| Managing Outsourcing Essay

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The process of globalization influences employment, technological leadership and U.S. security. In the U.S, Outsourcing is a central element of globalization, best understood as a new form of competition. Understanding the economic basis of outsourcing can assist policy makers to focus on enhancing competitiveness and to establish new rules that is crucial in governing the nature of global competition. According to Grossman and Helpman (2004) the process of globalization refers to the tendency of transferring investment funds or businesses and national markets to move across border.

In developed nations, such as the U.S, multinational corporations are the main drivers for the globalization of research and development and innovation activities. In particular, the global dimensions of outsourcing has attracted considerable attention which has implications on the positioning of regions in the international division of labor (Calantone & Stanko,2007). Thus, pervasive outsourcing refers to transforming the business models with production relations in productive areas. Outsourcing also refers to the practice of transferring services, or goods across the border, or information to another nation or group of people for financial returns (Calantone & Stanko,2007). Several definitions are available, and they depend on different geographical locations. Above all, a ubiquitous definition for this term is the process of assigning a firm or a country’s business processes to an external agency (Quinn,2000).

Background Information

The international aspect of outsourcing has lately drawn much attention at both the analytical and policy level, as a key driver of the changes in the competitive positioning of advanced and emerging regions. Quinn (2000) observed that outsourcing has fundamental benefits in assisting nations and corporations find application support, processing, managing networks, and to a larger extent, supporting |er service. Currently, many governments and most large corporations spend lots of funds in outsourcing. Thus, innovation has become a very vital element of outsourcing, and firms depend even more heavily on their outsourcer’s to deliver innovation capabilities. Most leaders and company executives believe that innovation achieved through outsourcing results into financial success (McIvor, 2008).

A combination of technological developments with the interaction within the business environment has resulted into globalization of government institutions and business environments. A major impact of globalization is that it has made governments and corporations outsource some of their operations in order to cut on costs of doing business.

Statement of the problem

Nations and firms outsource to remain competitive by cutting on salary costs. However, as companies continue to outsource, they experience serious economic implications. On the other hand, firms are not spared even with an attempt to overestimate and miscalculate the benefits of outsourcing. When corporations make efforts to reduce their operational costs, they tend to overlook the logistics expenses which hinder any benefits on the long run (Calantone & Stanko,2007). Hence, it is beneficial to understand that there is no universal management system that exist as a result of cultural diversities nations. Professional service corporations must improve their service delivery in order to increase client values and profitability are minimal costs. This requires the implementation of more effective and efficient resourcing combined with partnering processes and reduced costs. Therefore, as nations and firms are faced with increasingly sophisticated clients, market globalization coupled with evolving technological innovation, outsourcing firms must evaluate their business models to ensure that they deliver the greatest value to their clients on any project (Lo, 2005).


The general objective was to explore how can manage outsourcing in the current age of globalization and technological innovation. Other specific objectives are to;
Investigate the relationship between outsourcing and innovation.
Investigate the relationship between outsourcing and globalization
Determine the effects and causes of outsourcing on the globalization process in America

Research questions

This paper is guided by the following research questions
How do nations and multinational companies innovate when they outsource?
How can outsourcing firms best respond to the overwhelming market forces.

Significance of the study

In today’s business environment governed by globalization and innovation, competition has not only become intense but also global. As a result of this trend, outsourcing firms are finding themselves entirely location independent. The main reason being that no one regions can serve as the only source of the appropriate labor mix. Thus, clients expect their services partners to provide them with support globally and source from areas that provide the best expertise with exceptional value.

Literature Review

As nations and multinational corporations work hard to transition the reset of the economy, they invest a lot in less cost effective processes that are beneficial in the long-term. Today, the process of outsourcing provide more benefits than cost saving (Lo, 2005). As observed by McIvor (2008), outsourcing can transform businesses to achieve greater efficiency and productivity, by helping government institutions to be competitive. On the other hand, enterprise innovation is delivering considerable benefits to corporations. The successful operation of corporations will be based on business models which will ensure that globally distributed teams will constitute of the best innovative talent in order to provide a new perspective on a project. For innovation activity to be practical it must be enterprise wide. Innovation must be embedded in culture by making innovation form part of daily work executed by employees. This will be beneficial because it will make employees seek for new challenges. In addition, for any innovation activity, a series of discussions between the outsourcer and the clients will be crucial to ensure that stakeholders are involved (Bengtsson,2008 ).

