Technological Development And Its Globalisation Effect Commerce Essay

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Globalization has led to technological development and slow but steady liberalization of trade which has changed the face of many businesses. What started with search for low cost economies to get cost advantage has now changed, as companies are looking for improvements in quality. The world has integrated into a global village with easy access to any form of information, global access of products, resourses, financials and services.[1]

"Outsourcing is concerned with the transfer of production of goods and services that have been carried out internally to an external provider" (McIvor, 2003)[2]

"Offshoring is defined as the process of moving processes overseas, maintaining in-house control. The rush offshore has encompassed manufacturing and service delivery, but also embraces functions such as research and development (R&D)."(Fojt, 2006)[1]

Offshore outsourcing means that an organization hires another firm in another country to perform an activity or part of process for easy access to resources, to gain competitive advantage, developing countries are attracting companies from developed nations as they provide quality and cheap services and manpower, infrastructure facilities and round the clock operations due to time zone difference. According to Foster and Foster (2006), the major Offshore Outsourcing destinations are India, China, Malaysia, Singapore, South Africa, Poland, Romania, Israel, and Hungary. Toyota ships automobile components from Japan to USA. Financial players such as Citibank, Lehman Brothers, JP Morgan, Goldman Sachs have outsourced overseas their information and research services . Libraries offshore outsource some basic functions secondary research information, press cutting, editing etc. [3]

However, there are risks involved with it. Taking decision which involves outsourcing to the right firm and right country, legal issues, technology transfer, privacy and security, unable to take advantage of technological advancements as the firm is bound to work as per the agreement, loss of skilled employees, various hidden costs like searching for vendor and site evaluation.

The types of Offshore Outsourcing are:

Advantages and Disadvantages of Offshore Outsourcing:

Western Companies:

Prahalad and Hamel(1960) cited in McIvor (2003) that in order to gain competitive advantage and global opportunities, the company needs to strengthen and combine diverse production skills, integrate technology and come up with innovation across country borders. Western companies take advantage of round the clock working due to time zone differences to service the computers when they are not used. [2]

According to TCS.com, British Airways is a UK based airline company which is the world's second largest international airline serving 28 million customers. BA has offshore outsourced to TCS which is an Indian based outsourcing company, which has helped BA to collect and organize customer information by creating a data collection system which collects, validates and processes it. This way, BA has increased its in-house customer base by 5 million since they began to work.[4]

Other examples include Microsoft, General Electric (GE), Intel, and American Express.

Moving operations offshore creates unemployment at Home country. As cited in NDTV.com, as the unemployment rate became double digit and also looking at the current economic condition of USA, the state of Ohio imposed a ban on offshore outsourcing at bilateral Trade Policy Forum meeting in Washington.[5]

Due to easy access to information related to goods available and liberalization, technology can be copied and goods can be easily imitated which leads to production of lower quality products. According to BBC News, Counterfeited products range from clothing, accessories, software, drugs and electronics etc. Africa is dumping ground for counterfeited goods and many companies have lost market share to counterfeited goods. [6]

Legal issues also cause hindrance to the smooth running of business. For Example, Google started its operations in China in 2006. China being a Communist country has no freedom of speech. Google had to agree to certain restrictions before entering the market like it would not show any search results disapproved or censored by the Chinese Government. [7]

Source: www.abacusdatasys.com

Emerging Market Companies:

High skills, business environment, laws, tax incentives and economic condition are major attractions for any company to outsource its operations in another country. According to NDTV Profit, India, China and Malaysia occupy first three places in AT Kearney's 2011 Global Services Location Index for being favorite destinations for offshore outsourcing. [8]

Haier, HTC, Hyundai Motors, Infosys, Lenovo and Samsung are some of the emerging market companies.

