Cross Border Trade In Business Services Commerce Essay

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Cross-border trade in business services, especially the so-called 'IT-enabled services', is today among the fastest growing areas of international trade. While the industrial countries are the largest exporters of such services, some of the most dynamic exporters are the developing countries (Mattoo and Vincent, 2004).

Outsourcing is made up of two words - 'out' and 'sourcing'. Hence, to define outsourcing we must first be clear on the meaning of 'sourcing'. Sourcing refers to the act of transferring work, responsibilities and decision rights to someone else. Work is sourced out because there are others who can do it cheaper, faster, better and because there are other, more important, demands on our resources (Power et al, 2006).

Outsourcing refers to the concept of hiring outside professional services to meet the in-house needs of an organization or an agency (Gupta and Gupta, 1992) cited in (Heeks, 1996). It is a practice of hiring functional experts to handle business units that are outside of the firm's core business (Dominguez, 2006). Global outsourcing is prescribed for everything from back office services like information technology development, human resource transactions, and indirect procurement to core services such as innovation, research and development, marketing, and customer care.

The decision to insource or outsource, i.e., whether to make in-house or to buy from external sources, has never been an easy task for those involved in the decision making process (Yang and Huang, 2000).

The issue of outsourcing is one of the most difficult and controversial topics in the business world today, often further complicated by unrealistic expectations of cost savings and fast returns on investments (Dominguez, 2006). In some cases, outsourcing may be required in order for a firm to simply maintain competitive position (Bryce and Useem, 1998).

While the vision of global sourcing networks that are agile, effective, and cost efficient is certainly achievable, it requires an immense amount of detailed management to make it work (Lacity and Willcocks, ).

Benefits of Outsourcing:

It is time to dispel the common myths about outsourcing, and to develop a strategy taht organizations can use as a platform to enthusiastically welcome and support the opportunity to reduce costs, increase productivity, innovation, and service; and generate higher returns for stakeholders (Dominguez, 2006).

-Reduction in costs or time of producing a service

Immediate cost saving is often cited as the most tangible result of an outsourcing deal, and some observers see the savings not only dropping to the bottom line but also adding to investor wealth (Bryce and Useem, 1998). For instance, clients typically reported that they have were saving at least 10 % of total costs by outsourcing services to India when staff worked onsite (Jones 1994b) cited in (Heeks, ).

Outsourcing facilitates the access to a more specialised IT management, since the provider company finds itself in a better position to select, train and manage the technological staff, thanks to which customers can have at their disposal high-level specialists without the having to be permanent staff members. Saving Technology Costs. Service providers dedicate all their capabilities to IS service provision, which is why they can obtain greater economies of scale and scope (Smith, Mitra & Narashimhan, 1998). Arguably, there is a transfer of part of these economies to the customer through lower prices for the delivery of the same services by means of outsourcing than through the in-house IS department (Gonzalez et al., 2008).

Better service

It is a win-win situation for nations, providing gains in consumption, production and exchange.

At least in theory, firms outsource in order to access high-quality IT services and knowledge. This reason would find support among those who do not share the traditional view based on saving and cost control and, instead, believe that outsourcing takes place in firms which see IS as a basic function that can improve IS capabilities beyond those which the firm owns internally (Gonzalez et al., 2008).

Pressure on internal labour/removal of featherbedding '/' bloated bureaucracy

Access to new sources of finance

Resources freed to be redirected into core/ strategic initiatives

Forcing benchmarking and performance measurement to take place

Greater flexibility, especially in staffing

Outsourcing provides great flexibility because the use of IT resources makes it

possible to treat volatility in business levels more easily and allows the provider to assume fluctuations in IT workloads. Companies can apply outsourcing as a strategy to obtain flexibility during a restructuring or reorganisation process (Yang et al., 2007). Organisations also outsource as a way to react before the changing needs of their clients as well as those of IS users.

Access to new skills, knowledge, and technology

Accessing International Markets

Many firms see offshore outsourcing as a way to approach other countries, not only to find more competitive providers, but also to acquire knowledge about them and explore possibilities as potential markets (Sobol & Apte, 1995; Gupta et al. 2007) cited in (Gonzalez et al., 2008).This is important if we bear in mind that some IT offshore service provider countries, such as India, China or Russia, have an enormous potential market because of their large populations and their high economic growth expectations (Gonzalez et al., 2008).

