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Question 16

Global outsourcing has been claimed as one of the major drivers for the globalization of
production. Discuss how global outsourcing benefits the firms and why firms choose to
engage in outsourcing.

Outsourcing is a generic term used when companies contract is not critical, but important,
process and services to third-party vendors of business, either within or outside the coastal.
(Greene, January 2006) In my own understanding, outsourcing is one of the medium that used
by companies to reduce their costs because their didn`t have expertise to handle that problem.
So, they hire third party who has an expertise that job scope to solve the problem. Nowadays,
companies use outsourcing to reduce their cost. They did not have to hire a new worker to do
their job.

(Jan Mohlmann & Hendry L.F. de Groot, 2 September 2010)

Table above show the most popular destination countries for international outsourcing. Base on
the table, we can see that Germany and India get the highest country that used outsourced from
support activities of country. For outsourced core activities to countries, China and Czech
Republic get highest. Even though outsourcing is a trend, but it gives some benefit to the firm
and trade. There are:


Earn profit

The main objective of the use of offshore companies is to increase profits. However, for offshore
projects provide many costs that will not happen when the project is located in the same
country. There is also a reason for the extra cost and the geographical differences. Desire to
achieve higher profits the company has reduced the cost of their production overweight for an
additional cost. In this paragraph outsourcing from the perspective outside the Netherlands and
the United States in terms of demand, and India and China on the supply side will be discussed.

At this time the United States and India are the biggest players in the outsourcing Markey,
United States in terms of demand and supply in India. It is projected that American companies
will pay more than $ 17600000000 for offshore outsourcing services in 2005. India is forecast to
export more than $ 23 billion in the same year (Principe, 2001). If India will maintain an annual
increase of 62.3% it has been shown in the past 5 years it will export $ 50 billion in 2008.

Netherlands are not as familiar with offshore outsourcing as the United States. They are in the
same position as most countries in Western Europe. If an offshore IT services amounted to no
more than 1, 3% of IT-services market (calculated), except for the UK which is closer to meet
American standards.

The main competitors in the market manufacturing offshore China, but not in the same position
in the IT-services market. India provides an income from software and IT-enabled services
(Brocklehurst, 2003). This result is only $ 720 million in 2001. But their position in the market is
increasing rapidly (De Ramos, 2003). And it is likely that it reached the same level into India in
the next three to five years. Their main advantage is that labor costs are much lower than in
India. This gap is likely to increase as the cost of labor in India is increasing rapidly. (What is the
effect of outsourcing to countries like India with lower wages from the perspective of the
Netherlands, Hong Kong and China?)



Outsourcing in India has experienced explosive growth with companies abroad have everything
from their customer support work for tele- radiology done here. It is one of the most discussed
topics at this time. The effect can be felt in different areas and spread in several countries.

The impact of outsourcing on the economy largely discussed. However, there are some people
who are really interested in or considering outsourcing impact on society. If we talk about Indian
society, then of course one can notice and see the changes brought about by outsourcing
services and institutions.

As the second most populated country in the world, human resources are a boon by itself, in
India. Just like the famous Gulf natural resources of crude oil, India is proud of the abundance
and availability of qualified and skilled professionals; which happens to be the key to success in
a number of areas including Information Technology. (Haque, 2007)



Outsourcing industry has improved Indian economy primarily by employing a large number of
people and building and maintenance of infrastructure. It is because of the outsourced projects
that people at large in India get opportunities to know and work in multi-national corporations.
BPO companies also provide ample opportunities for women and as such help them in their
liberation and liberalization. There are a good percentage of women workforce employed in the
outsourcing companies in the cities. The role of women has consistently changed and they can
better take care of their finances and their career.
Meanwhile we are also losing on several cultural and traditional benefits. The outsourcing
companies and projects emphasize on the foreign cultural values, the place from which the
original project has been outsourced. The holidays, the work culture, day-to-day dealings and
more tend to lay greater importance on the social norms that are not part of our system, our
community. We are slowly adapting to the change, accepting the dominant culture and yielding
to such values, which we have neither assigned, nor have they come from our own social
Nevertheless, people should appreciate the fact that more people are employed and loads of
opportunities to learn new and exciting things working in BPO sector are available. If we resist
the intrusion of the values and keep our professional lives at distance from our personal lives, it
will serve better and help us in the long run. (Haque, 2007)



Although the IT industry in India has existed since the early 1980s, it was the early '90s which
saw the emergence of outsourcing. First, some global airlines began outsourcing their back
office work to Indiaand then IT companies followed. Some of the earliest players in the Indian
outsourcing market were Texas Instruments, American Express, Swissair, British Airways and
GE, who started captive units in India. Over the years, the industry has built robust processes to
offer world class IT software and technology-related services.

