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The impact of offshoring on the US economy
Negative effects of offshoring
Negative effects of offshoring
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During the past 15 years, companies have outsourced to a handful of cities in India, China and Eastern Europe for offshore service functions with hopes to reduce costs and gain a strategic advantage. Unfortunately, many companies have experienced mixed results as there are several problems facing these popular spots. However, companies can benefit when they pick the right processes to outsource, assess operational and structural risks and match organizational forms to their needs.
Rank Processes by Value
Many companies focus their efforts on choosing countries, vendors and negotiating prices, but do not spend time evaluating which services they should and should not offshore. Without a standard methodology for differentiation, it can be difficult to distinguish among products that companies should control in-house and those that they could obtain from overseas vendors. It is essential to determine how each product helps companies create value for customers as well as capture that value for themselves. Products, which vary among businesses, should be ranked between these two criteria and then added together to arrive at a total ranking for each.
Using this methodology allows businesses to create a value hierarchy- the higher the ranking, the more crucial it is to the company strategy. This provides managers with proper information to determine the most desirable products or processes to be considered for outsourcing.
Identify and Manage Risk
Many organizations fail to take into consideration all of the risks that accompany offshoring. A simple cost/benefit analysis is often not enough as it ignores many of the latent risks involved. It is essential for companies to be prepared to tackle the major risks, operational and structural, that could affect their overseas plans. Operational risk can stem from offshore service provider’s employees requiring a great deal of experience or knowledge of the product to perform successfully at the necessary level. These issues can often be overcome, however, through thorough documentation that specifies exact steps and procedures that should be performed in each situation. Other operational issues involve the metrics companies use to measure the quality of the outsourced work. In many situations, companies will formulate metrics for the first time when choosing to offshore or will fail to establish any metrics at all. The best solution is for companies to create metrics, measure the quality of their processes, and use continuous improvement in-house before deciding to offshore.
Globalisation is a growing phenomenon that is the result of various developments in the global environment, each of which merits an individual analysis of its social impacts. For the purpose of this analysis, the focus will be placed upon arguably its most controversial aspect, offshore outsourcing. Offshore outsourcing, or offshoring, is becoming an increasingly common business practice as a result of a combination of the recent technological advancements in the areas of transportation and communication, and the increased competitiveness of the business world. From the perspective of firms, tapping into cheap labor from less developed countries is a very logical business decision to reduce costs and maximize profits. This has not only motivated businesses to engage in offshoring, it has sometimes been critical to their survival in fiercely competitive environments. Before making judgments regarding the righteousness of offshoring from different perspectives, its impact on stakeholders must first be evaluated.
Offshoring American jobs have positive and negative consequences to the American community. Some of those consequences of offshoring American jobs include Amer...
Outsourcing simply means acquiring services from an external organization instead of using internal resources (Butler, 2000). By using outsourced resources, organizations can gain a competitive advantage by utilizing contingent staff to accomplish strategic goals without incurring the fixed overhead. By focusing on the leading edge and highly specialized skill sets, outsourcing providers can often offer higher quality services, or at a lower price than the client organization. Typical reasons for outsourcing go beyond simple contingent staffing. Outsourcing providers are able to maintain economies of scale with regard to specialization (...
Recently outsourcing has been in the news, especially during political election years. It seems to be a phenomenon that is causing much concern among the population. But exactly how is outsourcing effecting both workers and businesses? And is it as big of a problem as politicians describe?
Off-shoring is the establishment of business operations outside national boundaries. The process of moving business outside these boundaries is to garner an advantage either through tax breaks, lower wages, lower transportation cost and/or relaxed regulations ("Offshore definition," 2014). Many firms either branch out as a horizontal multinational or vertical multinational. Horizontal multinational’s produce the same good or services as abroad. This foreign direct investment (FDI) is done to strategically place production closer to the target market. Doing this provides advantages surrounding transportation cost while enhancing learning associated with local needs. A vertical multinational is one that fragments a portion of its good to take advantage of lower cost (i.e. cheap labor). Markusen and Maskus found horizontal multinational replaces trade whereas, a vertical multinational positively correlates with trade (Markusen & Maskus, 2001).
Kesavan, R., Mascarenhas, O. A., & Bernacchi, M. D. (2013). Outsourcing Services to India: A Review and New Evidences. International Management Review, 36-44.
