English : Week8 : literature Review : The advantages and disadvantages of offshore

outsourcing

Pramukh Shekhar

Introduction:
The organizations owing to the globalization and the massive expansion of the customer base
due to the free trade initiatives on a global scale experience serious shortage of manpower to
meet the exponential growth in the demand for goods and services by the global customers.
Many organizations in the United states of America in the recent times are outsourcing some of
their functions, processes, activities to the offshore destinations in order to focus on the core
issues and also gain from the cost savings being accrued due to the low of production elsewhere
compared to cost of production in the domestic manufacturing sites located within the country.
But, this has created a wide spread uproar among the common public who consider outsourcing
as the reason behind the loss of the jobs being faced by the local citizens. Different economists
and policymakers have provided diverse perspectives making it a critical issue which needs to be
dealt in a serious manner towards gaining the benefits associated with the outsourcing practices
while also dealing with the issues of loss of jobs, the provision of the employment to the workers
who have lost the jobs due to the offshore outsourcing of tasks, functions or processes. The
present literature review focuses on the dynamics of the offshore outsourcing by the America
corporations to different offshore locations at different parts of the globe.

The definition of outsourcing and offshore outsourcing:

The organizations in order to meet the specific needs that arise due to the sudden changes in the
business environment and in order to better manage such changes resort to transferring some of
their functions, processes or operation to the external agencies. Bulajic and Domazet state that
outsourcing involves the movement of functions which are conducted by the organization within
its premises to an external party who undertakes such functions as per the mutually agreed terms
and upon the agreement of appropriate fees for such work (Bulajic & Domazet, 2012). The

outsourcing is of two types and one is onshore and the other is offshore outsourcing which is
beyond the countrys borders (Iqbal & Dad, 2013) . Li states that the host countries benefit from
the outsourcing in the form of creation of employment opportunities, technology spillover
effects, and optimization of the industry structure while the negative impacts include the service
provider being locked at the lower position of the innovation chain, minimum scope for
innovation and also overdependence on the foreign corporations (Li, 2014).

The implications of offshore outsourcing:

The offshore outsourcing on a broader note has both political and economic ramifications &
implications. On some occasions the parties or actors work in unison while on some occasions,
one accuse the other of the side effects. Chakraborty and Remington state that the impact of
offshore outsourcing are needed to be considered solely upon the merit of the benefits being
accrued to the economy and the industries rather than acting upon the political motives which
lead to the betterment of the economy rather than risking the loss of the better prospects provided
by such outsourcing of the organizational functions to the offshore sites. There are four major
factors regarding the reason why companies outsource and they include the focus on the core
competencies, the economic factors and technological factors and the main reason for
outsourcing to the offshore locations include the reduction of operation costs, need for extensive
product and service localization, the ability to use the time zone differences for round the clock
operations and also enable to gain new markets in those countries

(Chakraborty & Remington,

2005).
Mankiw and Swagel observes that the politics of the outsourcing is impacting the organizations
since the politicians are attempting to utilize certain impacts of the offshore outsourcing in order

to achieve their political ambitions. The outsourcing which is similar to any other form of trade,
accords the economic benefits of reduced cost of production, freeing up of the skilled & talented
human resource to focus on the core functions of innovation and value creation results in some
people losing their jobs due to low or outdated skills. The politicians instead of identifying the
policies which enable to train and reemploy create political division leading to the unwanted
altercations and conflicts (Gregory Mankiw & Swagel, 2006).
Gregorio et al., state that the Small and Medium Enterprises based upon their studies gain
benefits like efficiency and cost reduction in labor, transport, travel, access unique resources and
capabilities from abroad, expand relationships with the strategic partners and gain presence in the
markets of such countries, serve customers more efficiently with the attainment of 24X7
functionality and freeing up of the valuable resources (Gregorio, Musteen, & Thomas, 2009).
Tayauova states that the advantages of outsourcing include the ability to focus upon core issues,
gain competitive positioning, saving upon the unwanted costs, access to highly qualified
professionals in the shorter time and economies of scale while the disadvantages include security,
confidentiality, control and quality repercussions which need to be managed effectively
(Tayauova, 2012).
Kremic et al., state that the organizations need to have a better understanding of the benefits and
risks of the outsourcing in order to gain the benefits of the outsourcing while identifying the
ways & means to overcome the challenges. The outsourcing decisions are motivated or driven by
cost saving considerations, strategy or politics. The risks include the unrealized savings,
employee morale problem, overdependence and loss of future opportunities (Kremic, Tukel, &
Rom, 2006). Al-Mutairi and Al-Hammad state that contracting out the services which are not

