Introduction
Economic growth is the goal of many organizations. Companies work hard to remain afloat in the competition and to expand. The opportunities are rare to come by in a competitive market hence people may seek opportunities across borders. The world is vast and both similar and diverse in different aspects. Though different, the world is interconnected hence the term globalization.
The developed countries have chosen to outsource due to steep competition and the high cost of production. The developing countries have welcomed the free market trade since they believe they will gain in pursuit of bargaining power in the global economy (Flat world, 2011).
Outsourcing varies from one region to another and may vary in strategy. Some use it as a short term strategy while others use is as a long term strategy. The success of outsourcing is unique for every situation and therefore outsourcing may bring success or failure.
This report will critically evaluate the impact of globalization on the way organizations conduct their businesses overseas in the light of increased outsourcing. It will also evaluate the strategies adopted by General Electric as outlined in the case by Vietor and Veutsman.
Evaluating impacts of globalization on the way organizations conduct their business overseas, in the light of increased outsourcing
According to Mapsofindia.com (2010, p. 1), there are numerous impacts of globalization among them economic integration. They have noted that market economy has influenced major decisions, among them outsourcing. Private companies have been in the fore front to outsource products and services oversea.
The cost of producing in the developed world has been very costly and exporting the products or services overseas has made it even more expensive. Organizations have therefore resolved to outsource as a means of expansion and offering affordable products and services overseas without the extra cost involved in transportation.
As a result of outsourcing, the developing countries can be ranked in the world economy. The countries bargaining power increases as they experience economic growth. Outsourcing presents opportunities for the developing world for it to take part in the global trade. Their interaction with the developed world makes it possible for the developing country to gain access to the developed market (Flat world, 2011).
In turn, the developed countries have benefited from exemptions from tax and reduced rates that have enabled the outsourcing organization to establish itself. The developing countries and the developed countries have ended up on trade agreement that encourage economic growth by implementing trade policies (Raynor, 2003, p. 1).
The developed private sector has been largely involved in the initiative to integrate the developing countries in the global economy. Developing countries have been reported to obtain skills and training that are hardly available. Outsourcing requires the organization to train the employees so as to maximize their ability.
Globalization has led to the development of labor laws. This is because the organizations that outsource have engaged in lower wages and no benefits for the workers. Labor unions have formed and initiated the laws that are to be implemented on the wages, working hours and benefits from the company which may include medical cover for the employees (Mann, 2005, p. 4).
Another impact of globalization is development of the developing world infrastructure as indicated by Mapsofindia.com (2010, p. 1). As a result of outsourcing, the developing country may have to develop the transport sector to enable economic activities.
The road networks as result expands. Moreover, the infrastructure will advance as trade avenues increase. Globalization leads to financial flow. The export is therefore a source of revenue.
The local companies have competition and may be required to upgrade and raise their standards close to those introduced by the outsourcing organisaton. Employees who may have an opportunity to work in the organizations may acquire knowledge and skills that are competent and as they work in the local organizations, they may be the avenue to positive change towards globalization (Feenstra & Hanson, 1996).
In line with IBM Corporation (2005, p. 2), businesses have strategized to attain more profits with less cost in production of goods and services. This has led to outsourcing which in turn has brought globalization. They found out that outsourcing was in the long run leading to reduced expenses in administration.
The overseas organizations seemed to expand faster than peer organizations. This is also due to the fact that the earnings were significantly higher than those of their peers before taxation.
Raynor (2003, p. 1) indicates that outsourcing may be viewed as free trade across the globe yet it may be harmful to the organization. The transfer of employments from first world to third world may actually affect the economy of the first world. The third world countries may benefit economically and displace the first world. The first world will therefore lose a part of its bargaining power in the economy.
The loss of employment for those in the first world will therefore cause them to retrain and become innovative, hence create jobs. The challenge is that, the same jobs may also be outsourced hence hurt the first world economy further.
It may be necessary to regulate outsourcing overseas. The competitive nature of the market causes companies that want to obtain cheap labor in production and in increasing sales venture to enter into outsourcing and also collapse. Raynor (2003, p. 1) argues that outsourcing is a business strategy that benefits the organization in long term. Therefore outsourcing as a short term strategy may be a set up for failure.