Outsourcing in America

Outsourcing or offshore outsourcing was in America even before the advent of international trade. It simply took place between several states in the country. For example, a car manufacturer in Michigan would go for some spare parts for his car to the neighboring state of Ohio (Grossman & Helpman, 2002). This was the simplest form of outsourcing in the early years before the practice spread further to other countries. At the onset it never looked like it looked today in the American economy. No matter the situation, outsourcing simply leads to the loss of jobs in various sectors. The practice of outsourcing that takes place in different countries across the sea is indeed the offshore outsourcing (Quinn, 2000). The newest challenge in the market during this era of globalization is the issue of the fate of jobs in the services sector. This sector is not behind in the suffering from the outsourcing program. These job groups also face the stiff competition because of liberal market due to outsourcing and offshore outsourcing. The individuals under this category include people like medical practitioners, computer programmers, and data managers among others.

According to the recent studies, the United States of America alone has lost over 170, 000 workers to the foreign employers for the period between 2000 and 2003 (Miozzo & Grimshaw, 2011). This figure is exceedingly high as compared to the less than 15 million jobs annually in the US from all sectors of the economy. In simpler terms, the country looses over 14% of their employment base to the foreign employers. This is even aggravated by the fact that the country creates many job opportunities every year. As much as the US complains of the outflow of its workforce into other countries, especially the developing countries, it is particularly valuable to discover that these countries also benefit so much to the United States of America on the provision of the office laborers (Levy, 2005).

Office work generally refers to the sectors of technical and professional services. In 2003, America sold these services to foreigners at values higher than $130 billion as compared to the value of $77 billion bought from these foreigners. The sectors under this category include issues like banking, data entry, consultations, call centers, engineering and other private sectors (Levy, 2005). Between the years of 1991 and 2001, an overwhelming 3 million jobs were created by the American multinationals in the overseas countries. This came with the creation of about 5 million jobs inside the country. This was a faster rate than that of the domestic companies generated. Employing more people oversees would mean the employment of more workers in the local country to take care of issues like international IT (Harrison & McMillan, 2006).

Other statistics from the Commerce Department in the United States of America shows that foreign companies employed over 7 million workers in America in 2001. This was way above the rate in 1991, when only 3 million workers got employment opportunities (Miozzo, 2011). The opportunities included also those in the highly paid Mercedes Benz and Honda companies within the auto industry. Other examples also come down the way with companies, like Toyota that will employ over 2000 workers for the process of cars developing in San Antonio. Samsung, on the other side, is sending massive investments of over $50 million to expand its semiconductor plant in Austin, Texas. Novartis is also in the process of moving its base from Switzerland to Massachusetts (Harrison & McMillan, 2006).

This open trade creates various opportunities in America by helping these foreign economies become stronger. This means that as income grows in some countries so do the demands for goods and services, most of which these countries would not produce. The US has a chance to compete for these resources, as import prospectus in the economy. It is a shame for the US to miss this lucrative service due to some unhealthy barriers of international trade. If the same policy makers create these barriers then it would mean loss of massive exports and job opportunities by citizens of these countries (Prahalad & Hamel, 1990).


In a country or businesses where innovation is maintained at low levels, there are always weaknesses in the ability to create an innovative capacity. Thus innovation must be part and parcel of any outsourcing relationship. Today, modern outsourcing relationships should enable states or business enterprises to be innovative. Thus, it is vital to appreciate and communicate any innovative achievement achieved through outsourcing. A reputable innovation can only be drive if businesses can establish a framework with their outsourcing partners to determine their objectives, in order to formalize the innovation achieved (Miozzo & Grimshaw, 2011). Thus, while nations are turning their operations to outsourcers, to offer innovation activities, some do not realize the benefits achieved or fail to communicate the benefits effectively. This can be translated into monetary loss.

Locally within industries, the outsourcing process is mainly to enable the firms generate better revenue collection and recognition. This also provides the firm with better competitive advantage within a very competitive market environment. Practically, outsourcing could either lower or increase the viability and quality of a product or service in the market. It can as well result in enhancing the competitive advantage of a firm, thereby creating so e ease in the form of management to the entire management team of the firm (Levy, 2005). This will entirely depend on how effectively the whole process is under scrutiny. Globalization and outsourcing come with some form of disadvantages. The rich become richer and the poor maintain their class of poverty. It is a very lucrative form of the venture to the managers and investors, but very limited to the workers and nature in general (Barney, 1991). Multinationals have created a lot of injustices to the entire society in which they are located. These people have very unfair working conditions with very poor working and living conditions plus very low wages. They care little about the environment and due to this these individuals cause a lot of devastation to the natural environment.

