Outsourcing is a big global business

[varuna15]

Global population has nearly quadrupled from 1.5 billion to 6 billion in a comparatively a shorter period of 100 years. The needs of people are varied and ever increasing. To cater to these varied needs of global population efficiently and competitively, giant retailers and global service providers constantly search for cost effective products and quality service providers within the country otherwise overseas.

Although the major driving factor for outsourcing for developed countries was low cost skilled labour to stay competitive in the global business arena, it is steadily growing big because of better air transportation, improved logistics for shipping goods by sea, reduced cost of international phone calls, the creation of co-operative networks with overseas businesses, increased availability of varied products and manufacturing expertise abroad, and the development of faxes and overnight delivery services which made it easier to communicate and do business with foreign contractors and service providers. Thus outsourcing today has become a business imperative and unstoppable global trend.

VARUNA

[allwinners]

Global population has nearly quadrupled from 1.5 billion to 6 billion in a comparatively a shorter period of 100 years. The needs of people are varied and ever increasing. To cater to these varied needs of global population efficiently and competitively, giant retailers and global service providers constantly search for cost effective products and quality service providers within the country otherwise overseas.

Although the major driving factor for outsourcing for developed countries was low cost skilled labour to stay competitive in the global business arena, it is steadily growing big because of better air transportation, improved logistics for shipping goods by sea, reduced cost of international phone calls, the creation of co-operative networks with overseas businesses, increased availability of varied products and manufacturing expertise abroad, and the development of faxes and overnight delivery services which made it easier to communicate and do business with foreign contractors and service providers. Thus outsourcing today has become a business imperative and unstoppable global trend.

VARUNA

This being said, it is the explosion of the global economy (including outsourcing) that is responsible for the mess we are all in at the moment, and for the demise of a lot of local economies. There was a time when "Made In China" was NOT the catch-phrase on almost every article money can buy. Local enomy has suffered, and a recent example of this was when a documentary here in New Zealand, showed PROOF that it was cheaper to buy Australian brand groceries in New Zealand, than the same groceries in Australia.

In fact imagine this.... A person flies to this country for the cost of around $200. He spends $200 on groceries, and takes those groceries back to Australia, where he sells them at retail prices for $300! He has paid for half of his airline ticket with the difference in the cost of his food, and the food came from the country he left.

Absolutely astounding!

[Fergal]

I read an article just yesterday, about how many countries are becoming more protectionist by increasing import taxes and encouraging citizens to buy locally. For example Korea planned to bring in a scheme that would require all government workers and civil servants to only wear shoes that were made locally.

I wonder what impact this will have on globalization?

[varuna15]

The global recession has made every one to thing in different ways. All the governments are now looking deep into their own land for providing opportunities and to sustain substantial growth and provide employment to youth.

[jwhitakr]

This being said, it is the explosion of the global economy (including outsourcing) that is responsible for the mess we are all in at the moment, and for the demise of a lot of local economies. There was a time when "Made In China" was NOT the catch-phrase on almost every article money can buy. Local enomy has suffered, and a recent example of this was when a documentary here in New Zealand, showed PROOF that it was cheaper to buy Australian brand groceries in New Zealand, than the same groceries in Australia.

In fact imagine this.... A person flies to this country for the cost of around $200. He spends $200 on groceries, and takes those groceries back to Australia, where he sells them at retail prices for $300! He has paid for half of his airline ticket with the difference in the cost of his food, and the food came from the country he left.

Absolutely astounding!

Outsourcing is here to stay, no doubt about that. The cost advantages simply cannot be ignored by any global business. Any business which operates around the world will struggle to survive if they continue to ignore the benefits of outsourcing.

Having said that, there are the negative impacts to local economies that are an unfortunate by-product of outsourcing. There is really no easy way around this problem, as it is inevitable that some people are going to get "thrown under the bus" when cheaper outsource labor becomes available in other countries.

To those people, you have to have some support mechanisms in place to keep the <i>national</i> economy from suffering. Training, education and job-placement services are needed in order to help those people find new jobs so that they will continue to contribute to the <i>national</i> economy.

[jwhitakr]

I read an article just yesterday, about how many countries are becoming more protectionist by increasing import taxes and encouraging citizens to buy locally. For example Korea planned to bring in a scheme that would require all government workers and civil servants to only wear shoes that were made locally.

I wonder what impact this will have on globalization?

Protectionism is a 19th century practice used by governments who have no understanding of the global economy, and no understanding of the huge benefits offered by free trade.

I cringe whenever I read of senators in the U.S. trying to add clauses to various bills to force U.S. made products / services to be used for govern programs. They are trying to force supporting U.S. companies at the expense of taxpayers. In the long run this only leads to higher costs for taxpayers and negative growth for the overall national economy.

[Fergal]

The frightening thing about outsourcing for many developed economies is that it is moving up the value chain. For example Ireland started losing manufacturing jobs some years ago to lower cost economies. In order to combat this the Irish government focused on developing higher value jobs in areas such as finance and IT. Supports were put in place to attract these jobs to Ireland and to financially reward companies who created these jobs here.

In recent times Ireland has started losing these higher value jobs to countries like Poland and China. There have been high profile announcements of multi national coroporations shutting down parts of their operations in Ireland and moving those jobs to lower cost economies.

