Impact Of Global Downturn Business Essay

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Recent global financial crisis and economic downturn has impacted almost every one and is in under lime light. It has an important bearing on business world. Academicians, practioners and policy makers are very concerned about it. This century begins with the financial collapse of huge multinationals and it will not be wrong to say that the first decade of the twenty first century is the decade of recession. The story begins in 2002 with the collapse of Enron, WorldCom, Lehman Brothers, and Merrill Lynch etc and still continues. Recently some of the European countries are in crisis of debt and are not able to manage their risk. As there are different phases in business cycle and this phase relates to recession. Due to the recession organizations are cutting cost, reducing the number of employees to maintain profitability and this has resulted in creation of new businesses. The organization shifted their focus towards the core activities i.e. strategic management and this has necessitated outsourcing some of its process to third parties and is called as (BPO) Business process outsourcing. It is one of the new forms in the arena of business world and one of the biggest industries in terms of employment. The concept of outsourcing one or more non core activities of business is practiced by most of the companies and is mostly related to information technology services for e.g. call centres. In addition to this they provide range of services from providing the information to the manufacturing of parts.

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Despite of recession, overall this industry has witnessed growth in terms of number of companies, 400 companies added in this Indian BPO industry. Most of the BPO companies are in India, China, Malaysia, Singapore and Philippines. The factors behind having huge business in these countries are availability of young and educated people, strong infrastructure as well as cheaper rates. As the world has now turned into a global village, BPO companies are searching for different markets i.e. different countries where there is availability of resources. In this regard Philippines has emerge as a new market for BPO because of their lower taxation, investment in human capital of around $100 billion and American English accent which is preferred by European companies.

IMPACT OF GLOBAL DOWNTURN:

As already mentioned financial meltdown has as impact on every business. As the case study is particularly related to Indian industry, according to Singh (2011) the economic recession has an impact on jobs. Due to negative trends in business there is redundancy in this industry as well. According to (the economic times 2007) India has 48-50% of global market share of BPO industry. The employment rose to 553000 in 2007 from 50000 in 1999. This financial crisis has especially hit the smaller firms in the BPO industry. The growth rate in 2009 was around 15-18 percent as compared to 30% before the crisis. This recession forces the companies to restructure and some lay off the people. Big organizations have stopped hiring but overall they are expanding in terms of their operations in different countries. The industry experts are quite optimistic about the growth and anticipates higher growth rate after 2011.

The reason to slow down in BPO industry is global economic crunch. It not only affected the BPO industry but it is prevailed to all sectors of the countries.

trends in the Globalization of Human Capital:

The process of globalization is not a new phenomenon to the world it has been already started for the last two decades. It started in the last decade which had very beneficial results on the labour markets of the countries that were in the integration stage. The positive effects of globalization was not limited and spread to all over the world in the form of better employment conditions and labour markets. This wave of globalization started in the late 1990's when large multinational companies came to know the fact that they can have their businesses more profitable with increasing change in technology, low cost and trade freedom by moving their operational functions to the developing countries. (Hoeven, 2010)

The changes and improvements in the technology reduced the limitations and restrictions for having production operations across the countries. Transportation networks and information technology the improvements in both fields caused the cost to reduce which made it easier for multinational companies to have large volume of information available at very low costs. New technologies have played their role in the globalization process which leads to the introduction of flexible business forms. The multinational companies have now become independent of having fixed location for their businesses. IT has provided many benefits and advantages to companies by having their business traditionally at one place but can be spread to different countries but on the other hand it also makes it more difficult and intense to establish a business than ever before because of competition factor. (Mrak, 2000)

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It is said by Edwards & Rees (2006) that doing business internationally also expands competition in all firms no matter in which area they are doing their businesses. Management has to deal with challenges while working in different culture. In the global competitiveness, it is now realised that utilization of human resources may be advantageous (ÄŒesynienÄ-, 2008). That is why it is seen by this report that in many countries like India, China and Philippine there is a perfect competition of offshoring. Therefore, for better communication not only developed countries like America and European countries are moving towards Philippine for its better language skills but India itself also opening its offices there.

Indian government policies and MNC decisions: Effects

BPO industry has generated 14.1 billion dollars in 2011 (see Figure-1) which is 14% increased as compared to 2010. In year 2010, Indian BPO industry made up 34 % in global BPO market and became biggest point of delivering BPO services. Incremental GDP of India is accounted for 1.5% by the BPO in the last ten years and its total exports comprises of 7%. 4.5 million direct and indirect employment is generated in which half of the percentage is of employees who are under 25 years (NASSCOM, 2011).

Figure-1, Source: (NASSCOM, 2011)

On the contrary, there several challenges, faced by BPO, industry which are now being focused by the media and analysts. It is reported that clients are cancelling the contract of outsourcing ahead of time and this figure is now doubled to 51% (Budhwar, Luthar, & Bhatnagar, 2006). Whereas numbers of clients are reduced from 79% to 62% as they are not satisfied with their services. The source of dissatisfaction is poor infrastructure of irresponsible origination as new players entering in the market who are not looking into it. Large number of employees' turnover in the service provider BPO unit and on job training is also seen as the reason of dissatisfaction (Pande, 2005). It is realised that said issues are true which may reduce Indian BPO attractiveness. So there is immense need of a solution to deal with them effectively.

Along with these facts, government is also tightening up the surrounding wall of the BPO industry by removing the tax holiday on it. It is noticed that employees' transportation cost and increase i the salary is making MNCs to revise their strategies about BPO. Therefore, many MNCs are now moving to other countries to open BPO unit where infrastructure is cheap and language ability of the employees is excellent as compared to India. Philippine is the country which in which not only India but other developed countries are also going to outsource. This thing rang a bell in BPO industry of India that if this thing continues then unemployment will increase as clients or even service provider will move to other countries.

Figure-2, Source: (Singh, 2011)

Above depicted Figure-2 shows the number of jobs loss during the specified period. It is observed that a big number is hit to the unemployment.

THREATS AND OPPORTUNITIES:

In this era as companies are having advantage of having the services of BPO companies and can solely concentrate on their core activities but there are some threats and opportunities attached to it. The organizations need to do the cost benefit analysis (CBA) because threats and opportunities are external to the organization. As most of the services offered by BPO are Information technology related there is a loss of knowledge of IT. In addition to this loss of integrity and morale of employees and turnover will increase. Furthermore there is a loss of confidential information as work is done by third party. There are some other threats which the organization has to face in long term i.e. the loss of control on assets and creativity. The organization will be dependent on other company and has to sacrifice its independence. There is a possibility that services provided by the BPO are not up to the mark resulting in more complaints from customer and this would impair the goodwill of organization in market.

On the contrary the opportunities that organization has when designing their strategy is the economies of scale and scope, they can take the advantage of synergies which will arise because of outsourcing. Huge amount of money can be saved and can be reinvest in organization human capital which will help in establishing an organizations own BPO, resulting in achieving excellence and expansion of business. In the end the global organizations needs to consider their strategy for outsourcing their functions because it's a specialized nature of work.

CONCLUSION

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To conclude in the light of above mentioned analysis, it is critically said that outsourcing is setting conditions in front of Indian BPO industry as well as government. Being a best service provider it should utilize all data and resources to cope the problems. Global financial crisis is the main reason of this down fall through which BPO industry is affected. MNCs and its managers have a big challenge in the completive market.