Drivers

The main drivers behind Outsourcing can be analyzed using the 'PESTORP' model from (Duncombe, 2010).

Political - Govt. vision, promotion. Openness to the economy, Industry. Political leader initiatives.

Government policy has been changing dramatically for economic activities involving foreign parties (Graf and Mudambi, 2005). Pressures from domestic may cause a country to use governmental intervention, technical barrier, or taxation to control the volume of offshore IT outsourcing. Meanwhile, the outsourcing destination may use preferential policies to counterbalance the home country policies. Political policies have significant effect in an organization's choice of foreign business, including offshore IT outsourcing (Graf and Mudambi, 2005). From a transaction cost perspective, incentives provided by the destination government can reduce the transaction costs and attract organizations to outsource in the destination (Qu and Brocklehurst, 2003) cited in (Wang and Koong).

Economic- Globalisation and competition in the market have created many good options for the customers. Customers expect to get the best service and at a cheaper rate. Outsourcing mainly cutbacks operational costs of clients and makes them provide better at a much lower rate. Outsourcing is often accompanied by cost-cutting exercises as it is often driven by the need to reduce costs. Organizations that do everything on their own spend huge amount of money on running every function in an effective way. Outsourcing service providers, on the other hand, offer the same value at lower costs due to economies of scale (www.scribd.com). Outsourcing makes capital funds available for activities and reduces the need to invest them in non-core business functions (Lau and Zhang, 2006). At the same time, outsourcing develops the city/the country leading to a rise in the inflation rate.

Socio-cultural- As government policies, laws and actions affect organisations and people's everyday lives, so do the attitudes and expectations of people towards work, in the context of other aspects of life. (Senior, ).

Technology - Revolutions in the technology lead to better and swift exchange of information and knowledge. These innovations create and shape patterns of consumer demand (Buchanan, ). The power of internet is highly significant developing most of Internet-based activities and communications. It streamlined the processes which helped in standardising them and hence the physical location no longer mattered. Technology is highlighted as playing a leading role in the present wave of outsourcing (Kobayashi-Hillary, 2004). Internet Communication Technologies (ICTs) bridge the communication gap making outsourcing convenient. Organisations can provide services on behalf of their clients to other parts of the world with the use of employee specific IP address. (the emergence of IT providing option to company to invest themselves or outsource). Bcz IT gives benefit

(Kobayashi-Hillary, 2004) says, This means managers can be far more responsive to what their customers want and far more flexible in how they organise to make and provide their services at the market level, these developments have changed what customers everywhere can know about the way other people live, about the products and services available to them, and about the relative value such offerings provide

It is worth thinking further about the three broad themes Ohmae has identified: (Kobayashi-Hillary, 2004).

• Information can flow freely throughout the world instantaneously.

• It is possible to track information about people, products and services in

real time.

• The customer can compare and contrast your service with other firms

throughout the world.

Organisation- sometimes, the org wish to get rid of certain group/team which has been unproductive for a long time. This drives for outsourcing. They close down completely the services delivered from there and outsource its delivery to some other efficient country.

Resources - Outsourcing improves employee communication skills and their efficiency towards their work as the job is mainly related to providing services all over. These developed capabilities bring a sense of achievement and recognition, self-esteem, curiosity and security (Buchanan, ) Outsourcing creates job opportunities for all irrespective of the gender, age, religion, race, culture, social class, sexual orientation, etc. Good and equal pay offered, makes individuals independent making it a desirable living. (Change from demography of people).

Process- failure to deliver intended services drives org change. Services are outsourced because they are not delivered well to the customers & hence the customers are not happy. Outsourcing helps to acquire new, proficient skills and at cheaper prices. This also helps to strengthen customer relations and loyalty.

B.

Overview

The case study considered is a UK based software house "Sierra Plc" and its subsidiary in Banglore. Sierra is a small but rapidly expanding, high technology company specialising in the development of short lifecycle, bespoke client server projects with customers and projects in a wide range of domain areas. Sierra does not produce generic packages but have bespoke solutions to a wide range of clients in various application areas. They have particular strengths in visual interface design and in 1999 moved into ecommerce development. The company's turnover is approximately £8 million.

The stated strategic reason for Banglore development centre was to overcome capacity and staffing shortages in the UK as the company's growth was getting close to 50% per annum.