Examples have included Dell, Phillips and Sony Ericsson. Phillips moved it's financial operations to Poland with the loss of financial jobs and Sony Ericsson are moving their R&D section to China with the loss of high value jobs in the area of IT research and development. Most of the employees who lost their jobs in Ireland were graduates and highly skilled in their field.

Unemployment has been increasing rapidly in many developed economies in recent times and it is frightening to think that employees in well paid jobs, many of them with big mortgages, are now competing with employees in the far side of the world, who will work for a fraction of the salary. The world is flat (http://en.wikipedia.org/wiki/The_world_is_flat).

[simplyjo]

Outsourcing has become even more popular with the recession hitting in. reasons being -

1. companies are outsourcing now so employees do not leave (as they won't get jobs in the market)
2. to cut costs
3. to increase quality

[Nazreen]

The frightening thing about outsourcing for many developed economies is that it is moving up the value chain. For example Ireland started losing manufacturing jobs some years ago to lower cost economies. In order to combat this the Irish government focused on developing higher value jobs in areas such as finance and IT. Supports were put in place to attract these jobs to Ireland and to financially reward companies who created these jobs here.

It's the same here in Singapore Fergal. A lot of IT people are losing their jobs because many companies are now outsourcing to other countries. Of course we also have outsourcing companies here but how can they compete with others when the cost of living here is way more expensive than other countries like China, India and Philippines? When outsourcing companies here bid for projects, they won't be able to compete when it comes to price.

[jwhitakr]

The frightening thing about outsourcing for many developed economies is that it is moving up the value chain. For example Ireland started losing manufacturing jobs some years ago to lower cost economies. In order to combat this the Irish government focused on developing higher value jobs in areas such as finance and IT. Supports were put in place to attract these jobs to Ireland and to financially reward companies who created these jobs here.

In recent times Ireland has started losing these higher value jobs to countries like Poland and China. There have been high profile announcements of multi national coroporations shutting down parts of their operations in Ireland and moving those jobs to lower cost economies.

Examples have included Dell, Phillips and Sony Ericsson. Phillips moved it's financial operations to Poland with the loss of financial jobs and Sony Ericsson are moving their R&D section to China with the loss of high value jobs in the area of IT research and development. Most of the employees who lost their jobs in Ireland were graduates and highly skilled in their field.

Unemployment has been increasing rapidly in many developed economies in recent times and it is frightening to think that employees in well paid jobs, many of them with big mortgages, are now competing with employees in the far side of the world, who will work for a fraction of the salary. The world is flat (http://en.wikipedia.org/wiki/The_world_is_flat).

Excellent points, Fergal. I would agree that for many developed economies, outsourcing is moving up the value chain. I see this every day in my day-to-day work in IT and I have seen this trend continue throughout the last 7-8 years.

However, I would argue that this is not necessary a bad thing. I think this is a good example where more competition forces people to increase the value of the services they provide to their employers. So, as lower cost countries enter the marketplace it will force workers to increase their skills in order to be competitive (since they can not compete in the cost aspect).

Again, I recognize the negative impact to "local economies" and that it really hurts whenever anyone loses their job. I don't want to downplay or ignore that point. My point is simply that if you no longer compete on cost, you have to improve your skills in order to attract employers.

[Fergal]

Sounds very similar to Ireland Nazreen, worrying times for many.


...However, I would argue that this is not necessary a bad thing. I think this is a good example where more competition forces people to increase the value of the services they provide to their employers. So, as lower cost countries enter the marketplace it will force workers to increase their skills in order to be competitive (since they can not compete in the cost aspect)...

Very true, like all challenges there is an opportunity there if you look hard enough. The Irish government has been talking a lot recently about providing stimulus to develop a smart economy with innovative businesses. Unfortuantely the feeling and reality on the ground is that they are doing very little. State agencies that support these types of businesses at the start up phase have less funding than they had before. Hence, start ups have less funding available to them.

A very successful Irish technology entrepreneur recently wrote an article saying that Ireland could create a technology hub on par with Silicon Valley with an investment of €50 Million (not a huge amount of money in terms of government spending). He claimed that what the government needed to do was invest €1 Million each in 50 start up technology companies. An interesting theory but unfortuntaely it is unlikely to happen in the current climate.

Even worse, the government has made cut backs in education as a result of the recession. One of Ireland's greatest strengths when it came to attracting multi-national companies here was the availability of a highly educated workforce. Hopefully government policy won't lose sight of this and will begin reinvesting in education and our workforce of the future before it is too late.

[Ronald02]

Hi,

By outsourcing a project , one can get specialist and skillful services. Apart from other benefits this also holds great importance. The project that one wish to outsource may perhaps not be your focused area of specialization but you can always locate an outsourcing partner on the net who is dedicated in that particular business process.

One more benefit of outsourcing is efficiency. Your prominent and foremost back office, routine trade function will be executed professionally by your outsourcing associate, while your core functions can be professionally carried out in-house. Thereby you can attain overall effectiveness and see an enhancement in your earnings.

[Fergal]

Welcome to Business Advice Forum Ronald02 and thanks for posting.

That is indeed one of the major benefits of outsourcing. If you can find someone good, who specialises in a particular activity they will probably do it better and quicker than you can do it yourself. This frees up your time to concentrate on what you are really good at and enjoy doing most.