Srikanth and Puranam (2011) posit that multinationals influence most of the political decisions in a country. This is a result of alleviating themselves from the commercial restrictions put on them by the government. There is a common belief that these members would one day run the world due to the increased globalization process. Opponents to the globalization process believe that the whole process makes rich companies work under very relaxed accountability rules and regulations. The US also overpowers most countries and in the end erodes their cultural supremacy (Tadelis, 2007). However, globalization also has some positive aspects alongside its development program. It helps in solving global issues like unemployment and poverty. The marginalized sectors would have the opportunity to mingle freely in the world (Chesbrough and Appleyard, 2007).

Proponents of globalization believe that this practice promotes the fundamental growth in the economy of various sectors in the world. It does this by the creation of several job opportunities. Companies become more competitive and thus it leads to the low prices to services and products, offered to consumers. Poor countries find an avenue for the fusion of their technology and capital. Democracy and human rights awareness are high due to the increased globalization process. This only happens when the whole process takes place with proper understanding of each other’s opinions and privileges. No colonialist designs should be in the system in order to attain these benefits (Chesbrough and Appleyard, 2007). Most economies share the financial interests; this, therefore, calls for corporations and governments to try to sort out the ecological issues at the expense of each other. It has eliminated some factors of aliens in the world. Some view the mass communication, internet advancements and quick dissemination of information as pure benefits of globalization (Chesbrough and Appleyard, 2007).


America generally measures its production in terms of the hours taken to tackle the task. In other words, the rate of work per hour takes a leading role in this noble country. Sectors, like manufacturing and agricultural sector, will eventually enjoy the benefits of this high production levels with very few workers. This trend is spreading to the services sector. This is in the high levels of elevator operators, telephone operators, gas station attendants and bank tellers (Sturgeon, 2002).

The displaced workers move to other new job sectors as newer jobs emerge. For example, more than a quarter of the current labor force is occupied with jobs that didn’t exist in the early 1990s. These movements mark the foundations to a very flexible economy. This is an economy where resources are transited very smoothly between industries and farms. This is very significant and common to the economy in the United States of America (Sturgeon, 2002). Competition is a very common phenomenon in our markets, whether domestic or foreign. All these competitions must induce some sort of transformations to the lives of people involved therein. The flexible labor and capital market are paramount to the issue of adapting and adhering to this change.

These policies should protect the people at risk as opposed to their jobs. These policies could include issues, like unemployment insurance among others (Sturgeon, 2002). Some policies are available for workers in the manufacturing sector who have lost their jobs to foreign investors. These mechanisms offer both financial supports during the time and offer some healing time when dealing with stress. The concepts of these policies can help to reach the intended target. These are appropriate mechanisms for helping the workers, who might have lost their jobs during the technology – driven production surge (Weeks and Feeny, 2008).


America has been a leader in the manufacturing and white-collar jobs. America has lost over 6 million jobs. The GDP of the country has been shrinking right from 29 percent in the early 1950s to slightly above 11 percent today. This is because of outsourcing in the labor force especially to the developing countries, where the cost of maintaining workers is cheaper as compared to the American economy. It, therefore, implies that the whole idea of outsourcing in globalization has greatly devastated the American economy (DiGregario et al, 2009).

Other jobs that are available on the Internet may also follow the same procedure. This implies that America was greatly influenced by the process of globalization due to the creation of high levels of job insecurity. Prior to the globalization process, Americans had stable jobs. Due to the outsourcing spirit brought about by the globalization process, the population in the USA really suffers from the possibility of losing their jobs to cheaper locations in the world. The constant and ever escalating job competition has led to the reduction of wages locally and this has created very low standards of living due to competitions of foreign nature and continuous outsourcing (Sturgeon, 2002).

Economic analysts claim that the American consumers have an upper hand in the wide variety of goods and products available in their market. All this, when adorned with gains from the export zone, is in a position to offset the losses suffered by the workers employed in import competing sectors. However, the trade deficit grows wider and wider with the advent in these sectors due to outsourcing caused by the globalization process. This deficit is aggravated by the Asian countries, who manipulate their currencies by over 30 percent, while at the same time Americans maintain their dollar value stable in international markets. Finally, imports with low prices will not offset the loss of several family wage opportunities (Sturgeon, 2002).

