During the period of globalization, outsourcing joins capital, technology, and labor resources from all over the world. No attribute of science or of engineering says that any given artifact can be improved, in function-to-cost ratio, indefinitely at exponential rates. Progress has been surprisingly steady, costs declining by about a factor of two every three years. This steady exponential improvement of product function per unit cost over four or five generations of quite different technologies seems at variance with the well-documented notion of the product life cycle
Outsourcing helps businesses to join labor and intellectual resources from all over the world and supply them with innovative technological solutions ( Power et al 2006). Outsourcing exhibits improvement in the early stages, followed by rapid exploitation as investment follows the early ‘supernormal’ profits, followed by ultimate stagnation in progress as nature proves less tractable and profit margins fall from competitive pressure (Gordon and Zimmerman 2007).
Yet stagnation would have been the fate of any of the constituent technologies had innovations not come along to allow the development to jump from one S-curve to the next, just in the nick of time, so to speak. If radical innovation can keep the pace of technological progress at near the maximum for any one technology, the innovating firm may sustain a degree of competitive advantage sufficient to justify the risks.
American engineers with the same problem would spend much more time and money pushing the technology to a design point where it is clearly superior to proven alternatives before introducing it. In all likelihood, their costs would be higher (Bielski, 2006).
Outsourcing has always been a balance between generalization and specialization. Technical understanding that the older technology’s limitations are about to jeopardize the rewards that have driven the investment strategy to that point is the motivating factor. In other words, it is the refusal of the innovators to accept reality as inevitable. Even in the smallest, most focused firms, the specialist consultant has been expected to complement his or her specific skills with a broad understanding of the business environment as a whole. Indeed, it is often this combination that has been used to distinguish ‘consultants’ from that lower breed of an outsider, the ‘contractor’.
Somewhere along the line, the idea of the ‘T-shaped’ consultant was born: someone who was capable of generalist knowledge across a wide range of areas, complemented by an in-depth understanding of one specific area. Flexibility provides a degree of cohesion (Schultz, 2007). There is relatively little ‘glue’ holding consultancy organizations together: few firms are held together by strong brands, established products, or – even – long-standing client relationships.
Staff turnover among consultants may be as high as 30 percent, but, even over the course of the average 3-4 year stint with a particular firm, much of a consultant’s time will be spent out on clients’ sites. Specialization leads to organizational fragmentation, and generalization is one of the few offsetting factors that consulting firms have at their disposal. Giving up their generalist characteristics could also endanger their ability to get people to work together (Gordon and Zimmerman 2007).
Outsourcing deepens integration and collaboration between different regions of the world. Computer technology also permits the simulation of processes and designs (provided the materials and processes are quantitatively characterized) and their qualification for manufacturability. The resulting electronic data can then be used to drive the automated, intelligent manufacturing equipment, thus integrating the functions of design and product engineering (Schultz, 2007).
This is the essential role for computer-aided design/computer-aided manufacturing. In the course of a person’s interaction and exchange with others, technological tools and systems (which are becoming more readily available all the time) allow the person to expand his set of transactional alternatives by providing him with information on options and opportunities that have been gleaned from environments in every corner of the globe.
The global business network becomes directly available to businesses from all over the world, and the whole world suddenly seems user-friendly. In parallel with the exciting prospects for globalization are negative trends such as global trade friction, third world debt problems, a stratification of different resources and capabilities, and antiquated systems that restrict the activity of corporations capable of doing more (Verkuil 2007).
The negative influence caused by outsourcing includes cheap labor and high investment risks. The technology in the product, when introduced, would be more difficult to extend incrementally. The investor who takes the risk that the innovation may fail also wants to improve his strategic position (Power et al 2006)If he is in the semiconductor industry, he can accommodate the increased labor intensity and less efficient capital use that follow from introducing new processes and new products by forwarding pricing.
That is, he sets his prices not to recover the initial production costs but to recover total costs averaged over the life of the product (Krishnan, 2007). Also, with respect to friction over huge trade imbalances, particularly between Japan and other countries, two recurring themes are evident: accessibility to markets and competitiveness. Much to the frustration of many, Japan seems to have succeeded in both access to world markets and the ability to compete successfully in them.
In sum, outsourcing provides a very broad spectrum of choices for alternative approaches to the problem. The progress is shown in engineering development–when it has access to strong science–is determined by the socioeconomic environment of the work, not by attributes inherent in that field of engineering.
References
- Bielski, L. (2006). Outsourcing Success: It’s All in the Governance Making Deals Work Daily Takes a Long-Term View. ABA Banking Journal, 98 (7), 38.
- Gordon, C., Zimmerman, A. (2007). High-Tech Outsourcing: A Benefit-Cost Framework. American Economist, 51 (1), 82.
- Krishnan, J. K. (2007). Outsourcing and the Globalizing Legal Profession. William and Mary Law Review, 48 (1), 97.
- Power, M. J., Desouza, R., Bonifazi, C. (2006). The Outsourcing Handbook: How to Implement a Successful Outsourcing Process. Kogan Page.
- Schultz, C.W. (2007). To Offshore or Not to Offshore: Which Nations Will Win a Disproportionate Share of the Economic Value Generated from the Globalization of White-Collar Jobs? Houston Journal of International Law, 29 (1), 231.
- Verkuil, P. R. (2007). Outsourcing Sovereignty: Why Privatization of Government Functions Threatens Democracy and What We Can Do about It. Cambridge University Press; 1 edition.