Offshore Outsourcing


Currently offshore outsourcing is a familiar concept that all of us have already heard something about. The Big Boom of offshore outsourcing started with the “Kodak Effect”. Offshore outsourcing is a reality since 1963 when “Ross Perot with his company Electronic Data Systems signed an agreement with Blue Cross of Pennsylvania for the handling of its data processing services”. (Brown, Douglas and Wilson, 2005, 01)

The cases of offshore outsourcing continued thought the years until 1980s when Kodak have made a successful ” strategic alliance” with its partners led by IBM, DEC and Business Land to outsource its information systems. From this moment on no longer was possible to say that “it is strategic and hence cannot be turned over to a third party”, because if Kodak a renowned company who considered offshore outsourcing to be a strategic asset and was outsourcing it in a successful way, then others could follow the same steps. This really happened like for example with: General Dynamics, JP Morgan, BP, and many others around the world. (Carr, 2003, 45)

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The following are a list of the three main types of outsourcing management.

Total Outsourcing

All operations have been contracted to another provider. This is common in generic, non-strategic businesses like food or janitorial services.

Partial Outsourcing

This is when certain activities are kept in house such as customer service while other more specialized activities are sourced out. Plants and telecom offices would typically engage in this type of outsourcing. (Dibbern, 2004, 05)

No Outsourcing

The operations performed day to day are highly unique to an individual business and vital to marketing believability. An example would be a college or university.

In the Old Economy the notion of lifetime employment was considered the norm however the New Economy is built on flexible work contracts. Outsourcing of Management is a trend that has become particularly attractive, as firms contact workers when the need arises. The Economist magazine hit directly upon the theme with the phrase 'Your company needs you, for the time being' (Gannon, 2007). Employees are facing greater job insecurity and wages are increasingly dependent on the performance of the group rather than the individual (Vernon, M, 2004, 56). As employees are freelancer agents, working for multiple firms on temporary contacts, they face a loss of fringe benefits such as health insurance and stock options (Kim, B. and Park, K., 2003, 48). When Starbucks outsourced to other developing countries, it came with technological information and new technology. When the locals go to the multi-national companies like Starbucks to work, they gain working experience and they learn the efficient methods that the multi-national companies use in their companies. When they leave the company to work at a local company, they bring along their methods of working and teach it to the new company, letting local companies learn the better ways of working. The host countries will then be able to gain from the multi-national companies by learning new technological information. This in turn helps them to improve their industries’ and factories’ production rate, thus increasing their profits and helping their country become richer.

The government of hosting countries also gains taxes from the multi-national companies when they outsource to their country. The multi-national companies will have to pay the hosting government the tax revenues, letting the government become richer more through the taxes on the multi-national companies than the ones on their own countries companies.

The multi-national companies also stand to gain when they move to the developing countries, as they tend to have lower cost of labour. Because of this, the multi-national companies spend lesser amounts of money on employing the workers and so their profits are higher than if they stay in their own countries.

Globalization has made great impact on increasing amount of outsourcing management in Starbucks. These days, numbers of organizations are trying to entre in the foreign markets; this makes an increase in the amount of global companies. However, most of these companies unlike Starbucks do not possess in-house capability to discuss or run the supply chain in foreign markets.  Hence, they have to outsource their chain of supply to big organizations having international skills in the distribution task. One major reason for increasing trend of outsourcing management at the café is the rising intricacy of distribution systems. To move and to store items is getting more and more complicated for the café with the passage of time. Majority of manufacturing firms do not want to waste their management resources to carry out such tasks. Hence, they choose to outsource this task to logistics companies as they have all the required skills and technology of performing such tasks.

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In this study different approaches and opinions regarding offshore outsourcing are discussed. It is a fact that the benefits of outsourcing go further than cost-savings, including also reduce of fixed IT costs, access to technical experts around de world and allows focus in the core competences of the organisations. (Stiroh, 2005, 90) and there is no doubt about it that off-shore outsourcing will have a positive impact for the US and US citizens.




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