Globalization: Outsourcing

11872714_1044014648950868_815967598_n

Photo: 9GAG

It is obvious that globalization has impact on our lives in many aspects in terms of culture, politics and economy. Outsourcing is a significant development in the economy globalization process. We take great advantage of it, but is it always beneficial ?

We cannot deny the profit outsourcing brings about. First of all, it enables enterprises to reduce production costs. A number of companies all over the world are empowering third parties in developing countries in order to exploit cheap labor prices. Such areas namely Vietnam, Egypt or India are attracting many investments into manufacturing field. According to The Richest, Indian workers are paid $0.48 USD per hour, which is only 3.2% compared to that in Australia ($15 USD). Therefore, if a corporation is able to find a market where they can transfer their production technology, it can be a great competitive advantage because manufacturing costs the most of the total input. Secondly, outsourcing improves specialization. Enterprises can focus on their core tasks while the remains are taken care of by other companies. For example, although assembled in the US, 30% of the Boeing Aircraft’s parts are manufactured overseas. Certain duties are in charged by various parties, rather than one control the whole process, which guarantees high output quality. Finally, outsourcing contributes to sharing management costs. Companies do not have to concern about managing their human resource because they are able to hire local staff to take care of this. Moreover, native managers can understand the culture and characteristic of the workers as well as the markets, which results in effective administration.

Despite of the advantages mentioned above, outsourcing has several drawbacks. First to be mentioned, although cheap, the sources of labor may lack of necessary abilities. A large percentage of workers are lack of English ability, which affects communication between them and supervisors and directors. Moreover, they are not equipped with enough ‘industry-ready’, ‘industry-relevant’ skills (Kuruvilla and Ranganathan, 2010) in order to perform appropriately in various fields. Therefore, the output may not meet the demand in high-requirement markets. Another disadvantage of outsourcing is that the local industries where it takes place are affected. Local enterprises face the difficulties in human resource recruitment because the labor force is attracted by higher wages from bigger global corporations, which results in decrease in production. Furthermore, the local countries do not benefit from the products which are brought back to where the host companies base. According to Nike Manufacturing Map, 41% of Nike footwear are produced in Vietnam, its biggest manufacturer, but Vietnamese customers still have to pay original price plus importing tax, which is much higher than that in the US, for a pair of Nike shoes. Consequently, outsourcing does not really stimulate economy development, it is mainly on the host countries.

Those arguments above, although brief, have indicated several pros and cons of outsourcing. There are some drawbacks, but everything is a two-slide sword and the strengths may compensate. However, in near future, when barriers are terminated, we can expect of a more comprehensive process of outsourcing which promotes our global economy significantly.

Reference:

  1. Kuruvilla, S and Ranganathan, A. 2010, “Globalisation and outsourcing: confronting new human resource challenges in India’s business process outsourcing industry”, viewed 12th August 2015.
  2. The Richest. 2013, “Countries with the Cheapest Labor”, available at http://www.therichest.com/rich-list/poorest-list/countries-with-the-cheapest-labor/, viewed 11th August 2015.
  3. Nike Manufacturing Map, available at http://manufacturingmap.nikeinc.com/, viewed 13th August 2015.
    .
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s