Advantages And Disadvantages Of Offshore Outsourcing Economics Essay

The advantages and disadvantages of offshore outsourcing to the western states ( and work force ) and emerging-market states ( and work force ) is discussed based on the context of Western states outsourcing a portion of their concern procedure to sellers chiefly from developing states like China, India, Indonesia, Philippines etc.


Offshore outsourcing benefits the outsourcer to hold an border over the other rivals in footings of cost decrease, increased productiveness and net incomes by pass oning some of its maps to other states ‘ 3rd portion contractors and concentrating chiefly on their nucleus concern ( Bahrami 2009 ) .

The exploiting of geographical location advantages such as low cost ( lower monetary values for input ) , handiness and quality of resources, larger pool of skilled labors, transit costs, trade limitations creates a depositories of valuable rents therefore heightening productiveness ( Bahrami 2009 ; Bunyaratavej 2008 ; Gereffi 2005 ; Prola 2004 ) . Wells Fargo VISA, a US based company uses contact Centres of Mahindra-Satyam, India to do selling calls to their possible clients in Seattle due to handiness of cheap labor, copiousness of educated English-speaking work force and authorities inducements. Philips, Dell, Motorola are purchasing digital device designs wholly from Asiatic developers. Both these illustrations are in consistence with the RBV ( Resource based position ) which suggests that the competitory border for the house is gained through maximization of the long-run net incomes by developing and working resources ( Javalgi 2009 ) .

The flexible labor Torahs and clip zone difference in developing states helps to rush up the concern procedure by employees working round the clock in assorted displacements. The U.S companies like Dell, American Express and Eastman Kodak offer 24/7 client attention services by outsourcing such services to developing states like India.

Harmonizing to Edwards ( 1998 ) , cited in Bahrami ( 2009 ) , by offloading a portion of the insistent concern procedures to the emerging market work force, the skilled labor in the western labour pool gets an chance to be advanced and hone managerial techniques which helps in productive use of resources therefore taking to the profitableness of the company.

The work force in western states who would hold lost their occupation to foreign sellers are trained and reallocated to an advanced degree of working which in bend helps in developing new accomplishments and techniques lending to an improved set of domestic resources ( Kedia and Mukherjee 2009 ) .


There is a misconception that offshore outsourcing to low pay states cut down cost because of inexpensive labor. Harmonizing to UNCTAD ( 2005 ) , in some instances sing concealed costs like revenue enhancements, responsibilities, direction attending, communicating and co-ordination disbursals etc, the venture turns out to be expensive.

The geographical distance and cultural differences act as a barrier for clients to supervise the quality of providers ‘ work. This can be resolved to an extent if a director from the western company keeps sing the seller location in individual ( Khan et al. 2003 ; UNCTAD 2005 ) .

It has been recognised by Javalgi ( 2009 ) that the absence of planetary Torahs or enforcement about rational belongings rights and privateness Torahs acts as a major menace to the outsourcer companies. The confidential information of outsourcers are at hazard in developing states where these Torahs are non purely enforced. When Taiwan ‘s BenQ was given a contract by Motorola for planing and fabricating nomadic phones, Ben Q violated the contract and created its ain trade name and Market in China for selling nomadic phones ( Bahrami 2009 ) . As a step to avoid such deceitful instances Khan ( 2003 ) suggests joint venture between the outsourcer and overseas provider as an option which binds the provider to manage their client ‘s informations with extreme attention as the provider will besides be a spouse in this instance.

The loss of western state occupations to foreign suppliers might take to negative promotion of the company. Examples about the accusal faced by the US companies like Dell, IBM, City Group for exporting occupations overseas taking to occupation losingss in the USA ( Hill 2007, cited in Bahrami 2005 ) demonstrates this issue.

The unethical patterns followed by providers will hold an impact on the repute of western companies. Nike and Adidas being criticized by the media because of their Indonesia ‘s provider sweatshops ‘ hapless workplace criterions attracted negative promotion and therefore reduced gross revenues. To avoid such issues, companies are now taking precautional steps like enterprises to better bing hapless conditions and besides subscribing contract merely with ethical providers.

For companies involved in outsourcing their technology and design engineerings overseas, maintaining abreast with current technological developments will be really hard since the company will non be straight involved in the procedure which might take to decreasing value of the house ‘s competitory advantage, degree of expertness and competences ( Kotabe1998, cited in Kotabe and Mudambi 2009 ) .For illustration, General Electric ‘s ( US based company ) heavy dependence on Samsung ( South Korean Company ) for fabricating its Microwaves finally led to the success of Samsung in the same field ( Javalgi 2009 ) .