done regularly or non core activities like the maintenance works would result in more leverage
and cost efficiencies (Al-Mutairi & Al-Hammad, 2015).

Economic effects of outsourcing in the nations where the American Corporations

outsource:
The American nations outsource to offshore sites in different countries in Europe and Asia based
on the comparative advantage of doing the similar work in the home coutry. The nations which
receive such opportunities also benefit due to the increase in the employment and growth of
economic activity. Tingting states that base upon the research of the economic development data,
the outsourcing done by the American and other nations to china has a positive impact upon the
Chinese economy leading to the development of trade volume, higher employment rate,
innovation contribution rate and production technology innovation which evidences that both the
parties on the opposite ends gain mutually (Tingting, 2014).

Conclusion:
A literature review focusing towards the identification of the advantages and disadvantages of
the offshore outsourcing provides the perspectives of the researchers and enables to arrive at well
informed knowledgeable view regarding the impacts of offshore advertising to the organizations
and the economy. Most of the researchers have opined that the organizations gain different
advantages in the form of reduction of unwanted operational costs, gaining of the requisite
skilled manpower in the shortest possible time, the flexibility to shed the burden of non core
functions, activities, processes and operations, the ability to focus on core functions like
innovation and strategic development, the access to new markets, the opportunity to expand to
the surrounding new markets. The organizations also face the risk of losing control of their in

house operations; can face the risk of security implications upon their organizational systems, the
loss of confidential data to the outside external agencies which need to be carefully considered
towards the effective management of offshore outsourcing for sustained growth and profitability
of the organizations & the economy.

References:
Al-Mutairi, A. O., & Al-Hammad, A. (2015). Advantages and Disadvantages of Maintenance
Outsourcing in Manufacturing Companies: With Special References to Jubail Industrial City
KSA . European Journal of Business and Management Vol.7 No.20 , 8-27.
Bulajic, A., & Domazet, D. (2012). Globalization and Outsourcing and Off Shoring. Journal of
Emerging Trends in Computing and Information Sciences Vol.3 No.9 , 1321-1328.
Chakraborty, K., & Remington, W. (2005). "Offshoring" of IT services: the impact on the US
economy. Journal of Computing Sciences in College Volume 20 Issue 4, April 2005 , 112-125.
Gregorio, D. D., Musteen, M., & Thomas, D. E. (2009). Offshore outsourcing as a source of
international competitiveness for SMEs. Journal of International Business Studies 40 , 969988.
Gregory Mankiw, N., & Swagel, P. (2006). The politics and economics of offshore outsourcing.
Journal of Monetary Economics, Elsevier, vol. 53(5) , 1027-1056.
Iqbal, Z., & Dad, A. M. (2013). Outsourcing: A Review of Trends, Winners & Losers and Future
Directions. International Journal of Business and Social Science , 91-107.

Kremic, T., Tukel, O. I., & Rom, W. O. (2006). Outsourcing decision support: a survey of
benefits, risks, and decision factors. Supply Chain Management: An International Journal Vol.11
No.6 , 467-482.
Li, E.-l. (2014). Economic Influence Analysis of Offshore Outsourcing Based on Host Countrys
View . International Journal of u- and e- Service, Science and Technology Vol.7, No.3 , 63-72.
Tayauova, G. (2012). Advantages and disadvantages of outsourcing: analysis of outsourcing
practices of Kazakhstan banks . Procedia - Social and Behavioral Sciences 41 , 188-195.
Tingting, W. (2014). An Empirical Study of the Economic Effects of Outsourcing - Based on
China's Economic Development Data. International Journal of Business and Social Science
Vol.5 No.11 , 210-215.