globalization and outsourcing in international business knight ridder center for excellence in...

Globalization and Outsourcing in International BusinessGlobalization and Outsourcing in International Business

Knight Ridder Center for Excellence in Management

Prof. Jerry HaarDepartment of Management & International Business and

Knight Ridder Center for Excellence in ManagementCollege of Business Administration

Florida International University

MAN 6930 LectureNovember 18, 2006



Outsourcing When a firm subcontracts a business function to an outside supplier, foreign or domestic.

Offshoring Location of services or physical production overseas, including foreign direct investment.



Advantages of Outsourcing

1. 20-50% cost savings2. The ability to have a 24x7

operation3. Lower production costs4. Repatriated earnings5. Redeployed labor

6. Superior product quality7. Superior work ethic8. Lower cost of benefits9. Fewer liabilities10. Increased productivity11. Increased profits



1.Distance2.Time zone differences3.Cultural differences4.Language barriers5.Unknown suppliers6.Uncertain legal rights7.Geopolitical instability8.Transportation costs

Disadvantages of Outsourcing



• Privacy laws that restrict transborder data flows• Security concerns• Government procurement laws• Need for further liberalization in services• Weak intellectual property protection• Tax structures that inhibit sourcing• Others: energy policy, health care costs, pension

costs

Barriers to Outsourcing



Why Companies Outsource

Source: Accenture Outsourcing Study



• Cost pressures on U.S. companies.• Rapid declines in telecom and computing costs.• Rapid growth in Internet reliability and

functionality.• More suppliers with better capabilities• Respected onshore suppliers offering offshore

services.• Successful pioneering by GE and others.

Drivers for rapid offshore growth



Activities Most Commonly Outsourced

Source: Accenture Outsourcing Study



Candy Cane Manufacturers

Adverse Effects of Protectionism

Steel Industry

• Inefficient subsidies for uncompetitive sectors.

• Higher prices for consumers.

• Lower rate of return for investors.

• Preserves jobs in less competitive sectors.



• Accounted for 5.4 million U.S. Jobs in 2002.• Insourced companies represented 14% of

R&D spending in 2002.• Insourced companies pay higher wages than

US companies. • In Florida, there are 245,000 insourced jobs.

Insourcing Foreign companies setting up in the US.



Where Does Outsourcing Work?

“I lost my job to India and all I got was this lousy T-shirt”

• The good life in a Bombay call center.• Romanian tech boom.• Filipino’s way, way back office.• E-Loan in India.



Where Outsourcing Does NOT Work

Valicert learns key roles must remain in US

• Interaction problems created.• Turmoil between US and Indian workers.

Dell and Lehman Brothers pull overseas operations



Precision Response Caribbean Call Center

• Largest call center company in S. FL. • Opened call center in Dominican Republic.• Easier to manage since it is close to home.• D.R. is popular because of low operating costs.• Low employee turnover.• Provides backstop for US operations.



• English travel agency• Shipping both call-center jobs and the

workers to India. • Wages are 1/4th of similar jobs in UK.• Recruiting from all over Europe.• Roadmap for other multinationals looking to surpass language barriers.

ebookers PLC Work Migration to the Developing World



• Less than 5% of components used to build vehicles in N. America come from offshore.

• Pressure to take advantage of Chinese potential is increasing.

Superior Industries• Cut Profit Margin? • Solution: Build joint venture plant in Shanghai.

Big Three Auto Manufacturers



THANK YOU FOR YOUR ATTENTION!

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