Advantages of Globalization in America

Proponents of the globalization process see the whole process as an achievement by the country to establish manufacturing plants in other countries with favorable economic situation to deal with the whole issue of outsourcing. On the contrary, this also leads to the transfer of expertise, technology, R&D alongside the products. This tends to expose the country’s technological know-how to the other competing nations. As a result, the whole idea would cripple the manufacturing industry of America. Indeed America competes greatly with China, but amazingly, they still give them an advantage to beat them over the market. This is very practical as to how China has really dominated the development programs in Africa at the expense of the Americans (Sturgeon, 2002).

America is indeed losing a lot in its effort to be a country rich in innovations by simply outsourcing all that it has yearned for in the recent past. Innovations in the manufacturing sector are the key to the present, past and even future prospects in the wide world developments. This would help the country raise the living standards of its citizens. It is therefore very clear that America is way far from achieving this in the near future if it has to continue with the spirit of excessive outsourcing. This intricate process begins with an idea of a new product or process and this prompts investments in research and development, which increases development and investments in the capital equipment and workers. It also leads to spillovers that may benefit the other sectors in American economy (Fontenay & Gans, 2009). It brings with it lots of life bettering remedies, but all in all they are still hidden in the public and the common man comprehension and very low understanding.

Demerits of Globalization in America

With the decline in manufacturing industry, innovation also declines in a very alarming rate. This leads to very few well-paid jobs, low production, reduced wages, low living standards, and very low economic growth. From the American perspective, it is vivid that the disadvantages of the process outweigh the advantages of the same. America prides itself as being a super power nation, but overall, it is very cumbersome for the government to stop the wave of globalization that is rapidly sweeping across the entire universe. The only way forward could be to enforce the trade laws that would govern the process of globalization and outsourcing. Competition should take its own course and immediate competitors denied the chance to acquire the tools to win the ultimate war globally (Fontenay & Gans, 2009).

Most economies in the world are in favor of globalization and outsourcing process, since it is a major concern to the health of several economies. Since US is a monetary policy maker, the focus becomes in relation to the health of the country’s economy. Although this economy turns a very slow-paced economic growth, especially after the 2001 recession, it has revealed some sort of strength within the last few quarters in terms of the growth in output and production (Greve, 1998).

At some point along the way, the opportunities market was quite disappointing for the better part of the transformations. This brought many concerns to the jobseekers as well as the individuals at the federal offices and policy makers across the country. A free trade environment is letting the jobs drain from the United States economy and end up in China, India and other countries, where the laborers command much lower salaries. If given a chance, some individuals would halt the whole process of globalization and restrict trade in order to salvage the plight of the overstretched workforce in the US (Fontenay & Gans, 2009).

The question as to whether the process of globalization and outsourcing is a threat or opportunity for the Americans is still a bone to be chewed thoroughly. This factor must be in proper ramifications. It is evident that most economies are in favor to the whole idea without any second thought. A country is no different from the family unit. In case it costs less to manufacture some products abroad than it is in the local country, then it is not proper for the citizens of America to pay more for the same products from the US producers rather than purchase them from the producers abroad.

Production versus outsourcing and globalization

Globalization can also increase the production capacity in the United States of America. It would spread very fast in the country through the offshore process. This is due to the economic growth of the country that simply speaks for itself in the world trade arena. At a specific time in history, the globalization in China led to increased production of Dell computers in the same country, which meant the prices reduction, trickled down to the American people too. The reduction in price was at about 30 %. The declines in price escalated the spread of IT all through America, which elevated the growth and productivity of the country. Other sectors that depend on the IT sector for their growth will also experience the same growth turnover. This would then cause a vis-a-vis situation where as much as America strengthens, so the foreign oversees countries will also strengthen their own domestic sector. This may come out immediately or after some period, perhaps decades or so (Srikanth & Puranam, 2011).


If the U.S wants to avoid the problems of globalization and manage outsourcing, a number of factors must be in place. These will help to salvage the situation in the long end of the globalization process. Appropriate monetary and fiscal policies will ensure the stability of the economy through the maintenance of aggregate demands. This will help in the jobs generation that would be otherwise lost in the whole saga of the globalization process. For the country to salvage the population that loses their jobs to the foreign employers, a strict international trade regulation should be in place (Tadelis, 2007). Tariffs, quotas and other bans must be in place to help regulate the unscrupulous businesspersons who may gang up to harm some economies in a fatal way. This may help to improve the situation of jobs loses in a temporary manner. Anyway, with time these forces impose a lasting solution to the affected country.