Globalization has limited distances to the extent of words only. No more do companies or businesses think twice before reaching foreign markets to increase profits and customer base. Globalization isn’t the name of the game. The concept involves interlinked processes such as logistics, supply chain, licensing, franchising, offshoring, outsourcing, etc. These activities have made life for multinational corporations easier than ever before.
Offshoring is when some internal functions of an organization are transferred to another country within the same firm (Schroeder, 2008). The idea is to cut costs. A firm can have several reasons for off-shoring such as cheap labor, abundant supply of skills, cheap technology, etc. Companies argue that if something can be produced cheaply abroad then why not import it rather than producing it at a high cost within one’s own country. Off-shoring is controversial though. While reducing costs, results in increased unemployment and wage erosion, etc (Farrell, 2006). The critics against off-shoring say that in developed countries offshoring has more negative impacts than under developed countries. The reason is that people who lose jobs get a job at a lower level than the one they were employed at. This results in lowering down their buying power even though goods have reduced in prices due to off-shoring.
Outsourcing is another phenomenon that goes along with off-shoring. The basic motive behind both is cost reduction which is not possible without eradicating unnecessary expenditures. Outsourcing however is transferring an area of operations to another firm which can be native or foreign (Schroeder, 2008). In reality, in recent years purchase of off-the-shelf products has become as easier as it is stated in theory. Today, one almost can purchase just any function that is needed to run a company. Procter and Gamble for example have outsourced its IT infrastructure, human resource management, and even its products in the last three years (Engardio, 2006). Outsourcing though also results in loss of jobs and has been a very debatable topic. The issue however remains the same; cost cuts are no good if there is no demand for products that fall down in the parent country due to wage erosion and unemployment. In 2009, CEO of General Electric, Jeff Immelt, for example, urged the government to reduce outsourcing and increase the amount of workforce hired by manufacturing units as the United States could no longer depend on consumer spending to create demand (Bailey, 2009).
The concept that is gaining more popularity than off-shoring and outsourcing these days is offshore outsourcing. Offshore outsourcing is the transfer of activities from a domestic facility to another firm situated in another country (Schroeder, 2008). As already discussed the threats remain the same. However what the point that needs to be emphasized here is that when to use offshore outsourcing? To put it simple, if outsourcing or offshore outsourcing does result in work being done more effectively and less costly without jeopardizing other functions, then only it should be done (Kehal, 2006). A company shouldn’t move its call center to India only because call center representatives can be hired at a lower cost. The company might lose its customer base for the simple reason that they are unable to communicate because of accent differences. This will result in cost savings at the expense of losing customers.
Despite disadvantages, it is seen that many of the firms around the globe are opting for outsourcing and off-shoring activities. Companies are relying heavily upon such activities to juice their performances. The near future holds better and enhanced prospects for such endeavors.
References
Farrell, D. 2006. Offshoring: understanding the emerging global labor market. Illustrated edition. Published by Harvard Business Press.
Kehal, H. and Singh, V. 2006. Outsourcing and off shoring in the 21st century. Published by Idea group Inc.
Schroeder, R. 2008. Operations Management: Contemporary Concepts and Cases. 4th edition. McGraw Hill publishers.
Bailey, D. and Kim, S. 2009. GE’s Immelt says U.S. economy needs industrial renewal. Web.
Engardio , P and Arndt, M. 2006. The future of outsourcing. Web.