Right from its conception in the 1980’s, Outsourcing has been a debatable issue and it can be viewed as a double-edged sword. It may be defined as a subcontracting process that hires a third-party company to perform some specific operations of the business. It has been done with the intention of better utilization of time and energy expenses, focusing or conserving energy aimed at the core abilities of a particular business.
Upsides and downsides
Outsourcing gains its popularity from the immense advantages it has to offer. Any business requires numerous functions to be executed simultaneously to run successfully. However, it might not be possible for a firm to acquire the skill-set required to be good at all of them. Thus outsourcing comes up as a solution to this problem as firms choose to outsource a few operations and focus on their core competencies. This proves beneficial to the business in many ways. The process, which is outsourced, is often assigned to companies, which specialize in that particular field. (Hira, 2007)
Thus, that company is likely to have access to advanced technologies in that sphere, as it would be part of their core business. Thus it cuts the costs of the firm as it doesn’t have to acquire those expensive technologies and train its employees on the use of those technologies which further increases the costs. Another very popular reason for offshore outsourcing is cheap labor. Workers in developing countries are remunerated with a much lesser amount than in developed countries owing to the low cost of living index. This allows the business to implement further cost-cutting measures. It also helps increase the productivity of a company. Employers find it difficult to get their talented resources to work in less desirable shifts such as night shifts and late evening shifts in order to fulfill the aim of providing a 24-hour service. But with the business spread over the globe, the talent pool can work in the most desired shifts and the firm also achieves its aim. (Kakabadse, 2005)
Although outsourcing offers such a wide variety of advantages it also has some negative facets attached to it. The primary concern of outsourcing is that the employees feel threatened. Present employees face stiff competition from their offshore counterparts as they are cheaper and thus more beneficial for the firm. Thus the morale of the employees goes down and fears of losing their jobs increase which results in a decreased yield of the business. The loss of control over the business also plays a major role. Once a process has been outsourced it is the sole responsibility of the third-party company. Thus it becomes their prerogative to take major decisions relating to that process. Thus, there is nothing the management can do even if they do not approve of a particular choice. (Choudrie, 2007)
It should also be noticed that the firms implementing offshore outsourcing are not required to pay federal or state taxes for the employees working on the outsourced processes. Neither are they required to pay compensations or benefits to them. The outsourcing companies are liable to take care of those issues. This becomes a vital advantage for the businesses which look for cost-reduction strategies. Although these cost-diminution strategies work in favor of growing businesses, the tax establishments do not receive the taxes they are entitled to acquire. This hurts a number of divisions of the national welfare, which experience loss of assets, and thus it takes its toll on the American economy. (Cooke, 2006)
China and India
China and India, at present, can boast in an exceedingly precise manner as being the principal destination of outsourcing for principally the American companies. The chief reason behind this phenomenon is that the countries turn out with about a hundred thousand English-speaking IT dexterous professionals each year. But the subtle explanation is China and India’s low wage structure. Multiple studies had been carried out in this regard. Software improvement, expansion and maintenance as well as business processing, and a substantial plus-point in back-office management like data analysis, accounting, call centers and human resources, all contributed in this behalf for these are the foremost areas of outsourcing to China and India.
English-speaking IT professionals, gorgeous labor pools and a low-down remuneration structure take China and India to the apex position ahead of other countries like Russia, the Philippines, Canada, Mexico and Ireland. These five destinations were also concluded for contention but after comparing them with China and India they were all found wanting. The summit, logically enough, went to the domain of China and India. China and India also were a cut ahead of the other strong contenders by the dint of its Information Technology policies. While analyzing profiles of the probable countries, China and India were found to be enjoying the friendliest IT policies and obligations and dedications towards it ensured the best possible amenities for its development of “Outsourcing”. (Choudrie, 2007)
Outsourcing is so embedded in the framework of the economic structure here that the Chinese and Indian government has national ministers exclusively for IT. The top administrations of the countries are well in favor of IT ownership from overseas and compel with no export taxes. The future appears pink for China and India, and it could well be forecasted that China and India’s outsourcing occupation would increase over the passing time and it would deal with more multifaceted and composite jobs. Straightforward pedestal staged back-office payroll and data entry will move to rock-bottom-wage countries over time and countries like China and India will move up the pyramid and take over more complex software and product development services. It is expected that the US companies would outsource to China and India about three and a half million jobs by 2010, up from what it is about 300,000 nowadays. Thus, it is no wonder that every time there is a phone inquiry call to Bank of America, the is redirected to some parts of India or China where a Chinese or Indian satisfies the inquiry of the American Citizen. (Singh, 2009)
What does a company save by outsourcing? What does it lose?
