Outsourcing has become a popular practice amongst many competitive manufacturers. In other words, outsourcing has been measured one of the major factors contributing to a company’s competitive advantage. The chief vehicle to achieve outsourcing is subtracting agreements. A recent report which reviewed three hundred company technology-decision makers pointed out that just twenty eight percent of associations suppose that IT outsourcing can offer major cost savings. In addition, the study discovered numerous fundamental concerns in the minds of possible outsourcers.
Over half of respondents pointed out that a defeat of internal knowledge was a major drawback of outsourcing, while another forty-one percent designated that lower service quality was a main concern. Potentially the most worrying statistic for outsourcing companies is the fact that such concerns were considerably lower merely two years ago when only twenty-three percent pointed out service quality as a major drawback. While this survey appears to some extent of an outlier statistically, it does agree with the recent inclination seen in many large companies who are getting IT work back in-house.
Such news elevates more questions concerning the sustainability of outsourcing and its long-standing effects on business. I have included this paragraph to the paper as I feel this makes
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Others are increasingly making the same calculation. Five years ago, Timberland produced 80% of its shoes in its own plants. Today, it produces just 18% by itself” (Alfaro, L. and Rodriguez-Clare, A. 2004). Also, Motorola divulged plans to outsource more than $30 billion of consumer-electronics production over the next five years with Flextronics International Ltd. and take a small stake in the contract manufacturer. The deal is the largest outsourcing agreement between a name-brand electronics company and a contract manufacturer.
By 2008, the companies expect Flextronics to make more than $10 billion of cellular phones, two-way pagers, set-top boxes, and wireless communications gear and components for Motorola. That would be nearly twice Flextronics’ total revenue of $5. 7 billion in the fiscal year 2000. (Alfaro, L. and Rodriguez-Clare, A. 2004) Rising international trade has numerous implications. It provides new or better or cheaper goods to the importing country. It gives new markets for countries’ exports, resultant in employment and rising living standards.
But it also is an intimidation to those companies and employees with whom imports compete. Protection of local employment through trade barriers is as old as the Roman Empire. Setting up business in another country is a centuries old practice as well. Acquisition of a business or company in another country (through purchase rather than invasion), on the other hand, is a relatively new observable fact within the past 150 years. And major cross-border acquisition activity didn’t begin until after World War II, just a half century ago.
Assets owned by foreign companies have grown considerably in the past thirty years. Viewed from a chronological perspective, economic conquest as opposed to military invasion is relatively recent. Still, governments and their people don’t like the idea of being taken over, even if the takeover is only economic. So the majority nations put certain crown jewels out of bounds to foreign investors. You can own a tire plant in my backyard, but you cannot own my oil field. You can buy a supermarket chain but not my banks.
Though these restrictions are looser now than they were ten years ago, most limitations didn’t even exist a century ago because no one was buying. Suffice to say that restrictions on trade and obtaining assets across borders are very real and a major block to the globalization freight train. Nevertheless, the tidal waves of international trade and the Hollywood-Madison Avenue dream machine have formed huge demand in each corner of the world. Technology and communications are making it easier to do business worldwide. Corporations have been scuttling to capture a share of this demand.
As companies have extended, they have found that tastes around the globe are similar. Just about anywhere in the world, a teenager with a Walkman on her head, a Coke in her hand, and Levi’s on her hips. U. S. movies and music persuade the cultures of all but those who prohibit their entry. Few countries have roadways free of Fiats or Fords or Toyotas (Bernard, A. B. and Jensen, J. B. 2003). Countries that have open trade policies expose their industries to the toughest competition, which either makes local businesses extremely competitive or sinks them.
As a result, countries are becoming very strong in industries in which they are capable to operate at the best international level and are outsourcing (to other countries) those industries or tasks in which they are not competitive. This creates a hard situation, particularly when the industries whose products or services are on the prospective outsourcing list are large employers. Textile workers in industrialized countries have fought hammer and tongs for protection against “unfair” low-cost foreign competition.
They have been losing this battle for years, as labor rates and productivity cannot keep pace with those of Asian textile workers. Japan has worried about the hollowing of its manufacturing industries as companies move more and more labor-intensive tasks offshore. (Michael L. Dertouzos, 1997) Over the past fifty years, another thoughtful change has taken place in international trade. For centuries, trade had been in goods natural resources (e. g. , coal, timber, oil, minerals) and products made in one country that had markets in others. simply two centuries ago international trade was predominantly barter my glass beads for your tobacco.
Analysts said it makes sense that more banking companies and large thrifts would aggressively explore foreign outsourcing, despite having little or no foreign operations. Some analysts predicted that such companies would lead the next wave of offshoring as a way of containing expenses (Davis, Paul and Cole, Jim, 2006). As Dani Rodrik noted in “Sense and Nonsense in the Globalization Debate,” “If [the flight to low wages were the principal driver of outsourcing], the world’s most formidable exporters would be Bangladesh and a smattering of African countries.
” And as companies consider how to become (and remain) the best in every area of business, they must look globally for capabilities. Acquiring a low-cost plant in Mexico may be attractive in the short term, but unless that plant keeps up with, or exceeds, world standards in cost, quality, reliability, and customer service, the parent company’s advantage will be short-lived. Owning assets can be attractive if the company has the will and resources to maintain world standards, as do Motorola.
Majority of the companies have neither the will nor the resources and should be (and are) considering alternative ways of acquiring significant capabilities and knowledge, such as through strategic alliances. Some of the biggest beneficiaries of the trend have been Indian companies that handle functions like information technology development, transaction processing, and call-center staffing. But experts say the focus of outsourcing is changing. Top outsourcers in India report that in addition to providing IT functions and back-office processing to banks, they now are adding management consulting services (Quittner, 2006).