Outracing is a venture that is unequal when it comes to reciprocity. The domestic skilled workers are not utilized as the outsourced skilled workers with cheap wages obtain the jobs.
More and more opportunities for employment are created as the businesses expand and they absorb a large number of trained and skilled workers. The introduction of the businesses is itself an advantage to the country since they gain intellectually in untapped areas.
Globalization may bring challenges to the developed world since the free trade may be an asset for the developing counties to position themselves in the economic world. The fear is that countries such as China may actually become more powerful. Raynor (2003, p. 1) noted that in the present world, an organization’s assets are mainly intangible unlike before.
The physical assets no longer matter; what matters are the human resource’s intellect, innovativeness and motivation. When the most important assets of the organization are overseas then globalization causes powerful economies to be at risk of collapsing.
The other impact of outsourcing as indicated by Raynor (2003, p. 1) is that employees are key in organizations as they set the goals and implement policies that will lead them to succeed among many competitors. Transferring the competitive advantage held by organization overseas may actually affect the organization since the employees are different and may need training.
In line with Mapsofindia.com (2010), technology transfer is another area that globalization has impacted. As the developing world gained access to technology and became part of advancements, the living standards have been raised. A larger market for the technology emerged with extended progress in technology.
Raynor (2003, p. 1) also reported that long term impacts of outsourcing leads to economic growth globally. Underdeveloped states with intellects and skills gain employment and bring a balance. The developed states also gain from reduced prices as a result of less cost of production.
Globalization led to increased outsourcing as a result of advancement in technology as well as communication. The more advancements, the more technology facilitates communication overseas hence organizations can conduct business with less difficulties. Globalization has led to advanced competition that has caused the production and quality to improve with minimal waste.
Another impact of globalization is the increase in exchange of information. Outsourcing will require the organization to share information with the overseas employees as they also share information with the organization. This is essential for the realization of the organizational strategies.
Such sharing of information will lead to long term success of the organization. Consequently, competitors have adopted outsourcing for the short term goals and have ended up unsuccessful. This is because they engaged in competition because others are doing it and also to remain afloat.
Mapsofindia.com (2010) report that globalization has affected the developed world negatively. There are inequalities that have resulted and led to frustrations among the human resources of the organizations that have adopted outsourcing. Globalization has been accused of exploitation of the employees in the developing world. In the developed world, labor is cheap and the workers can work for longer hours with little pay.
Besides cheap labor, the labor policies are not developed. Thus the employees may have to take care of their social needs such as hospitalization. What is more is that the employees are entitled to little or no benefits. The low wages may vary from one region to another and the different states may also have different policies.
Globalization has exerted pressure on developing world economic instability. Although globalization was not welcome by some countries such as India, it encouraged such countries to review their policies so as to compete fairly in the global economy. India had implemented policies that made investments and finance complicated. Consequently integration of the economy took a lot of time (Raynor 2003, p. 1).
IBM Corporation (2005) mentions that globalization has facilitated trade of goods and services to a wide area and expanded the market. More goods are produced and sold for less. Knowledge has also been shared and exchange of ideas has been achieved leading to innovativeness and better productivity.
Transfer of capital is another impact of globalization. Establishment of companies in the developing world has enabled the economies of the developing world to build up. Consequently, some have become major players in the global economy.
Integration of people is another consequence of globalization. People belonging to different cultures and belief systems have joined the global network. Others with different backgrounds have shared ideas and integrated their beliefs leading to the success of the organization.
After outsourcing, the organization must be sensitive to the culture of the host country so as to get assimilated and be able to sell products and get the human resources (Flat world 2011).
Outsourcing may become unsuccessful if the developing country is experiencing political unrest and calamities. This is because for the organization to conduct business, political stability may be necessary.
Another impact of globalization is the distribution of resources. The developed countries have outsourced the specialized services and goods. This has led to better productivity. Furthermore, more goods and services are distributed due to the free trade.
Globalization has been effective in the distribution of economic power to avoid domination. More players have joined the global market and better products have emerged from the competition. The developed world may end up being overtaken by the developing world due to the low labor wages and fast growing economies. Thus they may require policies to regulate outsourcing.
