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Advantages of offshore Outsourcing to Western Companies and Workforce in Western Countries

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Offshore outsourcing is defined as "Geographical relocation of specific business functions abroad ... to be performed by a contractually outsourced independent party" (Prasad and Prasad, 2007 cited in Javalgi et al. 2009, p.157).

The advantages and disadvantages of offshore outsourcing to the western countries(and workforce) and emerging-market countries(and workforce) is discussed based on the context of Western countries outsourcing a part of their business process to vendors primarily from developing countries like China, India, Indonesia, Philippines etc.

ADVANTAGES OF OFFSHORE OUTSOURCING TO WESTERN COMPANIES AND WORKFORCE IN WESTERN COUNTRIES

Offshore outsourcing benefits the outsourcer to have an edge over the other competitors in terms of cost reduction, increased productivity and profits by relegating some of its functions to other countries' third part contractors and concentrating mainly on their core business (Bahrami 2009).

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 creates a repositories of valuable rents thus enhancing productivity(Bahrami 2009; Bunyaratavej 2008; Gereffi 2005; Prola 2004). Wells Fargo VISA,a US based company uses contact centres of Mahindra-Satyam, India to make marketing calls to their potential customers in Seattle due to availability of inexpensive labour, abundance of educated English-speaking workforce and government incentives. Philips, Dell, Motorola are buying digital device designs completely from Asian developers. Both these examples are in consistency with the RBV (Resource based view) which suggests that the 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 speed up the business process by employees working round the clock in various shifts. The U.S companies like Dell, American Express and Eastman Kodak offer 24/7 customer care services by outsourcing such services to developing countries like India.

According to Edwards (1998), cited in Bahrami (2009), by offloading a part of the repetitive business processes to the emerging market workforce, the skilled labour in the western labour pool gets an opportunity to be innovative and hone managerial techniques which helps in productive utilisation of resources thus leading to the profitability of the company.

The workforce in western countries who would have lost their job to foreign vendors are trained and reallocated to an advanced level of working which in turn helps in developing new skills and techniques contributing to an improved set of domestic resources (Kedia and Mukherjee 2009).

DISADVANTAGES OF OFFSHORE OUTSOURCING TO WESTERN COMPANIES AND WORKFORCE IN WESTERN COUNTRIES

There is a misconception that offshore outsourcing to low wage countries reduce cost because of cheap labour. According to UNCTAD (2005),in some cases considering hidden costs like taxes, duties, management attention, communication and co-ordination expenses etc,the venture turns out to be expensive.

The geographical distance and cultural differences act as a barrier for clients to monitor the quality of suppliers' work. This can be resolved to an extent if a manager from the western company keeps visiting the vendor location in person (Khan et al. 2003; UNCTAD 2005).

It has been recognised by Javalgi (2009) that the absence of global laws or enforcement about intellectual property rights and privacy laws acts as a major threat to the outsourcer companies. The confidential data of outsourcers are at risk in developing countries where these laws are not strictly enforced. When Taiwan's BenQ was given a contract by Motorola for designing and manufacturing mobile phones, Ben Q violated the contract and created its own brand and Market in China for selling mobile phones (Bahrami 2009). As a measure to avoid such fraudulent cases Khan (2003) suggests joint venture between the outsourcer and overseas supplier as an option which binds the supplier to handle their customer's data with utmost care as the supplier will also be a partner in this case.

The loss of western country jobs to foreign providers might lead to negative publicity of the company. Examples about the accusation faced by the US companies like Dell, IBM, City Group for exporting jobs overseas leading to job losses in the USA (Hill 2007, cited in Bahrami 2005) demonstrates this issue.

The unethical practices followed by suppliers will have an impact on the reputation of western companies. Nike and Adidas being criticized by the media because of their Indonesia's supplier sweatshops' poor workplace standards attracted negative publicity and thus reduced sales. To avoid such issues, companies are now taking precautionary measures like initiatives to improve existing poor conditions and also signing contract only with ethical suppliers.

For companies involved in outsourcing their engineering and design technologies overseas, keeping abreast with current technological developments will be very difficult since the company will not be directly involved in the process which might lead to diminishing value of the firm's competitive advantage, level of expertise and competencies (Kotabe1998, cited in Kotabe and Mudambi 2009).For example, General Electric's (US based company) heavy dependency on Samsung (South Korean Company) for manufacturing its Microwaves ultimately led to the success of Samsung in the same field(Javalgi 2009).

Western companies' management might benefit in terms of cost reduction by sub-contracting its work to an emerging market country firm, on the flip side it puts a tremendous amount of pressure on their own workforce due to replacement with the equally skilled lower wage overseas employees and also builds an intense competition as they will be competing with the global workforce (Shao and David 2007).

The labour force sustainability in any economy is inter-dependent. If technologists for IT activities are outsourced, even the Human resource personnel and other support jobs become redundant in the home country (Shao and David 2007). During 2003 "... 400,000 US jobs have already gone offshore" (Ford 2003).This job shift impacts all sectors of western workforce. Also the older western workers failing to acquire new skills or failing to search for alternate jobs would leave the workforce and become a financial burden to the society (Bahrami 2009).

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