Chapter 13: Contemporary Issues in International Business

OUTSOURCING

 Outsourcing refers to contracting out the non-core activity or

activities or business processes of the business to an external
party (vendor), which has expertise in that area for a
substantial period of time
 This frees the company’s time and resources so that it can
concentrate on its critical activities and save cost or resources
 The external vendor specialises in that activity so as to perform
it more efficiently and effectively

AREAS OR FUNCTIONS OUTSOURCED

 Administration
 Information technology
 Customer service
 Advertising
 Human resource management
 Market research
 Accounts and taxation
 Production

TYPES OF COMPANIES OUTSOURCING

 Different industries –
 Manufacturing –
 Textile,
 Pharmaceutical, etc.
 Retail
 Service –
 Education (Schools, colleges),
 Health care (Hospitals);
 Hotels and Hospitality (Catering; House Keeping)
ONSHORE OUTSOURCING, OFFSHORE OUTSOURCING, AND
OFFSHORING

 Onshore Outsourcing takes place, when a company contracts

out its business function to an external party in the same
country
• For example, an American automobile company
outsources the production of its engine to another
American company
 Offshore Outsourcing takes place, when a company contracts
out its business function to an external party in another
country. (International Outsourcing in real sense)
• For example, an American automobile company
outsources the production of its windshield to Japanese
company
 Offshoring takes place when a company shifts its production
completely or fully to another country without contracting out
to an external party.
• For example, an American company opens its factory in
Japan to produce the engine, where the factory is run by
the American company itself

HISTORY OF OUTSOURCING INTERNATIONALLY

 Origin long before the Industrial Revolution –

• American and European companies used to outsource
rea material and manufacturing activities to Asian
countries due to cheap labour and better quality material
 During 1900s – Companies started growing –
• Started outsourcing activities such as finance,
advertising to external parties within their home country
to increase their profits
 Modern times outsourcing and offshoring – Outsourcing and
offshoring gained momentum among companies due to –
• Development in communication technology and
transportation
• in order to gain more global market share, reaping cost
advantages and making use of specialised knowledge
REASONS FOR OUTSOURCING

 Reduction in costs
 Concentrate on critical function
 Specialised knowledge
 Effective and efficient utilisation of resources
 Tapping new markets
 Enhances credibility
 Risk mitigation
 Tax benefits
 Flexibility
 Better accountability

CLASSIFICATION OF OUTSOURCING

 Business Process Outsourcing (BPO) –

 Outsourcing routine and low level processes, which are
not the core areas of the company
 Areas outsourced – Data Entry, Customer Helpdesk,
Technical Support, Telemarketing, Form Processing,
Insurance Processing
 Knowledge Process Outsourcing (KPO) –
 Outsourcing those areas that require expert domain
knowledge and information
 Areas outsourced – Business Research, Animation And
Designing, Market Research, Legal Process, Engineering
Services, Financial Analysis

STRATEGIC DECISIONS INVOLVED IN OUTSOURCING

 Why to outsource – Whether to outsource or not

 Which processes to outsource
 To whom to outsource
 For how long to outsource
 What to include in the contract
 How to control and monitor
Stages in Developing Outsourcing Strategy

 Situation Analysis – To outsource or not and setting the

objective of outsourcing
 External Agency Selection and Contracting – Looking for
compatible partner in terms of mission, vision, resources,
culture
 Managing Relationships – Continuous monitoring and meeting
commitments

ADVANTAGES OF OUTSOURCING

I. Benefits for the company outsourcing –

 Reduction in labour cost

 Competitive advantage
 Financial Benefits – Tax benefits
 Subsidised land
 Focus on core activities
 Providing quality customer services
 Access to global talent and quality resources

II. Benefits for the vendor/ service provider –

 Business and employment opportunities to the countries in

which these companies operate

DISADVANTAGES OF OUTSOURCING

 Loss of confidential data

 Hidden costs
 Legal issues
 Loss of management control
 Threat to reputation
 Too much dependency
 Lack of client focus
 Cultural barriers
POTENTIALS OF OUTSOURCING FOR INDIA