Sierra management reported that growth was found to be difficult to sustain in one place and maintain quality. Recruitment in London (Sierra's head office location) was becoming increasingly difficult due to the shortage of specialist skills required by Sierra. As a result of shortages, salaries for suitably qualified staff were very high. In order to increase capacity, Sierra management took a decision to expand into new countries rather than expand any further in to the UK. The first move into India was taken by outsourcing projects to India and "bodyshopping" Indian staff into the UK.

However, a major issue was that the quality of staff (In India) was variable.

Duncombe, R. (2010b) stakeholder analysis check CASOLO

Clients: The customers are the main clients and the ultimate beneficiary in this project. While the clients get their lifecycle projects from Indian suppliers their products and outsourcing. Direct interface between the Indian developers and their end clients in the UK. Distance invisible to customers since they could directly 'speak" with the developers. Outsourcing to India removed the face to face client meetings and the customer. The direct telephonic contact, so that the customers would not have to pay extra and thus encourage communication.

Actor:

Owner:

Model:

Weisbord's (1976) model is a systems theory that he believes every organisation is situated within an environment and is influenced by and influences various elements of its environment (Duncombe, 2010).

Theory:

Within each box are two potential trouble sources- the formal system that exists on paper and the informal system-or what people actually do (Weisbord, 1976). Neither system is necessarily better but both exist. These help to identify the issues in each system and helps to define the relationships among them while doing diagnosis.

Weisbord stresses that an organisation should be analysed at formal and informal levels, for each box and that the two key things to look for are (Duncombe, 2010).

The gap between the formal and informal aspects of each box;

The discrepancy between "what is" and "what ought to be", that is the extent to which the boxes 'fit' the environment.

http://www.emeraldinsight.com/fig/0400210202005.png

Purposes:

This is the 1st box of the model defining the purposes. This box mainly describes the Goal Fit, Goal Clarity and the Goal agreement. For the purpose dimension, the two most important elements are goal clarity (the extent to which organization members are clear about organization's purpose and mission) and goal agreement (whether people support the organisation's purposes) (Lok and Crawford, 1999). Considerable conflicts arise when purposes are not clear or when people disagree on what the priorities should be. It should consider goal clarity. (How well articulated the goals are in the formal system, considering both the producers and the consumers?). Finally, the informal (process) issue is a goal agreement. (To what extent do people understand and support the organization's purposes) (Weisbord, 1976).

Structure:

For the structural dimension, the primary question is whether is an adequate fit between purpose and the internal structure (Lok and Crawford, 1999). The structure should draw the organisation chart, identify the hierarchy and the different departments. Structured development approach works well for understanding interactive uses of data and designing large-scale systems. The approach takes a bit long time. The structure of an organisation helps to understand whether there is an adequate fit between purpose and the organisational structure to serve that purpose (Duncombe, 2010). It helps list issues of the formal and the informal systems. Every organisation has a different structure. In diagnosing structure, a consultant must look for the fit between the goal (output) and the structure producing it (formal system), then attend to how the work is actually divided up and performed and how people use or subvert the organisation chart (Weisbord, 1976).

Relationships

Weisbord, 1976, describes relationships at workplace of three types:

Between people- peers or boss-subordinate

Between units doing different tasks

Between people and their technologies (i.e. systems or technologies)

The nature and requirements of the individual and departmental jobs also affects the relationships in an organisation (Duncombe, 2010). Workplace relationships should involve mutual commitment, trust, shared values or interests between people at work, in ways that go beyond mere acquaintanceship. Most potential benefits can be derived from workplace relationships, both for the individuals and the organisation (Berman et al., 2002).

Rewards:

The most common motivator that a manager uses for his employees is the system of rewards (i.e. salary and fringe benefits). The trick is translating the reward theory into organizational practice. However, the important issue is "equity" or fairness among members of an organisation (Weisbord, 1976). Money doesn't necessarily stop people from being creative, but in many situations, it doesn't help.

Leadership:

Leadership is the extent to which leaders define the purposes of the organisation and manage in ways consistent with that purpose ("keeping all the boxes balanced") (Duncombe, 2010). Different managers adopt different leadership styles. However, there is no good or bad leadership style. Each style is unique and good in some or the other situations. The best a manager can do is try to understand his organisation and its requirements and then judge how much his leadership norms contribute to or block progress and how easily new skills can be learned if needed (Weisbord, 1976). Leadership requires, in addition to behavioural skill, an understanding of the environment and a will to focus purposes, especially if there is a problem in one of the six boxes (Weisbord, 1976).