The focal point of the paper is to look into the companies today that are deciding to outsource previous in-house jobs to individuals overseas with equivalent skills and abilities that live where the cost of living is less and, thus, will accept much lower salaries. Therefore, the corporations are getting the same work done, often with the same quality, for substantially less cost. These decisions touch on many ethical concerns–the obligation the corporation has to current employees, the communities it will impact, the fairness of wages, the concern for stockholders, etc. Such an organization is Nike and thus it would be logical to conduct research on its outsourcing decision. (Lievens, 2008)
In order to survive in the market, the company is compelled to outsource its productions. It should be stated that the basic approach of the industry and the company is to sustain itself during the time of economic crisis. However, the crisis has resulted in an easier and cheaper mode of service for the users. On the one hand, outsourcing has made it possible to sustain the industry and on the other hand reduction of price has enabled the industry to lure customers with added benefits. Thus, in order to survive the crisis, it is necessary for the company to outsource and reduce costs so that the customers are pleased. At any cost, pleasing the customer is any company’s goal. (Kakabadse, 2006)
Globalization is a big word today and one that has changed the way we look at and understand things around us. What is actually globalization? What do we understand by this word? Globalization is simply the predisposition of the economy through business, knowledge through technology and thought through philosophy to spread globally. Globalization can also mean the process by which this happens. This term is almost synonymous with the intertwining of markets and economies without any consideration for physical borders or legal restraints and the most influential effect of globalization is certainly the impact of outsourcing. It could be well ascertained whether global outsourcing helped Nike to achieve profits and market share or not in the initial stages. With enhanced production induced by market demands, Nike decided to outsource its manufacturing units to South Asian countries like Korea and Taiwan. This is because there is practically no competitive advantage in terms of pricing with other competitors in the market. Therefore, it would have been impractical and illogical to invest capital in a new manufacturing unit. The option was to outsource the production to comparatively low-salary countries. This move was one operational formulation that helped Nike to gain much more profit and market share as production was achieved under a lower cost margin. (Kobayashi-Hillary, 2006)
The three prime stakeholders of Nike at the present day could be enumerated as China, Taiwan and Vietnam. From the perspective of Nike, it is obvious that the company makes a huge profit margin by the dint of low cost per item whereas from the stakeholders’ point of view relation with Nike means constant source of work with comparatively better and secured payment mode. These low-income group countries make the most of the value rendered by the US dollar and thus receive a better return on their investments. This return becomes even more vital with the low living standard of these countries thus the marginal utility of the value gets even more heightened. Thus it could be seen that the relation between the stakeholders and the company is completely bilateral and beneficial for both parties. (Wilson, 2005)
What are the implications for staff?
Outsourcing is definitely bad news for the local staff. It has been found in studies that the cost of US workers is comparatively much higher than the Indian or Chinese counterparts and this is the place the companies make a profit. It has been calculated that on average for a given company a high amount of average annual salary $55000, plus benefits are spent on the 50 employees of the Department of Information Technology, but in the given situation there is not enough production opportunity to support these employees. It is evident that the step would be beneficial for the company to sustain itself in the market. (Billi, 2007)
The same is applicable for the Department of 1-800 Helpline answering customer questions about software and hardware concerns as the demands have fallen and there is a low need to answer such calls. It was found that on average the employees earn approximately $32000 annually and the company finds the amount quite high as there are low requirements of employees in this department. It was also found that each of the employees hired needed office space and office equipment. This led to facility expansion and additional costs of approximately $15,000,000. As a result, the increased salaries, benefits packages, and office equipment costs have hurt the company’s bottom line and the companies are compelled to issue the Report of Employee Discharge in order to maintain the cost-competitive advantage in the market. (Bardhan, 2007)
What happens to corporate culture?
Organizational social control or corporate culture related to outsourcing concentrates on the requirement for a sociological framework that creates, maintains, and administers the social infrastructure, together with the management social forum which endows with a multi-disciplinary committee set up to discuss and broadcast social issues related to social events all through the organization. The authorization processes ensure that social contemplations are evaluated and endorsements obtained for new and customized information processing systems. The specialist information system maintains associations with independent specialists to gain access to proficiency not available within the organization. (Lievens, 2008) The independent review mechanisms within outsourcing allow independent evaluation of social effectiveness related to Human Resource management, particularly in the parameters of organizational culture and national culture. The third-party access mechanisms are applied in the organization to administer third-party contacts within the organization based on business necessities. The organizational outsourcing provision should meet comprehensible contractual social requirements and its application related to corporate culture. Companies should educate new employees in social concepts and trends in social to improve their knowledge of social issues, trends, and techniques associated with the integrity, confidentiality, and accessibility of information resources on social systems related to the corporate culture of an organization. (England, 2007)
The traditional manufacturing sector measured as a share of GNP and in terms of numbers employed has declined in all mature industrial economies. On the other hand, the service sector has had healthy growth, often complementing industrial processes. However, many of the new services are in fact industry-related services. For example, an in-house design team working for a manufacturer would be counted within the manufacturing industry. A design consultancy providing the same services as an outsourced supplier would be part of the service sector. It is tempting, therefore, to wish away the end of industrial society. (Billi, 2007) Nonetheless, there has been a marked change in the way in which goods and services are purchased in the real world as well as a change in consumer behavior already mentioned. In its present state, work is not restricted by territory or geography. More than ever, it is now less confined to fixed locations. The expansion in communications and developing technology implies that employees need not be based in one spot, nor even be present in the said location even if they work for the same organization or company location. Bigger volumes of work can be distributed as it becomes easier to cooperate on an information technology platform – work may be outsourced.
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