Ashenbaum, & Carter, 2013). Reasonably, the firms analyse the business issues in the current marketplace then provide articulate services that maintain the firm’s competitiveness in the business environment. According to Chang and Peng (2012), the firm’s manager figures out their business needs and communicate the required services for the focal firm to provide. However, sometimes the originations and the outsourcing relationships may prove insufficient to meet their current needs. Guler and Guillén (2010) revealed that this may occur due to improper legal outsourcing contract or poor outsourcing relationship. To enhance the functionality of such relationships then, the organizations need to negotiate on the current issue and to bring in new services (Alderete, 2013). In addition, the management reviews the contract and signs a working terms and conditions. In fact, most of the organizations may contract a third party to oversee on their contracts and find appropriate ways of finding a solution to the issues related to their relationships. Bibliography Ahuja, G. 2000, ‘Collaboration networks, structural holes, and innovation: A longitudinal study’, Administrative Science Quarterly, 45(3): 425–455. Alderete, V., 2013, "Do information and communication technology access and innovation increase outsourcing in small and medium enterprises?” Journal of Information Systems and Technology Management: JISTEM, vol. 10, no. 2, pp. 303-322. 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