Offshore Outsourcing

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Using examples, discuss the potential advantages and disadvantages of offshore outsourcing for A) western companies, B) emerging market companies C) the workforce of western countries D) the workforce of emerging market countries.

Offshore outsourcing is defined as “Geographical relocation of specific business functions abroad ... to be performed by contractually outsourced independent party” (Prasad and Prasad 2007 cited in Javalgi et al. 2009,p.157). INTRODUCTION Context: Western companies: Clients (Importers of the services/products) Emerging market companies: Vendors (Service providers/Product manufacturers/Exporters). Outsourcers:Western companies

Business Service providers/ Product Suppliers:Companies from Emerging/developing countries like Mexico,Philipineees,Indonesia,China,India etc



The process of Offshore outsourcing benefits the outsourcer to have an edge over the other competitors in terms of gains in productivity,reduced production and company costs and increased profits for shareholders by relegating support functions to other countries and concentrating mainly on their core business. The exploiting of geographical location advantages such as low cost(lower prices for input),availability and quality of resources, larger pool of skilled labours, transportation costs, trade restrictions such as tariffs and quotas creates a repositories of valuable rents thus enhancing productivity(Prola 2004; Bunyaratavej 2008;Bahrami 2009).According to Kaplinsky(2000), the dynamic rents can be a part of the effective value chain.Many of the US companies like IBM, General Electric, Citibank,JP Morgan outsource part of their internal software development,back office or call-center operations (IT-related business processes) to India due to availability of cheap labour,ample number of educated English-Speaking workforce and government incentives. This is in consistency with the RBV (Resource based view) according to which competitive edge for the firm is gained through maximization of the long-term profits by developing and exploiting resources(Javalgi,2009)

The flexible labour laws and time zone difference in developing countries helps to gain in speed where employees work round the clock in various shifts.The well known US companies like American Express,Dell Computer and Eastman Kodak are offering 24/7 customer care by Offshore Outsourcing such services to developing countries like India. This is in consistent with the Dunning’s OLI theory emphasizing location element.

The offshore outsourcing process gives the liberty for western companies to switch between the vendors if they are not satisfied with the service/product offered by them.


The idea that offshore outsourcing as a cost saving approach appears to be profitable only superficially.According to UNCTAD (2005), unless all the hidden costs like taxes, duties,management attention,communication and co-odination expenses etc. are taken into account, the proposal for offshore outsourcing would be absurd.Thus emphasises on thorough budgeting before signing a contract is advisable.

The geographical distance acts as a barrier for client in keeping check of the quality of the service/product offered by the vendors which can be resolved to a certain extent if a manager from outsourcer company keeps visiting the vendor and encouraging the reengineering of business process in order to track progress thus controlling the quality issues(Khan et al. 2003;UNCTAD 2005)

The absence of global law or enforcement about intellectual property rights,privacy laws and negligent entrustment laws will be a major threat to the western companies who indulge in offshore outsourcing(Javalgi 2009;Bahrami 2009). These laws are not considered seriously or enforced strictly which puts the...
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