The next competitive advantage is quality of service. Outsourced environment is quite different than that of the environment in an enterprise. Advertisers are different economic entity with profits at risk. External service provider will make every effort to deliver good quality; good service and everything will apply and will be tested. For example, the usage of the ITIL methodology. Service providers will also provide high output, and perform better output, needs, and change control. Thr...
Outsourcing is a technique for companies to reassign specific responsibilities to external entities. There are several motivations for outsourcing including organizational, improvement, cost, and revenue advantages (Ghodeswar & Vaidyanathan, 2008).
Value chains are essential elements of successful businesses, and how to gain a competitive advantage by analyzing them is the most important aspect. In Porter’s value-chain model, he points out that there are two types of business activities: primary activities, which include inbound logistics, operations, outbound logistics, marketing, sales and service; and support activities, which include procurement, technology development, human resources management, and firm infrastructure. In order to gain an edge, companies should focus on these activities to improve or create products that will satisfy their customers.
If a company has set its objectives there is need to look into the following. Which countries are their target market and who are the consumers and how or which marketing strategy should they use to reach the consumers. The company needs to know what products are best for their chosen customers and if there may arise a need to adjust the company should be ready for it. The other thing they should consider are the import regulations in their country, market and the global rules also should focus on the competition involved looking...
According to Value chain analysis, competitive advantage cannot be assumed by looking at the company as a whole. The benefits derived from the many isolated activities, a firm preformation, the design, production, marketing, supply and product support. Each of these activities may contribute to the relative cost position of the company and create a basis for differentiation.
A disciplined approach to management eying leading employees, improving the management team and building the business strategy. Instead of treating each problem as a one off. They design systems and structures that make it easier to handle in the future. (Techrepublic, 2015) 2.2. Risk of exposing confidential data: When an organization outsources HR, Payroll and Recruitment services, it involves a risk if exposing confidential company information to a third-party Synchronizing the deliverables: Some of the common problem areas include stretched delivery time frames, sub-standard quality output and inappropriate categorization of responsibilities. At times it is easier to regulate these factors inside an organization rather than with an outsourced partner Hidden costs: Although outsourcing most of the times is cost-effective at times the hidden costs involved in signing a contract while signing a contract across international boundaries may pose a serious threat Lack of customer focus: An outsourced vendor may be catering to the expertise-needs of multiple company at a time. In such situations vendors may lack complete focus on your organization 's tasks. 2.3. 1.Know the
Beginning in the latter half of the last century and continuing to present day, both offshoring and outsourcing have become prominent practices for many successful businesses as a way to decrease costs or to improve the quantity of production. Many people believe offshoring and outsourcing are inherently the same and they are umbrella terms for the same practices. In reality, both terms have different meanings and should not be used interchangeably. The practice of outsourcing is defined as a practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally (Outsourcing, 2014). This states that a firm, in order to cut operating costs, will relocate a job or jobs that were formerly performed within the firm, to another firm which more than likely has a comparative advantage in performing the task. An example of this would be when a company decides to outsource their accounts payable department to an external independent accounting firm who is able to complete the task at a cheaper cost to the company than to pay for an entire department to operate internally. Outsourcing does not necessarily mean that the job in question is being relocated out of the country, however it is still possible. Offshoring, by contrast, is defined as the practice of moving employees or certain business activities to foreign countries as a way to lower costs, avoid taxes, etc. (Offshoring, 2014). While the job is being relocated to a foreign country, it does not necessarily mean that the job has been externalized from the company. An example of this would be if McDonald’s relocates their marketing department to England. To summarize, if a...
The main problem Bharti Airtel Limited facing is "How to manage its capital expenditures for its operations and how to face the expected exponential growth and a competitive environment." The challenges that the company is facing are
The practice of outsourcing jobs is not a new concept. People have been outsourcing jobs for decades. Some people even offshore outsource jobs. There are many opinions to offshore outsourcing based on how it influences the economy. Some people are in favor of outsourcing jobs and some people are against outsourcing jobs. People need to get educated about the great impacts that offshore outsourcing does to an economy. The global economy has started to thrive and offshore outsourcing has profited the consumers as companies want to cut costs and competition, which is why I support offshore outsourcing jobs to foreign countries.