Where Would Globalization Be Without Outsourcing?

Where would globalization be without outsourcing?

Mojtaba Kheyrian, Middle East Programme [email protected]

Centre for Geopolitics & Security in Realism Studies 20-22 Wenlock Road, London N1 7GU, United Kingdom www.cgsrs.com / [email protected]

2 Where would globalization be without outsourcing?

Introduction

The last two decades have seen tremendous growth in the level of outsourcing and globalization in the world. However, if there was no outsourcing, would globalization be as prevalent as it is today? To answer this question, an understanding of what outsourcing and globalization entails, and their cause is necessary. This essay aims to establish the relationship between outsourcing and globalization. Analysis shows that outsourcing has helped speed up the globalization process. If there was no outsourcing, globalization would still have taken place, but at a slower rate. This essay aims to use the causes of globalization to show how it has resulted due to outsourcing.

Outsourcing

Outsourcing describes the process where right human and capital resources to organizations contract their internal perform them.The last few decades have operations to other external organizations. seen an increase in the volume of In outsourcing, the organization buys or outsourcing because of the many financial pays for the goods and services from the advantages associated with it. Large entity to which they have been contracted organizations outsource different activities (Scholte, 2005). The operations can be such as email services, call centers, billing contracted to local or foreign firms and payroll to other firms that specialize in depending on the goals and needs of the them.Outsourcing reduces operational cost entity. Where functions and activities are helping the entity save on its financial contracted to foreign firms, it is referred to resources. The reduction in cost results off shoring. Instead of the organization because the functions are contracted to performing the particular task, another entities that specialize in them ensuring entity is contracted to perform them on its that they are performed efficiently and behalf. Activities and functions are effectively (Scholte, 2005). The entities are contracted not because the organization able to provide the services cost effectively lacks the ability to perform them, but to helping the outsourcing firm minimize its ensure that they are performed in the most operational costs. The reduction in cost also efficient way possible. They are contracted results because the contracted firms have to the other efficient firms that have the better access to cheap but quality factors of

production and technology. The increase in However, technological advancement has the level of outsourcing has also resulted been the main reason for the rapid increase because outsourcing allows an entity to in the globalization in the last two decades. concentrate on its core business issues. Globalization results because technological Other issues that are significant but not advancement facilitates international travel, material to the achievement of the communications and trade. Developments organizational goals are let out to outsiders. in the internet and telecommunication Outsourcing allows the management to infrastructure are responsible for the rise in allocate its resources to its core business. globalization. They have helped connect However, outsourcing has a number of different economies resulting to disadvantages that often discourage or productivity, competition, labor and prevent firms from engaging in it. For technological mobility, development and instance, it limits the level of contact growth. Globalization has a number of between the company and its clients. This political, economic and social effects. The prevents the company from establishing a effects are both positive and negative. For firm relationship with its clients and instance, globalization results to economic customers. This can result to customer growth and productivity. Politically, it dissatisfaction and the subsequent loss of results to democratic freedom. It also market. It also limits the level of control by results to the exploitation of the least management over the functions and developed and developing world, activities that have been outsourced. repression of human rights and environmental devastation. The progress in transportation and communication technology together with free a market

system has encouraged the mobility and

movement of capital, goods and services.

Globalization

Study shows that the Europe and North Globalization refers to the integration of America aim to sell their products in the political, economic and cultural systems in global market and at the same time take the world resulting to the connection and advantage of low cost labor in developing interdependence of global businesses and economies. Therefore, they promote markets (Gaston & Khalid, 2010). A measures to ease labor and business number of factors have resulted to the environmental standards such as the integration of the global economy.

privatization of state enterprises and the functions by organizations. Outsourcing on reduction of tariffs. Analysis shows that the other hand has promoted the globalization increases competition that globalization and the integration of enhances the efficiency and effectiveness of different national economies resulting to a production agents resulting to an common global economy. However, if increment in employment opportunities for there was no outsourcing, would people in different regions. The World globalization be as prevalent as it is today? Economic Forum and the World Trade To answer this question, an understanding Organization state that measures should be of the main causes of globalization is put in place to encourage globalization necessary. At the onset, it was stated that because of its advantages. They state that the main cause of globalization is globalization results to a rise in technological improvement and international trade and capital flow development. The development has made ensuring global growth and development it easier for the exchange of information (Gaston & Khalid, 2010). However, and communication around the world globalization hampers the productivity of (Steger, 2010). The internet has been the one least and developing economies when they of the biggest causes of globalization. An are integrated with develop economies. individual in one corner of the globe is able to learn about the occurrence of events in another corner of the globe real time, as they happen. The internet through emails, video calls and social networking sites allows people in different regions to