India is an ideal location for offshore outsourcing as –

 One of the fastest growing economies of the wold

 Quality services at low cost
 Low labour cost
 Huge potential in exporting software (exporting to 95
countries)
 Technology based giant companies like, Infosys, Wipro, TCS
 BPM industry is growing – USD 29 billion annually
 Global companies are outsourcing to Indian companies

REASONS FOR INDIA BEING THE MOST FAVOURED LOCATION

FOR OUTSOURCING

 Large number of qualified human resource

 Conducive economic conditions
 Low wage rates
 Developed infrastructure
 Experience in outsourcing
 Quickest time to market

INTERNATIONAL BUSINESS AND SUSTAINABLE DEVELOPMENT

 Ecological environment – Living and non-living things present

on the earth and the interaction between them
 Ecological imbalance –
 With the industrial development, more and more
resources have been utilised without keeping in check
the availability of the resources.
 Demand supply mismatch – with globalisation and
growth of international business activities
 Industrial activities – Lead to Inefficient utilisation of
natural resources; environmental degradation; health
problems; affecting biodiversity; extinction of plants and
animals; industrial pollution, emissions and accidents
 Extinction of resources will create problems of the future
generations to come
  Sustainable development – Refers to utilising the resources
effectively and efficiently in the present in such a way that there
is enough left for future generations.
 Environmental Management – Refers to managing the relation
between the natural environment and humans so as to
conserve and protect the environment by adopting
environment friendly systems as well as processes.

GLOBAL ECOLOGICAL PROBLEMS

 Global warming – emission of greenhouse gases raises the

temperature on earth – melting of glaciers – rise in water levels
– flash floods
 Air pollution
 Water pollution
 Land pollution
 Waste disposal
 Deforestation
 Depletion of natural resources
 Burden of over population
 Loss of biodiversity

MEASURES TO RESOLVE GLOBAL ECOLOGICAL PROBLEMS

 International conventions, treaties and protocols – Climate

change conventions – NY, Kyoto, Paris agreement; UN
conferences on nuclear; biodiversity; marine environment; UN
Environment Program (UNEP); UN conference on Environment
and Development (UNCED); Kyoto protocol
 International organisations –
 United Nations Environment Program (UNEP)
 Intergovernmental Panel on Climate Change (IPCC)
 International Union for Conservation of Nature
 World Wide Fund for Nature
 United Nations Conference on Environment and
Development (UNCED)
 International Environmental Laws – in India laws like –
 Wildlife Protection Act, 1972
 Water (Prevention and Control of Pollution) Act, 1974
 Forest Conservation Act, 1980
  Air (Prevention and Control of Pollution) Act, 1981
 Environment Protection Act, 1986
 Biological Diversity Act, 2002
 National Green Tribunal Act, 2010
 Hazardous Waste Management Regulations
 Environmental Management System – Aligning up the various
business activities and processes so that the company doesn’t
adversely affect the environment and becomes environment
friendly – Companies will –
 Gain operational efficiency
 Setting environmental goals and planning to achieve
them
 Gain goodwill

SUSTAINABLE DEVELOPMENT GOALS IN INDIA

 NITI Ayog, as the nodal institution for DGs, has striven to

provide necessary encouragement and support to forge
collaborative momentum among Indian States and UTs.
 The SDGs in context of India are –

1. No poverty
2. Zero hunger
3. Good health and well being
4. Quality education
5. Gender equality
6. Clean water and sanitation
7. Affordable and clean energy
8. Decent world and economic growth
9. Industry, innovation and infrastructure
10. Reduction in inequalities
11. Sustainable cities and communities]
12. Responsible consumption and production
13. Climate action
14. Life below water
15. Life on land
16. Peace, justice and strong institution
17. Partnerships for the goals