Evaluating the strategies adopted by the General Electric as outlined in the case
General Electronics (GE) is an American organization that strategized to outsource in Mexico, India, and China. The organization achieved a large wide range of goods and services that ranked it top as the organization with the largest capital in the world. Consequently, it was also leading to the human resource sector where it employed over 300,000 employees.
In Mexico, it had established cooperation with maquiladoras. In China, GE operated in the Special Economic Areas. India was the home of software production and thrived, especially because of the readily available human capital. GE was not limited to the Mexico, India and China, it spread to about 100 countries.
GE adopted strategies that were unique to different regions so as to realize success. The areas in this case include Mexico, India and China.
Mexico
GE had moved to Mexico a century earlier and had begun establishing itself. GE partnered with maquiladoras to penetrate in the Mexican market especially in the North. There was an annual growth of about 6% in Mexico. This was attributed to good leadership as one of the strategies that was articulated. This resulted into economic growth.
Another strategy used was language. Mexicans speak Spanish and English. This made it possible to communicate with the United States (US). Communicating was easier hence the transfer of ideas and expertise knowledge was possible.
Mexico proximity to the US markets was an advantage that led to success when compared to other outsourcing zones like India and China. The free market was an advantage as it was close to the US. Products produced in Mexico were much cheaper than those manufactured in the US. Moreover, the company was aware of the large population in Mexico meaning that there could be more buyers for their products and services.
Developing the infrastructure was an important strategy of GE. Infrastructure would facilitate trade and communication that will lead to more sales and expansion. With infrastructure in place, then it engaged in competition with other companies that had also outsourced.
The labor cost was much lower than that of the US, although it was higher than that of India and China. The company managed to obtain low labor rates and longer working hours than those of the US. Similarly the price of buying land, construction materials, and other raw materials were lower than those in the US and higher than India and China.
GE had challenges in Mexico that required it to be stimulated to progress. The currency was susceptible to fluctuation of the currency. Due to economic hardships in 2001, the Mexican economy experienced little or no growth which led to more strategies to improve the economy. Consequently, India and China remained a preference since their currencies were stronger than that of the Mexico.
Competition in Mexico led to the invention of training programs. The programs ranged from scholarships to maintenance programs that were enabling to the organizations success. Employees would be trained in the course of their working to enable them gain more skills and improve efficiency.
The programs were to create a positive image of the organization as trust worthy and reliable. The presence of competitive companies in Mexico inspired the education system in Mexico to train and prepare its citizens to be competitive. In addition, the government implemented policies that encouraged free trade.
China
GE has also thrived in China and established many avenues of trade as well as absorbed many in the labor force. The organization has also amalgamated with other companies to do business since it ventured into China a century ago. The product range was wide and included among others high-technology.
GE in China was determined to be the leading business organization. The organization therefore established a research institution. The objective of the research was to enable the company develop products that would meet the market needs.
Chinese culture was obviously different from that of the US hence specialized product for the Chinese was necessary. Additionally, Asians needed training that would suit them in the global market as globalization had taken root in many parts of the world.
Just like in Mexico, densely populated locations were the target for GE. Most plants were found in the south and in the east where population was concentrated. Another strategy was the locations with areas that were relatively cheap and mainly in the inland.
Manufacturing was leading in China and provided a large variety of goods. The infrastructure greatly improved with significant development in transportation, telecommunication and medical care. Metal work was outstanding and claimed a large number of the workforce. Distribution networks were established and contributed to the success of the company.
Venturing in research proved to be benefiting and resulted in innovations and improvements in technology and other areas. One of the achievements was the ability for China to lease. Consequently, the competition grew as more organization began outsourcing in China. Initially, organizations shunned away from outsourcing in China and saw outsourcing as a great risk.
Besides competent leadership, GE set up China for economic growth and set targets that were to be achieved. This was to be achieved by expanding the manufacturing, human resource, range of products, investing and meeting the demands.
The cost of labor was less costly and the expenses incurred were lower than those of US and even Mexico. GE had to retrain the employees for improved productivity and reduce waste as well as improve effectiveness and efficiency.
The other strategy was to design products for the Chinese and design others for the outside market. GE also sources some products from the local Chinese and cut the cost of producing some items. The products were used within China.
