Where Would Globalisation 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 organizations contract their internal operations to other external organizations. In outsourcing, the organization buys or pays for the goods and services from the entity to which they have been contracted (Scholte, 2005). The operations can be contracted to local or foreign firms depending on the goals and needs of the entity. Where functions and activities are contracted to foreign firms, it is referred to off shoring. Instead of the organization performing the particular task, another entity is contracted to perform them on its behalf. Activities and functions are contracted not because the organization lacks the ability to perform them, but to ensure that they are performed in the most efficient way possible. They are contracted to the other efficient firms that have the right human and capital resources to perform them.

The last few decades have seen an increase in the volume of outsourcing because of the many financial advantages associated with it. Large organizations outsource different activities such as email services, call centers, billing and payroll to other firms that specialize in them. Outsourcing reduces operational cost helping the entity save on its financial resources. The reduction in cost results because the functions are contracted to entities that specialize in them ensuring that they are performed efficiently and effectively (Scholte, 2005). The entities are able to provide the services cost effectively helping the outsourcing firm minimize its operational costs. The reduction in cost also results because the contracted firms have better access to cheap but quality factors of production and technology.

The increase in the level of outsourcing has also resulted because outsourcing allows an entity to concentrate on its core business issues. Other issues that are significant but not material to the achievement of the organizational goals are let out to outsiders. Outsourcing allows the management to allocate its resources to its core business. However, outsourcing has a number of disadvantages that often discourage or prevent firms from engaging in it. For instance, it limits the level of contact between the company and its clients. This prevents the company from establishing a firm relationship with its clients and customers. This can result to customer dissatisfaction and the subsequent loss of market. It also limits the level of control by management over the functions and activities that have been outsourced. 

Globalization

Globalization refers to the integration of political, economic and cultural systems in the world resulting to the connection and interdependence of global businesses and markets (Gaston & Khalid, 2010).  A number of factors have resulted to the integration of the global economy. However, technological advancement has been the main reason for the rapid increase in the globalization in the last two decades. Globalization results because technological advancement facilitates international travel, communications and trade. Developments in the internet and telecommunication infrastructure are responsible for the rise in globalization. They have helped connect different economies resulting to productivity, competition, labor and technological mobility, development and growth.

Globalization has a number of political, economic and social effects. The effects are both positive and negative. For instance, globalization results to economic growth and productivity. Politically, it results to democratic freedom. It also results to the exploitation of the least developed and developing world, 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. Study shows that the Europe and North America aim to sell their products in the global market and at the same time take advantage of low cost labor in developing economies. Therefore, they promote measures to ease labor and business environmental standards such as the privatization of state enterprises and the reduction of tariffs.

Analysis shows that globalization increases competition that enhances the efficiency and effectiveness of production agents resulting to an increment in employment opportunities for people in different regions. The World Economic Forum and the World Trade Organization state that measures should be put in place to encourage globalization because of its advantages. They state that globalization results to a rise in international trade and capital flow ensuring global growth and development (Gaston & Khalid, 2010). However, globalization hampers the productivity of least and developing economies when they are integrated with develop economies.

The relationship between globalization and outsourcing

The last two decades have seen the growth and rise in the level of outsourcing and globalization in the globe. The two issues have led to an increase in each other. Globalization has led to an increase in the level of outsourcing of activities and functions by organizations. Outsourcing on the other hand has promoted the globalization and the integration of different national economies resulting to a common global economy.

However, if there was no outsourcing, would globalization be as prevalent as it is today? To answer this question, an understanding of the main causes of globalization is necessary. At the onset, it was stated that the main cause of globalization is technological improvement and development. The development has made it easier for the exchange of information and communication around the world (Steger, 2010). The internet has been the one of the biggest causes of globalization. An 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. This is because large information technology companies in the west outsource their research and development functions to different developing countries with innovative minds such as China, India and Brazil (Steger, 2010). Was it not for outsourcing, this creative minds would never have had the opportunity to participate in the innovation and development process. Therefore, by providing an avenue for the development and growth in information technology, outsourcing has helped speed up the globalization process. If there was no outsourcing, globalization would still have taken place, but at a slower rate.

Another cause of globalization is the improvement of transport and infrastructural facilities in the world. This has made the movement of goods, personnel and capital easy (Gaston & Khalid, 2010). The last few decades have seen the development of infrastructural facilities in the developed, developing and least developed countries.  Entities are now able to move both raw materials and finished goods cheaply when required in different regions. Outsourcing helps empower the least developed and developing economies by providing resources that facilitate the developed of infrastructure. Therefore, outsourcing has added momentum to the globalization process by aiding in the development in transport system in underdeveloped economies where the activities are outsourced.

Globalization has been as a result of the rise of multinational companies operating all over the globe. Multinational entities facilitate the movement of labor, expertise and capital from one region to another. They help in the transfer of technology from advance economies to developing and under developing economies (Waters, 2001). They help integrate the developing and underdeveloped economies into the world economy resulting to globalization. Outsourcing has facilitated the growth of multinational entities. Outsourcing helps cut down operational costs ensuring that firms maximize their profits that are then invested in foreign subsidiaries and associates. Outsourcing ensures that the management and entity resources are only committed to material issues in the company. The control of strategic business units helps develop the firms resulting to globalization.

The basis of outsourcing is the removal and reduction of trade and tariff barriers. Analysis shows that activities and functions are outsourced to countries that have been able to liberate their economies and reduce tariff barriers. In a bid to secure outsourcing services, governments in different regions have put up different measures to help attract as much foreign investment as possible. Other than encouraging outsourcing of activities, the reduction of trade and tariff barriers has resulted to a rise in international trade, a key feature in globalization. Therefore, outsourcing by helping eradicate international trade and tariff barriers has enhanced globalization.

Globalization also results due to firms exploiting or aiming to exploit economies of scale that result from increased specialization. Specialization refers to a situation where tasks necessary to achieve a particular goal are divided into many different parts or units and allocated to different people or sections (Waters, 2001). Specialization aims to ensure that a given task is performed by the most qualified individual in the organization. Outsourcing is a form of specialization. This is because in outsourcing, certain tasks are contracted to other firms that have greater efficiency and capacity in their execution than the organization. Specialization ensures that functions are outsourced to different firms both local and foreign. Outsourcing therefore facilitates the integration of firms in different economies resulting to globalization.

Although a number of causes show that outsourcing has helped in the growth of globalization, a set of globalization causes show that it has not. For instance, globalization has resulted from the growth of international media. Such include CNN, BBC and The Aljazeera media stations (Steger, 2010). These facilitate the exchange and transfer of ideas, information and knowledge between different parts or economies in the world. They have played a key role in making the world a global village. The world has experienced the formation of an international financial system. Globalization has also resulted from the growth of a global trade cycle. Since economic growth is universal in nature, countries are now more interconnected. For instance, the occurrence of recession in one country results to recession in another country. At the moment, China and its city states such as Hong Kong and Shanghais, and India might experience a recession because of the occurrences in Europe. This is because their economies are all interconnected. A difficulty in one economy affects all its trading partners.

Moji Kheyrian is F.M at the CGSRS | Centre for Geopolitics & Security in Realism Studies. He may be contacted at m.kheyrian@cgsrs.org  

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