Off shoring as a method of conducting business involves transporting business operations such as manufacturing and service activities to emergent nations like China, India, Malaysia, Russia, and other countries. Some of the nations known for exporting their business ventures include the US and other European countries.
The manufacturing activities include designing of complex computer chips, toys, electronics and other electrical appliances especially in China (Gregorio, Musteen, & Thomas, 2009). On the other hand, India is an off shoring spot for call centers, IT services and password resetting services.
In this essay, we are going to discuss the pros and cons of off shoring for companies. For instance, firms decide to off shore due to reduced labor costs backed with workers with exceptional capabilities. In addition, there is improved efficiency for companies that have gone off shore and a wider market base resulting to increased customers.
On the other hand, the cons of off shoring include dangers of communication with the off shore country especially due to cultural gaps. There is also rebellion of workers and the public who may not embrace such a move due to hazards of losing their jobs.
In this 21st century, global competition is rapidly increasing in developing countries that are seeking services from other progressive nations that can provide such. This has led to exportation of numerous jobs in foreign countries in order to meet these needs. This is what is called off shoring in business language.
Advanced countries like the US transport their businesses that include services, manufacturing and other numerous operations to China, India and Russia. For instance, India is a known off shoring point for services in Information Technology and Call Centers jobs whereas China and Russia deals in manufacturing that involves electronics, complex computer chips and toys (Lewin & Peeters, 2006).
Companies renowned for moving their business operations include IT firms, for instance, IBM, Intel, Microsoft, and Oracle among others that have taken advantage of cheap labor and efficiency among workers of India. Other firms exporting their manufacturing services include Citibank, EMC, and Ernst and Young because of swift development of these markets and reduced cost of doing business.
However, for any off shoring venture to prosper, companies put to consideration the efficiency of operations and position of the market (Mushore, 2006). For efficient operations, firms involve off shoring to boost labor production while market position increases the number of clients.
Activities being off shored to China, India, Malaysia and Czech Republic include IT services, business processes and call centers. For instance, off shored IT services have resulted to robust ICT markets of both China and India. China was ahead of US in terms of production and exportation of ICT products whereas India tops the chain of the leading ICT and other ICT supported services in the world (Carmel & Tjia, 2005).
This has resulted to the creation of more jobs especially in electrical and electronics sector. There are also manufacturing activities that include making of electronics like television sets, radios, computers, microwaves and others especially in China where they use cheap imported equipments.
There is also manufacturing of complex computer chips off shored to India and China by IT companies like IBM and Oracle. In addition, the production of toys and robots has been off shored to China and India due to their fair costs and flourishing ready markets for such products.
Furthermore, programming activities are off shored to developing countries like China and Malaysia due to high skills and speed of their workforce in meeting a company’s target. Other firms like Hewlett-Packard (HP) have exported their digital networks to South Korea due to their highly efficient telecommunication industry (Kedia & Mukherjee, 2009).
There are several reasons why many organizations off shore their services in developing countries like China, India, and Czech Republic. For instance, there is reduced cost of labor in these countries when compared to the host country.
However, when compared with outsourcing which involve contracting an outside business company to provide services for your firm, the cost of labor is always high especially when done domestically (Gregorio, Musteen, & Thomas, 2009).
Whereas in off shoring there is increased flexibility in conducting business especially in distribution of resources, in outsourcing it is the opposite. In outsourcing, client managers can lose flexibility in the business operations and production of the organization.
Otherwise, there are also several disadvantages of off shoring as compared to the advantages of outsourcing. For instance, there are communication problems when dealing with customers in far way lands, for example, US and China. In off shoring, communication is always done through email and telephones which lose the human touch.
However, in domestic outsourcing, the business partner is within making efficient correspondence. Furthermore, there is the challenge of culture differences when a firm is off shoring with another company (Kedia & Mukherjee, 2009).
This has been known to cause poor communication between business partners. On the hand, home outsourcing involves dealing with people of one’s culture making interaction easier than off shoring.
The organization off shoring can profit in a number of ways, therefore, enhancing its competitiveness in a cutthroat global market. For instance, there is cheap cost of labor when dealing with countries like China or India. Therefore, when the cost of labor has been reduced, a company has a chance to spread its networks to other markets leading to increased revenue thus elevating it above other competing firms.