The products designed for the Chinese were a success and welcome by the Chinese since GE had established a good public image. Consequently, channels of distributions were expanded hence there was significant growth in the infrastructure and transport. With increased revenue, financial services were available hence investments became imminent.
India
The presence of GE was recognized in India after the company opened up a hydro-power plant a century ago. GE strategy was to offer the goods and services that were not locally available to the Indians. Later, other products were introduced and became a major source of revenue in India. The workforce was very large. The government therefore alleviated taxes, a move that encouraged development.
India had begun developing and needed a partner in trade hence the partnering was a major boost for GE. GE was therefore determined to use India’s talent which had developed over a period of time and was willing to exploit its talent.
GE strategy in India was developing the human resources. The employees spoke English and demanded very low wages. Though they were educated, they were also given training upon joining the organization. The trained employees were in charge of other employees, a strategy that led to success.
This is because the managers were suited to monitor employees belonging to Indian culture and were more effective in management. Promoting the employees to managerial positions encouraged more Indians to embrace education since graduates could be assimilated in the white collar jobs.
Other strategies GE used in India included the uses of technology and improved research within the country. Moreover, financing was available and enabled business to grow. The company was customer oriented and provided products needed by the consumers. Business introduced include among others, e-learning, data analysis and software product.
India was keen to welcome business partnership with GE as well as other companies. The goods produced were sold within the country while others were shipped or airlifted to other parts of the world.
The main attraction for GE was the savings in the cost of production and the cheap labor that was obtained from the intellectuals in India. Instead of seeing the move to obtain cheap labor from India as a threat to the American employees, GE saw the move as an initiative to globalization (Flat world 2011).
The Americans were competing to outsource in the developing world. The developing world saw this as an opportunity to be part of globalization hence they reviewed their policies to enable free trade. The free trade was an opportunity for the investors to become established in other areas while gaining from the cheap labor and reduced taxes that were implemented.
As a consequence, Mexico, China and India have been able to provide the citizens with jobs. Moreover they have also gained experience that would have otherwise not obtained since outsourcing has provided such opportunities.
Conclusion
Globalization has led to economic integration between the developed and the developing world. Outsourcing has enabled the developing world to participate in the global economy and experience economic growth. The developing infrastructure and improvements in the telecommunication which are impacts of globalization have enabled outsourcing to succeed.
Communication has become easier and the developments in the transportation led to better distribution of goods produced to both the developing and the developed world. There has been exchange of knowledge and ideas which has led to innovativeness. Moreover, people with different beliefs systems and cultures have interacted and cooperated for trade.
The developed world has consequently been affected negatively by outsourcing since a large number of employees have lost jobs. However better products with least price have emerged and have been distributed across the world.
GE has been successful in employing its strategy in Mexico, China and India. It has benefited due to the low cost of maintaining employees through lower wages with little or no benefits. The employees have in turn gained training and experience that would have otherwise not obtained.
Outsourcing the white collar jobs has been successful and led to success of the economies since the employees have the intellect and are in a better position to manage human resources who belong to their culture. The cost of outsourcing is lower since one requires less capital to establish an organization.
Products are produced for use within the country and for exporting to the US. Research has been another strategy which enables GE to be able to innovate and improve on advanced technology and participate in the global competition. In addition targeting the large population is a strategy that has resulted in increased sales and expanded the market.
The English speaking employees have obtained advantage and gained employment. Developing infrastructure and telecommunication has led to increased networking. GE has engaged in partnership as well as good relations with the government that have opened opportunities for free trade. The taxes have been eliminated or reduced so as to encourage foreign investment.
Reference List
Feenstra, R.C., & Hanson, G.H., 1996. Globalization, outsourcing, and wage inequality. National Bureau of Economic Research. Web.
Flat world., 2011. Benefits of Job outsourcing to 021. Web.
IBM Corporation., 2005. Business impact of outsourcing- a fact based analysis. Web.
Mann, C. L., 2005. Offshore outsourcing and the Globalization of US Services: why now, How Important and what policy Implications. Web.
Mapsofindia.com., 2010. Impacts of globalization. Web.
Raynor, W., 2003. Outsourcing Jobs Off-shore: short and long term consequences. Web.