Helpful Mechanisms:

Mechanisms have proven to be a useful way to think about the cement that binds an organization together to make it more than a collection of individuals with separate needs. Helpful mechanisms are related to the contents of all the other boxes (Weisbord, 1976). Processes such as planning, control, budgeting, and other information systems that help organisation members to meet organisational objectives (Duncombe, 2010). As the need arises / changes, the mechanisms are to be altered accordingly.

Model Application- Case Study Analysis

This is the 1st box of the model defining the purposes. This box mainly describes the Goal Fit, Goal Clarity and the Goal agreement. For the purpose dimension, the two most important elements are goal clarity (the extent to which organization members are clear about organization's purpose and mission) and goal agreement (whether people support the organisation's purposes) (Lok and Crawford, 1999). Considerable conflicts arise when purposes are not clear or when people disagree on what the priorities should be. It should consider goal clarity. (How well articulated the goals are in the formal system, considering both the producers and the consumers?). Finally, the informal (process) issue is a goal agreement. (To what extent do people understand and support the organization's purposes) (Weisbord, 1976).

Purposes:

Sierra management were striving to overcome skills shortages and capacity problems in England. The initial aim of Sierra was to create ―a little bit of England in Indiaâ€- shown in the expressed desire to migrate the head office organising principles to India (Nicholson and Sahay, 2004). The states strategic aim for the Banglore development centre was to overcome capacity and staffing shortages in the UK as the company's growth was getting close 50% per annum. The manager of the Indian subsidiary (whom we call Mitra) was of Indian parentage, born in Kenya and raised in England with a computer science education (Nicholson and Sahay, 2004). However, the decision to outsource to Banglore in India was quite hasty which left no time to communicate correctly to the Sierra staff. Hence they were not fully aware and trained about the aims, plans and implementation of outsourcing. For instance, the development of e-commerce which led Mitra to believe that Sierra customers would be reluctant to outsource their e-commerce ideas and plans to India for fear of intellectual property theft

Structure:

Another area where expectations were lowered concerned the spread of Sierra UL systems and structures. Sierra being a small firm could not hire a full time HR manager and so the general manager and another technical person handles the personnel function. Because of this spend large amounts of time actively going put and recruiting from campuses, especially. Hierarchical structure in India.

The issue of Power Distance was faced by the Sierra management. Power Distance is the extent to which less powerful members of institutions and organisations within a country expect and accept that power is distributed unequally (Hostede, 1994). Hofstede's Power Distance Index (PDI) shows India as a high power distance country (PDI 77) as compared to the US and Britain (Hofstede,1994). In Sierra UK, power relations were based on technical knowledge rather than position. This mainly affected the creative decision making in the org. Meetings in India were volatile. However, Power was distributed in India very differently. The hierarchy being given too much of importance in India and the Indian staff was reluctant to become informal. They never conflicted their superiors views (Nicholson and Sahay, 2004).

Relationships:

Because of the high context culture (PDI 77) the relationships with the managers and the superiors were hierarchically ordered, and reserved relationships. The workplace relations tend to be paternalistic and informality with superiors was not appreciated. For instance, the Indians never address their superiors as 'boss' or 'sir' which is very much unlike UK where they are addressed with 1st names. Social groupings and interactions among the Team Members in India was a common practice.

Rewards:

Incentive schemes offered to Sierra staff were not offered to the Indian outsourced staff, and it was unclear whether the loyalties of Indian outsourced staff were primarily to Sierra or their home company.

Leadership:

UK generally follows a democratic leadership style and hence the managers from UK and the Kenya manager in India were irritated when they saw a paternalistic approach in India. India being a High Power Distance country the managers usually follow Autocratic leadership style. Wherein, the managers have more power and they do not consult their employees and in decision-making. When a Keniyan and British manager was brought in India, they expected the Indian employees to behave/ act the same way like the UK employees. However, they were quite frustrated when the employees never opened up in giving their opinions and contracting the views and ideas.

Helpful Mechanisms:

Mechanisms have proven to be a useful way to think about the cement that binds an organization together to make it more than a collection of individuals with separate needs. Helpful mechanisms are related to the contents of all the other boxes (Weisbord, 1976). Processes such as planning, control, budgeting, and other information systems that help organisation members to meet organisational objectives (Duncombe, 2010). As the need arises / changes, the mechanisms are to be altered accordingly.

Helpful Mechanisms:

The change was a failure.

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