In addition, a company utilizes a work force of high skills and talents leading to increased innovations in the organization. With increased innovations and creativity, quality goods would be produced by the company and at a speedy rate due to their skills boosting global sales (Ellram, Tate & Billington, 2008).
The other merit is increased number of clients whereby when a firm is exporting its manufacturing and services activities to developing nations like Malaysia and China, the number of buyers of such products also increases (Lussier, 2008).
For example, ICT companies such as IBM and Microsoft have opened offices in India, China and other economically stable Asia nations to reach a wider base of customers. There is also Hewlett-Packard and Intel who have established service companies in Korea to capture the mass market and take advantage of the fast growing economies.
The explanations behind transporting services and other business operations by progressive nations like US and England to developing countries like China and India are many. They include reduced cost as most developing nations provide low cost laborers. There is also the utilization of outside assets to sustain the goals of the off shoring company so that the set targets of the organization can be met.
For instance, this been witnessed with Intel which established a relationship with IT institutions especially in Russia by providing donations to produce the best technical talent. The other reason for off shoring is to spread its market in the global economy and reach several clients so that revenues are increased (Doh, 2005).
Organizations also export manufacturing activities to increase the worth of their products. This is always intended for the international market to increase competiveness and, therefore, increase profits. In addition, firms offshore in order to access a skilled labor that can perform effectively and at a reduced cost as earlier mentioned.
Manufacturing firms are known to go off shore so that they can improve their flexibility and evade tariffs. Furthermore, service industries like IBM, NOKIA and Microsoft embrace off shoring because of reduced risks due to minimal investment (Jones, 2009).
The dangers that come with exporting business activities to other countries are many. For instance, a company involved in business with a country with unlike laws and traditions from that of the progressive country. This is what results to culture gap between the two companies (Doh, 2005).
Another danger is the off shore company, for example, in India, can decide to give a contract it has been granted to another third company without knowledge of its client. This is where the hidden costs arise as numerous losses are incurred due to shoddy work. In the end, customers shift to other companies in search of quality products.
Another hazard with off shoring is rebellion from workers and the public who may not like the decision. This can affect the objectives of the organization especially when they are beginning. This is worse when workers’ unions are involved which can lead to strikes and go slows resulting to loss of control of the business.
Apart from rebellion of the employees, the public can also marshal a political rebellion that can destabilize the plans of the company before it starts shoring. Lastly, the profits realized due to off shoring can be affected by high costs of migration (Ellram, Tate & Billington, 2008).
In off shoring, there are implications for international managers that have an effect on the organization, for instance, on the aspect of the customer, a good rapport with suppliers has the gains of acquiring excellent goods. Alternatively, on the suppliers’ aspect, they realize that by conducting global business with their clients, they increase their connections leading to the wider business contacts.
Another implication is a strategic location where managers must realize that a convenient location is ideal for business as this attracts customers and generates profits. It is what we called earlier as market positioning (Doh, 2005).
In addition, managers should always be alert for the markets they have selected to profit from the location as they hunt for other suitable sites. Furthermore, global managers who want to excel in off shoring must appreciate political connections and protection especially during hard economic periods.
Governments tend to put in place stringent policies during these hard periods and are upon politically linked managers to gain from such situations. Furthermore, organization from distant miles in off shoring business requires managers who are much in control so that meaningful results can be realized in the organization.
In other words, there is an urgent need for proper coordinated management and effective evaluation of performance (Lewin & Peeters, 2006).
In summary, we can say off shoring, as a business move should be encouraged to enhance a global competition and tap on the skilled labor at a reduced cost (Mushore, 2006). Off Shoring should also be embraced to take advantage of the flourishing international markets to boost customer base and, therefore, increase on revenue. This is only possible if the companies choose a suitable site for conducting the enterprise.
In addition, instead of outsourcing domestically, which we said earlier as contacting a business partner within your country to provide your firm with certain services; off shoring results to global sales as compared to outsourcing that is only local.
However, off shoring should be embraced, although with careful consideration of the welfare of employees in the organization. This is because services such as call centers and ICT services are now being exported to countries like China and India. This is due to their fast moving markets, which renders the off shore work force jobless.
This results to unrests and other uncertainties that unless clearly investigated and resolved, will lead to other negative effects on the global trade. In addition, managers will have to consider the hazards of venturing into off shoring activities due to problems of their businesses being handed to third parties, poor market sites and lack of political connections (Jones, 2009).
References
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