effectively and cheaply communicate with

each other. This has converted the world

into a global village. Outsourcing has

played a key role in the development

experienced in the information technology. The relationship between This is because large information technology companies in the west globalization and outsourcing outsource their research and development The last two decades have seen the growth functions to different developing countries and rise in the level of outsourcing and with innovative minds such as China, India globalization in the globe. The two issues and Brazil (Steger, 2010). Was it not for have led to an increase in each other. outsourcing, this creative minds would Globalization has led to an increase in the never have had the opportunity to level of outsourcing of activities and participate in the innovation and

development process. Therefore, by and underdeveloped economies into the providing an avenue for the development world economy resulting to globalization. and growth in information technology, Outsourcing has facilitated the growth of outsourcing has helped speed up the multinational entities. Outsourcing helps globalization process. If there was no cut down operational costs ensuring that outsourcing, globalization would still have firms maximize their profits that are then taken place, but at a slower rate. invested in foreign subsidiaries and Another cause of globalization is the associates. Outsourcing ensures that the improvement of transport and management and entity resources are only infrastructural facilities in the world. This committed to material issues in the has made the movement of goods, company. The control of strategic business personnel and capital easy (Gaston & units helps develop the firms resulting to Khalid, 2010). The last few decades have globalization. seen the development of infrastructural The basis of outsourcing is the removal and facilities in the developed, developing and reduction of trade and tariff barriers. least developed countries. Entities are now Analysis shows that activities and functions able to move both raw materials and are outsourced to countries that have been finished goods cheaply when required in able to liberate their economies and reduce different regions. Outsourcing helps tariff barriers. In a bid to secure empower the least developed and outsourcing services, governments in developing economies by providing different regions have put up different resources that facilitate the developed of measures to help attract as much foreign infrastructure. Therefore, outsourcing has investment as possible. Other than added momentum to the globalization encouraging outsourcing of activities, the process by aiding in the development in reduction of trade and tariff barriers has transport system in underdeveloped resulted to a rise in international trade, a economies where the activities are key feature in globalization. Therefore, outsourced. outsourcing by helping eradicate Globalization has been as a result of the rise international trade and tariff barriers has of multinational companies operating all enhanced globalization. Globalization also over the globe. Multinational entities results due to firms exploiting or aiming to facilitate the movement of labor, expertise exploit economies of scale that result from and capital from one region to another. increased specialization. Specialization They help in the transfer of technology refers to a situation where tasks necessary from advance economies to developing and to achieve a particular goal are divided into under developing economies (Waters, many different parts or units and allocated 2001). They help integrate the developing to different people or sections (Waters,

2001). Specialization aims to ensure that a knowledge between different parts or given task is performed by the most economies in the world. They have played qualified individual in the organization. a key role in making the world a global Outsourcing is a form of specialization. village. The world has experienced the This is because in outsourcing, certain tasks formation of an international financial are contracted to other firms that have system. Globalization has also resulted greater efficiency and capacity in their from the growth of a global trade cycle. execution than the organization. Since economic growth is universal in Specialization ensures that functions are nature, countries are now more outsourced to different firms both local and interconnected. For instance, the occurrence foreign. Outsourcing therefore facilitates of recession in one country results to the integration of firms in different recession in another country. At the economies resulting to globalization. moment, China and its city states such as Although a number of causes show that Hong Kong and Shanghais, and India outsourcing has helped in the growth of might experience a recession because of the globalization, a set of globalization causes occurrences in Europe. This is because their show that it has not. For instance, economies are all interconnected. A globalization has resulted from the growth difficulty in one economy affects all its of international media. Such include CNN, trading partners. BBC and The Aljazeera media stations (Steger, 2010). These facilitate the exchange and transfer of ideas, information and

REFERENCES

Burkholder, N. C. (2006) Outsourcing: The Definitive View, Applications, and Implications. New York, NY: John Wiley & Sons Gaston, N& Khalid, A. (2010). Globalization and Economic Integration: Winners and Losers in the Asia-Pacific New York, NY: Edward Elgar Publishing. Scholte, J. A. (2005). Globalization: A Critical Introduction. New York, NY: Palgrave Macmillan Steger, M. B. (2010). Globalization New York, NY: Sterling Publishing Company, Inc., 2010

Waters, M. (2001). Globalization. New York, NY: Routledge