Western companies ‘ direction might profit in footings of cost decrease by sub-contracting its work to an emerging market state house, on the impudent side it puts a enormous sum of force per unit area on their ain work force due to replacement with the every bit skilled lower pay abroad employees and besides builds an intense competition as they will be viing with the planetary work force ( Shao and David 2007 ) .

The labour force sustainability in any economic system is inter-dependent. If engineers for IT activities are outsourced, even the Human resource forces and other support occupations become redundant in the place state ( Shao and David 2007 ) . During 2003 “ … 400,000 US occupations have already goneA offshore ” ( Ford 2003 ) .This occupation displacement impacts all sectors of western work force. Besides the older western workers neglecting to get new accomplishments or neglecting to seek for surrogate occupations would go forth the work force and go a fiscal load to the society ( Bahrami 2009 ) .


New concern chances available to emerging market companies puts them in spotlight and AIDSs in planetary acknowledgment by being a portion of “ planetary trade good concatenation ” which would pull more clients and hence enhance its repute. For illustration, Tata consultancy Services, Infosys and Wipro are the top three India based information service companies which have carved their niche in the planetary market chiefly by functioning US clients.

The services offered by emerging market companies are expected to be of high criterions to fit demands of western companies and to lasso in new clients. Hence quality and capableness criterions of the labour pool ( i.e. linguistic communication, computing machine accomplishments etc. ) will be improved non merely to fit the demands but besides to pull Multi-national companies from other states.

The stimulation of growing and starting of local sellers due to new company constitutions would increase the substructure, handiness of human resource occupations and besides the occupation chances and rewards therefore bettering criterions of life in developing states ( Farrel et al. 2006 ) .


Emerging market companies to a great extent trusting on offshore clients for their endurance will hold its profitableness entwined with the western economic and political stableness and hence will be affected when there is fluctuation in foreign currency rates or any political instability ( Birou and Fawcett 1993 ; Huchzermeier and Cohen 1996 ; Cho and Kang 2001 ; Kouvelis 1999 ; Chopra and Sodhi 2004, cited in Canbolat et Al. 2008 ) .

For illustration, ‘credit-crunch ‘ during 2008 had an inauspicious consequence on all the globally dispersed companies dependent on the US market.

The strong market participants might overexploit their offshore providers through their high bargaining power. Wal-Mart, the US retail merchant, about subcontracts 6000 planetary providers and 80 % are from China which imposes strong purchaser power on its China providers by puting monetary value for some of the merchandises they buy ( PBS-Frontline- Is_Walmart_Good_for_America.mpg ) .

The cultural and lingual barriers might present as a job to pass on and organize efficaciously for both the western companies and the underdeveloped universe companies.

The pick of the work force will be lured and employed to work for the benefit of the companies of developing states which would take to “ enclaved development ” and international ‘brain drain ‘ ( Kobrin 1999 ) therefore widening the economic spread in the society.

The offshore outsourcing concern is a dynamic and extremely competitory scheme. India, which one time had the highest figure of contact Centre occupations, is late being out paced by Philippines. “ The Philippines now leads India in call-centre occupations, using 350,000 compared with India ‘s 330,000… ” ( Yun and Chu 2011 ) .Replacement of the low pay outsourced sellers due to mechanization besides poses as a menace to emerging market work force ( UNCTAD 2005 ) .

The consequence of ‘polarization ‘ , ‘dualism ‘ and ‘geographical isolation ‘ would take to unequal distribution of wealth amongst the developing county ‘s work force ( Kobrin 1999 ) . Like anti-globalists argue, offshore outsourcing ( subscriber to the procedure of globalisation ) benefits merely to those developing states with a comparative advantage to boom economically and the others remain ignored. This is the same with regard to the work force in fewer metropoliss of a state basking the spotlight and the others being left out. Bangalore and other metropolitan metropoliss in instance of India and Shangai in China which are the hotbed for offshore outsourcers enjoy top category services and comfortss while the bulk of the rural work force of India and China still faces issues like unemployment and poorness.


Offshore outsourcing can be a win-win state of affairs for both western and emerging market states if a balance between capitalising the benefits and following steps to antagonize the drawback is achieved. The “ international divisions of labor on a planetary graduated table ” which is the consequence of the capitalist-world system ( Gereffi 2009 ) can take to what Amable ( 2000, p.656 ) , cited in ( Gereffi 2009 ) describes as “ institutional complementarily i.e. Multilateral support mechanism between institutional agreements ” – the being of western companies easing the being of the sellers in developing states and frailty versa.

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