According to Lenovo.com, Lenovo is a China based company that makes laptops and PCs for its customers. Lenovo goes for Worldsourcing rather than just outsourcing . Worldsourcing means resources, innovation, opportunities can be found anywhere and everywhere in the world. Lenovo's ThinkPad customer research takes place in USA, hardware designs from Japan and ThinkPad products are built and tested in China. [9]

Offshore Outsourcing creates jobs for workforce which are paid high income, increases GDP and FDI inflow which leads to economic development of host country. According to BBC News, Bangalore known as Silicon Valley is an IT hub and high tech capital of India. Many US based companies have moved their operations here. 1.4 million people applied to Infosys which at Bangalore in 2006. [10]

According to Fojt (2006), the emerging market companies lack detail knowledge of product and market knowledge because of which companies deal with customer dissatisfaction which force western companies to perform activities at their home country. Companies need something more than just saving money. They need innovation, out of box thinking to keep pace with global changes and advancements in technologies so instead of outsourcing they go for Multi sourcing.[1]

Many companies in emerging markets can be forced to close down their operations due to increase in competition. Patent protection is also an issue. According to NDTV, India toughened its Patent laws in drug production 2005 even then illegal drug production still prevails in India and it was found out that 3.6% of drugs had no active ingredients.[11]

Source: blog.outsourcing-partners.com

Workforce of Western Countries:

Changes due to globalization have led to development of new division of labour where jobs have become highly complex and employees are relocated globally which helps them in interacting with diverse workforce and building knowledge. Labour market in developed countries have become flexible with round the clock operation and there has been increase in part time work most of which are occupied by women. English being the first language in western countries, the employees have less linguistic problems.

In industrialized countries, changes in technology and geographical shifts in location are arousing fears not only among less skilled workforce but for others also. Due to offshore outsourcing, many skilled workforces feel uncomfortable and seek job elsewhere. Language can also cause a barrier where workforce from diverse cultures works together.

As cited in NDTV.com, USA formed new tax laws which affected companies in countries where USA out sources like India, China and Philippines. USA gave tax incentive to those companies which invested in research and development at home which would foster innovation and create job prospects for people.[5]

Shift in power base increases communication gap between employees so managers should go for MBWA which is Management by walk about approach by which managers can keep an eye on its employees and can casually interact with them.

Workforce of Emerging Market Countries:

Working conditions, culture and relationships between workforce change when another company comes into contact. Offshore outsourcing creates jobs for workforce and they are paid high salaries, they get global exposure which helps in building their knowledge base, there can be shift in power base and priorities. For example, According to Dash K.C.(2010) et al. GE's relationship with India can be traced back to 1902 when it installed its first hydroelectric plant. GE has 22,000 employees in BPO, R& D, software development. GE has a research campus in Bangalore to train engineers and build competences. Indian scientists virtually monitor operations in Spain and provide them solutions. [12]

According to PCWorld, employees in emerging market companies are paid higher salaries, nearly double of average wages in other sectors of the Indian economy. In Philippines, employees earn 53% more than employees in other industries. [13]

Drug making companies like Pfizer, GlaxoSmithKline, Daiichi Sankyo find a lot of potential and talent in India in drug discovery and development which is due to its strong educational system. [11]

Economic condition of developing countries is improving but the working conditions are still very stressful. The call centers catering to clients in USA operate at night. Wages are better but are less than what their counterparts are paid in developed countries. According to the lecture (Murphy, J Lecture 18th January 2011) Nike pays more to Tiger woods to promote it than most of the workforce very less wages to its employees in Indonesia.

Metters (2008) mentioned in K.C.(2010) et al that cultural differences caused problems in operations for major US airline and hence loss in revenues which offshore outsourced to 2 Carribbean nations.[12]

Many companies are blamed for exploiting labour as they provide unhealthy working conditions and long working hours. According to Needle(2010), McDonald has been blamed for its attitude towards its employees. [14]. According to Guardian news, Tesco uses child labour for producing in a factory in Bangladesh. A video was shown by Channel 4 news in which a underage boy was shown.[15]

Source: www. impacttlimited.com

CONCLUSION:

Offshore Outsourcing is likely to increase in the near future however; companies need to analyze both advantages and risks involved before investing. Offshore outsourcing reaps benefits for both Western as well as emerging market companies however companies should take into consideration the impact on workforce as well. Cultural differences occur and organizations should be able to handle it by using informal talks to bridge the gap between employees, provide better working conditions and pay scales.

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