Globalization and Outsourcing

Introduction

According to Yu (2012), globalization is a rising international economic integration that combines technological processes, low transport costs and policy liberalization that leads to increased trade and financial inflows between countries. On the other hand, Jovanovic (2010) argues that globalization provides a lot of chances which enable an organization get access to new markets, finance and technology through outsourcing. Henke, Yeniyurt, and Zhang (2009) add that outsourcing has become a popular practice both in the public and private firms and is a major component of business strategies. As a result of many practices of outsourcing, it is proving to be a common practice in which most of the organizations now outsource most of their functions and wait to get many benefits (Choy, Lee, & Lo, 2004; Arjan, & Weele, 2010). However, there might be significant risks that may be realized if outsourcing is not successful (Hartungi, 2006).

Reasons for out sourcing

According to Lee and Chang (2012), motivation for outsourcing is categorized into three, namely: cost, politics and strategy. He goes ahead to outline that cost and strategy are the main motivators of outsourcing to the private industry. Similarly, Mazilu (210) noted that political agenda is the motivator for the public corporations. He gives an example that outsourcing for health services and taxing of the European government is powered by the components from both political and cost effective strategy.

 Because private firms are believed to be providing efficient and better services than the public counterpart as suggested by Thomas (2007), the political climate favored privatization. In the recent past the main motivators of outsourcing have started to move from cost to strategic issues such as core competencies and flexibilities (Chen, & Paulraj, 2004; Ukpere & Slabbert, 2009). Due to stiff competition, firms are forced to re- arrange and redirect their limited resources towards productive activities with profit orientation making improvement in the performance of the business.

Conversely, Fard, Cheong, & Yap (2014) proposed that other than focusing on the limited resources of the organization to competencies alone, there are other strategies for organizational growth, restructuring, improving technology that will take care of the increasing demands of the customers. To achieve this, Nisar Mohammed (2014) suggested that the organization should move faster to meet the increasing customer’s needs by outsourcing. Therefore, it becomes the best alternative strategy to accomplish this since flexibility is a very important motivator to business success not only from the perspective of the growth but also from the coverage and the popularity of the product and services (Jonsson, & Tolstoy, 2014; Henke, Yeniyurt, & Zhang, 2009).

Consequences of outsourcing

According to Martin Rama (2002), outsourcing affects every form of the business, ranging from manufacturing through to design, customers support and sales, logistic management, financial control and many others. Considering the importance of outsourcing, it has been commonly mentioned by Jovanovic (2010) as a productive, efficient and strategic method for growth and improvement of performance of the business.  On the other hand, Jovanovic (2010) sees outsourcing as a destructive strategy of exploiting and over charging the poor, money grabbing and many more. Mazilu (2010) argues that incentives for outsourcing are numerous and can result to significant fall in the service costs by a considerable margin. In addition, he explains that related companies often use outsourcing as the cheapest way to deliver and manage its operations. He gives an example of Brookside Company that employs over a half a million of the local citizens in catering, building and maintenance, cleaning and security. However, frequent movement of skilled, semi-skilled and unskilled jobs has become a common phenomenon from high cost to low cost countries, making outsourcing a significant contributor of shortages of labor in many emerging economies (Fard et al, 2014). China is an example of the countries currently experiencing a high rate of inflation according to Hartungi (2006), while India is following from behind, as currently it is experiencing an acute shortage of experienced business leaders.

Strategic changes have become the fastest moving strategy that most corporations use and they are already moving their businesses to the global market since cost saving has gone down (Hartungi, 2006). Lee & Chang (2012) argue that new outsourcing decisions can generate widespread protest and industrial actions as globalization has become too advanced, pushing the manager to make decisions without consultation from other segments of the management, resulting in decisions that are made behind closed door by the high senior management of the organization. In this regard, the decisions are only announced after a serious research has been made on how the proposal might be received because business outsourcing can damage the image of the organization, unsettle customers if handled badly and this can result into low quality products and poor service delivery. A business partnership that has gone international with high and strategic plot, resulting from outsourcing may make a firm to be a very good performer in terms of products and service delivery where it could only be an average deliverer (Jovanovic, 2010).

Conclusion

In conclusion, the savings are very important for the organization to help cover the manufacturing cost and other costs associated with business operations like overhead and still make a profit. It is important for the organizations to acknowledge that specialization of labor and economies of scale in production are the mechanics used to achieve this level of efficiency.

 

Bibliography

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