Globalization and Outsourcing: Business Trends and Strategies

Introduction

Business operations hold the objective of maximizing profits on each and every transaction undertaken. To achieve this, economies of scale are sought and decisions on how best to maximize them are preferred (Brooks, Weatherston, and Wilkinson). The increasing realization and embrace of efficiency has driven a trend toward outsourcing those services that companies find inefficient to undertake internally, allowing them to concentrate on activities in which they are efficient and that do not bear excessive cost. Shenkar defines outsourcing as the act of transferring part of a business activity to an outside vendor, arguing that such actions are a measure to cut costs and improve operational efficiency (Shenkar).

International business involves business activities that cross borders. Being an aspect of globalization, it does not exclude small companies, nor does it occur only when a company establishes an operational base abroad (Ozimet). A company can also attain a global perspective through outsourcing — for example, by establishing a call center in India. The key consideration for assessing globalization is to evaluate the integration and connectivity between different parts of the world. Shenkar notes that a defining feature of international business is that firms operate in highly uncertain environments (Knight and Cavusgil). The rules and regulations in such environments are highly volatile, at times contradictory, and marked by persistent uncertainty. Decision-making in the global market is therefore based on dynamism, unlike in domestic markets.

As the practice of outsourcing has grown, so too has globalization, which has expanded considerably over the past few decades. Globalization manifests in the form of trade relations (Dash). This gives local companies the impetus to concentrate on products that offer a cost-effective advantage. The spread of globalization is fueled by technological efficiencies, which are themselves driven by the need to specialize and exploit efficiency. Companies embrace globalization to access cheaper raw materials and, as in the case of Foxconn — Apple's manufacturing partner in China — cheaper labor. This arrangement is also recognized as a form of outsourcing. The outsourcing model enables corporations such as Apple to move operations to lower-cost regions; in turn, these corporations are expected to provide the host community with improved living standards, proper working conditions, and contributions to community development.

It is evident from the discussion above that drawing a clear line between where globalization begins and where outsourcing starts is difficult. Clearly, the two go hand in hand, complementing each other in terms of the goals they seek. Both are said to be measures of exploiting existing and emerging advantages in a bid to generate greater profits. Core to the existence of each is the opportunity to increase efficiency at a lower cost.

Link Between Globalization and Outsourcing

Globalization is argued to have led companies to outsource services and raw materials. The view advanced is that by breaking down barriers between countries, organizations discover opportunities and valued resources otherwise unavailable in their country of origin (Agrawal et al.). It is observed that multinational corporations have shifted operations to many developing countries, primarily because of the availability of raw materials and cheap labor. The dominant perspective when discussing globalization and outsourcing remains cost savings and profit maximization.

Identifying globalization as the driver of outsourcing is straightforward, since globalization inherently means operating on foreign turf. Operations in foreign markets may require partnering with local stakeholders to ease the process of familiarization (Agrawal et al.). This naturally introduces an element of outsourcing — hiring local expertise to guide operations. To avoid conflict between foreign corporations and local communities, there is a need to learn and understand host cultures. This builds relationships with local populations. In order not to be perceived as purely exploitative, corporations must adopt a Corporate Social Responsibility (CSR) outlook. Research by Cap Gemini Ernst and Young shows that with the growth of globalization, outsourcing has become more viable, and its expansion has been so significant that regulatory frameworks have had to be developed to govern it.

The growing trend of globalization is also a source of concern owing to emerging challenges and, to a large extent, negative externalities. Globalization has the potential to integrate and unify world economies into a single market (Yip). However, this connectivity also means that economic problems in one country can quickly spread to countries and continents far away. How best can the international community address linked phenomena such as global recession, price increases, and uncontrolled financial instability? Similarly, while outsourcing seeks an economic edge, it also produces unintended consequences.

Conclusion

The trends in the world today concerning globalization and outsourcing are all geared toward optimizing the potential of companies. This movement is accelerated by rapid changes in technology that demand organizational commitment for sustainability. The adoption of outsourcing is driven by globalization and the need to remain operationally efficient. Globalization leads to product standardization, which in turn facilitates the transfer of technology. It is necessary that operations in this form of market be further supervised through appropriate regulations and regulatory bodies.