India offers a unique combination of attributes that have established it as the preferred
destination for IT-BPO. Advances in technology and communication have allowed transnational
companies to rapidly globalize at a very low cost. The cost of managing workers in a distant
location had fallen drastically, and the need to outsource became stronger. Significantly, India
also began efforts to open up its economy to the world. Since the onset of globalization in the
early 1990s, successive governments have pursued programs of economic reform committed to
liberalization and privatization. The government started easing restrictions and liberalizing the
economy, which has helped the country see rapid economic growth.

Developments in telephony, fiber optics and satellite communications made Internet-based

communication and transfer of data possible, paving the path for outsourcing to India. The
telecom industry in India used to be a government-controlled monopoly and the market was
small. By 1999, the government introduced policies which played a key role in reshaping the
structure and size of the telecom Industry, allowing commercial entities to participate in almost
every industry segment. The new telecom policy brought in further changes with the introduction
of IP telephony and ended the state monopoly on international calling facilities. The
government's liberalized investment policies have resulted in several foreign companies
entering Indian markets, which has been a major contributor to the growth of the Indian

In addition to the central government's intervention, state governments are also competing with
each other to offer more favorable business environments in order to attract IT/ITES companies
to set up development units in their states. This kind of competition is helping the industry grow
at an astronomical rate. (The Outsourcing History of India, 2002 - 2014)

Economically, Japan is one of the most developed countries in the world, and its brands are
famous throughout the world. But globalization has increased competition, forcing Japanese
companies to change their modus operandi. For the Chief Technical Officer, this means
embracing a new business model that will not only reduce operating costs but also facilitate
product innovation and reduce time to market. For IO, quick implementation and management
of global IT agenda.

For nearly two decades, HCL has helped Japanese companies modernize their legacy systems,
improve their business processes, and transform their businesses to compete in the global
market. Today HCL is one of India's largest technology company operating in Japan and serves
some of the most respected in the country, including NEC, Konica Minolta, Kyocera Mita,
Fujitsu, Fuji Xerox, and Cisco Japan, among others. (Ltd, 2014)



The driver for this trend is awesome. As the service sector has grown to embrace 80 percent of
all U.S. jobs, specialized service firms have become relatively very large and sophisticated with
the scale and expertise of the staff and the service has in integrated companies - whether in
services or manufacturing.

The experts can develop a greater depth of knowledge , invest more in software and training
systems , be more efficient , and thus offer higher wages and attract more people can be trained
from individual staff groups all but a few companies integrated . Given this greater depth
knowledge and greater customer interaction, they also can be more innovative than their
internal counterparts as possible. Companies as diverse as British Petroleum , DuPont , MCI ,
Dell Computer, Beaumont Hospital , Ford , State Street Bank , Ameritek , Nike , and Argyle
Diamonds dramatic demonstration of the potential . Properly developed, strategic outsourcing
significantly reduces the cost, risk, and fixed investment while greatly expanding flexibility,
innovation, and opportunity to create higher value added and shareholder returns. (J.B. Quinn,
1990) Dell Computer provides a classic example of how strategic outsourcing could
revolutionize industry.

Dell has grown at a compounded rate of 89 percent for several years, reaching $ 700,000 sales
per employee in a fast-paced, competitive business. Dell to focus its own resources on the
exceptional knowledge and customer support systems downstream and shared information
systems that deepen relationships with upstream suppliers. External suppliers to provide almost
all Dell component and design innovations, software, and (not installation) for the production of
computers. It invests only where it sees an opportunity to add value and avoid large inventory,
facilities, and development of risk assumed by a more integrated competitors or unique supplies
specialist. (Quinn, 1999)

As a conclusion, outsourcing gives some effect of boom to country and company. If they
outsource others, they do not have an expertise. Even though they did not have expertise, they
can cut their cost to hire new worker but they have to take a risk if anything happen to their
country or company.


Greene, W. (January 2006). Growth in Services Outsourcing to India:

Propellant or. Office of Economics Working Paper , 2.
Haque, J. (2007, February 13). Impact of outsourcing on Indian society.
Retrieved April 30, 2014, from merinews:
J.B. Quinn, T. D. (1990). Technology in Services: Rethinking Strategic Focus.
loan Management Review, volume 31 , pp. 7987.
Jan Mohlmann, & Hendry L.F. de Groot. (2 September 2010). The Effects of
Outsourcing on Firm Productivity Evidence from Microdata in the Netherlands.
CPB Netherlands Bureau for Economic , 13.
Ltd, H. J. (2014). HCL IN JAPAN. Retrieved from GEO Presence:
Quinn, J. B. (1999, July 9). Strategic Outsourcing: Leveraging Knowledge
Capabilities. Outsourcing Knowledge-Based Services .
The Outsourcing History of India. (2002 - 2014). Retrieved April 30, 2014,
from Outsource to India:
What is the effect of outsourcing to countries like India with lower wages
from the perspective of the Netherlands, Hong Kong and China? (n.d.).
Retrieved April 26, 2014, from bokhnet: