Nowadays, many people are confusing about outsourcing and offshoring. Outsourcing and offshoring are two different terms and concepts. Outsourcing defines as an organization moves their internal operations to get their work done to a third party (Webb,J. 2017). Outsourcing becomes a common business practice that most of the businesses take part in order to gain the operation benefits that is hard for them to develop. There are two areas of outsourcing in which company are adopting which is front office and back office. Most of the activities that an organization outsource included human resource support functions, accounting, manufacturing, transportation, payroll, customers related services and others which is non-core activities to the organization (Webb,J. 2017). This is because the organization can focus on their expertise field in order to improve their capacity and generate strong growth in the market.
However, offshoring refers to an organization that physically moving various operations such as production to another country and the new setup office is now apart from your parent company (Daya, 2016). One of the main reasons organization choose to offshore their business to another country is to obtain lower cost or more favorable economic conditions in that particular country as compare to the origin. In country such as India, Philippines and Malaysia which are developing countries have become potential countries to the organization to offshore their business (O’Leary, C. 2018). Offshoring have been widely adopted by the organization because of the advanced technology and the economic conditions (O’Leary, C. 2018).
Even though outsourcing and offshoring seems to have a lot of benefits to the organization, but it also involved some difficulties or risks for an organization to outsource to the third party or offshore in the other country. This is because the organization have to rely on others in order to get job done and they have to make some research on the particular third party or the country for an effective performance. Anyway, in order to be better involved and well-performed in allocating their resources and time to their core operations as competitive advantages to compete in the industry, organization tend to outsource or offshore.
Outsourcing is one of the activities in operation management. Outsourcing does have relationship with other operation activities because company nowadays will outsource their activities in order to focus in their core activities to earn competitive advantages to achieve success. Offshoring and outsourcing technique for the most part alludes to administration of coordination of which product or services will serve which specific markets and how the interfaces among R&D, assembling, and showcasing on a worldwide premise (Kotabe & Murray, 2004). A definitive target of worldwide sourcing procedure is for the organization to abuse the two its own and its providers’ upper hands and the relative location focal points of different nations in worldwide rivalry.
For many businesses, Human Resource department are too comprehensive to maintain in their back office. This is because they are able to receive several advantages such as reduce risk management, cost saving and improve their efficiency (Sherrie Scott, 2018). Besides that, outsourcing the entire supply chain management activity helps company to minimize the overall cost, focus on its core competencies and meet customer demands more effectively. This is because third party have more experiences in managing the supply chain and therefore it is able to provide strategic advantages to the organization (HCL Technologies, 2018).
Furthermore, organization do outsource their inventory management because they believed that while cooperating with other partner enable them to improve their manufacturing efficiency such as free up resources and save the inventory spaces (Worldds, 2017). Outsourcing quality management can help to reduce the operating costs while there is expertise to look after on your quality processes and systems (Outsourced Quality Management, 2018). Product design is an important step in delivering quality products. Therefore, by knowing when to outsource product design is able to help to retain the competitive advantages such as the organization able to access to a broader network (Marsman, D, 2018).
In conclusion, organization no matter small or large sizes will choose to outsource or offshore their activities in order to gain benefits in focusing on their core competencies.
2.1 Literature Review
2.1.1 Definition of outsourcing and offshoring
As time goes by, company tends to practice outsourcing and offshoring in the company in order for them to be able to make good use of the resources available. So what is Outsourcing? The definition of Outsourcing is the business practice of hiring a party outside of a company to perform services and produce goods that is normally done by the company’s own employee and staff (“Outsourcing”, n.d.). However, offshoring refers to an organization that physically moving various operations such as production to another country and the new setup office is now apart from your parent company (Daya, 2016). In other words, outsourcing happens when an organization go into contracts with another organization to provide the services or products of a major function or activity (Belcourt, 2006) whereas offshoring often happens when firms decided to move the production overseas (Sako, 2005), to take advantage of low cost.
2.1.2 Relevancy of outsourcing and offshoring in global competitiveness
Business offshoring and outsourcing activities have been a part of business globalization strategies. Offshoring raises concerns about another sort of reliance. Offshoring, when inconsequential to domestic demand, may worsen dependence by creating nations on the capital and resources of industrialized countries. Provided that this is true, creating nations move toward becoming vulnerable to the caprices of Multi National Company (MNC) who may move generation from created to developing nations, or from one creating nation to another. On the other hand, there is some confirmation of meeting between the wages of created and creating nations in top of the line benefit ventures. The wages in Ireland, once a small amount of those in the European Union, have now caused numerous organizations to move back to focus other office activities somewhere else (Doh, 2005). In India, compensation in business administrations has been expanding consistently, recommending the rise of a global showcase for a considerable lot of these positions (Doh, 2005). Capital intensive and innovation advancements are commonly created in the United States of America for the residential market, and advance through different stages in which expert production movements to from other developed countries and finally to developing countries that become platforms for MNC exports to their home country and other developed markets (Doh, 2005).
Executives in the United States and Europe finds that offshoring is cheaper wage rate for labor-intensive activities, and countries that are able to provide this advantage are able to secure investments and will be the focus of globalization by the executives in the respective industry (EFEND?O?LU, 2007). Most dominating country in offshoring is non-other than China for manufacturing and India which focuses in services. But recent study shows that Philippines, India, Malaysia and China as the top countries that attract U.S firms to practice offshoring.
As times goes by, the practice of outsourcing will get more and firms from around the world will practice it especially the well developed countries in terms of economy. Firms now outsource their core functions like engineering, research and development, marketing as well as manufacturing as this practice is getting more and more sophisticated as time goes by (Gião, Oliveira Júnior & Vasconcellos, 2008). Besides that, there will be a shift in both outsourcing and offshoring as firm will need to be up to date with technology as well as what the consumer wanted. Therefore there will be few implications if there is a shift in outsourcing.
2.1.3 Reasons for firms to engage in offshoring and outsourcing
So why firms do practices offshoring and outsourcing in their operation management? The main reason is so that firm will have lower operation and labor cost where it can deliver a significant impact to the firm’s revenue. It also help the firm to focus on the core business while offshore and outsource the not so important business to external agencies (“Top 10 Reasons to Outsource – Flatworld Solutions”, n.d.). Firm tend to engage in international offshoring in order for the firm to have better access to the quality resources and knowledge of the specialized expertise. Therefore offshoring does not only being practiced in order to cut cost but the decision is tend to be strategic as well (Gabzhalilov, 2016).
And why do more firms outsource help from outside? This is because firm need to facilitate with the rapid changes of the organization as well as the practice of new strategies. Firms that practices cross country research and development (R;D) also took advantage of the cost benefit as well as the advantage as they develop their research and development at regions where cost of non-tradable production factors are the cheapest and at the same time with high education capacities developed (Boehe, 2008) it help increase the research and development capabilities.
Cost reduction as well as effective usage of labor are due to outsourcing and it a well-known company strategy that are being practiced (Kirkegaard, 2005). But tradition firms feel that outsourcing is only a short term solution for the problems face and can’t be used for long term period (Mella & Pellicelli, 2012).
2.1.4 Importance of outsourcing and offshoring and the role of outsourcing and
offshoring as critical success factor
Outsourcing and offshoring gives a lot benefits and critical success factors towards business. What is critical success factor? Critical success factor (CSF) is a management term for an element that is necessary for an organization or project to achieve its mission. There is currently an abundance of stories from the trenches and best practices to gain from with the goal that organizations taking part in such interests can stay away from basic traps, make sharp judgment of if and how to continue, and benefit as much as possible from the vendor.
Outsourcing and offshoring enhances the access to specialized expertise. Consistent access to a capable and gifted workforce is basic to create inventive thoughts that enhance the organization’s upper hands. Major technology companies are spending less on research and development to generate innovative ideas that improve the company’s competitive advantages. For instance, Cisco Systems, Intel, Motorola, and Microsoft have moved some of their research and development exercises outside the US. For example, Microsoft currently has research center in Cambridge, UK; Beijing, China, and Bangalore, India (Djavanshir, 2005). By using both outsourcing and offshoring, Japanese organizations accomplish economies of scale by utilizing a safe distance exchanges. They access their providers’ abilities for contributions by utilizing key associations. These are not subject to industry norms and may profit by customization due to numerous association impacts with different segment. It is this extraordinary mix of the company’s and its providers’ abilities in delivering separated parts in an item that would give the firm economical upper hand (Kotabe ; Murray, 2004).
Furthermore, outsourcing and offshoring contributes a better focus on core business and lower the cost of operations. Most of the businesses outsource and offshore a few part of their business in order to focus on their core business such as programming, and software maintenance, software architecture, product design, medical billing, accounting, medical transcription, digitization of engineering drawings. Outsourcing not only involves acquiring components through normal supply but externally acquiring systems of components that were assembled in-house. This allows the firm with complex production activities to specialize in only a single part of its overall activity, outsourcing the other parts to specialized suppliers (Mella ; Pellicelli, 2012). The management can concentrate on their key focus areas that demand intelligent, path breaking ideas and give their attention to top priority processes by outsourcing the mundane, repetitive activity to outside vendors.
In other hand, outsourcing and offshoring helps the management to save time, focus and improve in core competency (Djavanshir, 2005). Time is literally money where the management’s involve in routine, secondary work in an organization which consumes time. Offshoring contributes towards shortening development time by creating an asynchronous round-the-clock development model which not only saves time but also increases product development capacity. Firm that practices such practice will have its fair share of benefits as well. Mainly is the reduction of labor cost where it reduces the cost by improving efficiency and gaining a competitive advantage where countries offshore their businesses to places with low labor cost, cheap material as well as low restriction on policy. Firms are also able to access to the host country skilled workforce where they pay so little yet gain such valuable worker to help their business (Djavanshir, 2005).
Offshoring at both the internal process as well as business strategy could only become successful due to the outcome of the management of resource and it have a direct relationship towards the firm-level of capabilities (Doh, 2005). By properly managing and using the resources of a firm, they can achieve maximum efficiency as well as effectiveness. Firm will also need to know which resources is important and should be prioritize and which can be outsource or offshore in order to help company to cut down on redundancy work.
2.1.5 Factor that contribute to outsourcing and offshoring
There are few factors or variables that contribute to outsourcing and offshoring. The main key driving factors for outsourcing and offshoring is to save cost which are the reduction in project timeline and savings on account of lower labour costs. For instance, large projects comprise of many smaller parts that need specialist intervention where this is intermittent and the company does not see value in hiring a full-time specialist. It is wiser to outsource the project to an offshore vendor and accrue gains to the company by saving the permanent cost on an employee. Company believes that they can reduce costs of operation and hence improve its profitability by outsourcing non-core activities (Babu, 2015). It is also believed that outsourcing non-core functions would enable the company to concentrate its resources on its core strengths.
Furthermore, absence of specialist or experts is another variable that influence outsourcing and offshoring to occur. Complex process-oriented projects demand expertise that may not be present in a company. For example, some companies do outsourcing because they find that the laws and regulations of governing human resource is complex so they decide to outsource to firms that have the specific expertise required. “Outsource when somebody can do it better than you” is their motto (Belcourt, 2006). The use of experts decreases the risk and liabilities for organization because they know their job better than anyone.
Moreover, information weakness and security has dependably been a basic factor in leading business through outsourcing and offshoring. In most industrialized countries, firms attempt to keep data of their business and clients’ a mystery. This situation doesn’t happen in few nations, be that as it may. At any rate, it is the legal ethical and business duty of IT organizations occupied with seaward outsourcing to think of the weakness and security of their inward and client information. Therefore, IT companies, before participating in seaward outsourcing in any country, should consider the competitor nation’s reputation in shielding remote organizations from data security problems. They ought to investigate its information disclosure, and data security assurance laws (Djavanshir, 2005).
2.1.6 Things to be considered before outsourcing and offshoring being practices
Despite firms practicing such activity, there are few things that will be put into consideration or being considered before this is being practice. Firms will put into consideration the factor of cost, external factors such as economic and political issue, the benefit as well as disadvantages of practicing it.
Outsourcing and offshoring is put into consideration as it helps the company to manage the resources that are needed and lack of. But due to the cost needed in the company operation, it might cause the company to incur losses rather than save cost. When cost is mention, it involves search cost, transition cost, coordination cost, and others (Cronin, Catchpowle ; Hall, n.d.).
Search cost, what is search cost? Search cost is the time, energy and money use by a consumer who is researching a product or services for purchase; this includes the opportunity cost of the time and energy spent on searching where it could have been use on other activities (“Search Cost”, n.d.). Therefore, why is search cost will be considered before company go into outsourcing or offshoring, this is because company will need to spend an amount of money on getting information regarding the third party their hiring and also the country they try to offshore to as they need to know the economy and political factor behind it whether does it benefit them a not.
The other cost is non-other than transition cost. It can incur cost, due to the quality of service is important therefore the training and integration is important especially cost are differ and susceptible to different national business environment, culture and policy (Cronin, Catchpowle ; Hall, n.d.).
Whereas the coordination cost involve the integrating and coordination outsourced activities, although there are risk of disruption from the production line down to the transaction line. The disruption and interruption can be reduced by insuring on the supply but this will incur the cost and the company (Cronin, Catchpowle ; Hall, n.d.). Therefore company tend to care about the cost it will be incurred if they will need to produce the product offshore and sending the finished product back, the cost on coordinating it will be high.
Beside cost as a factor to be considered, the impacts of outsourcing need to be considered. The developed economies of a country tend to offshore to the emerging market economies that are developing in order to gain benefit from the country. Benefits such as services or products produced offshore are relatively lower in terms of price, firms that practices offshoring tend to have higher profit due to lower cost in terms of labor and raw material in other country while the cost are distributive and causes the pace of adjustment in the specific country will be slow as its different from the one they use to do (Sako, 2005).
Although the practices of offshoring are able to benefit the firms in terms of lower labor cost, but it does not benefit every country that are involve in it. As most country especially the United States offshore their Information Technology to India (Davis, Ein-Dor, King ; Torkzadeh, 2006). Information Technology is one of the very few that are very popular being outsource and offshore to India due to their vast knowledge and technology on Information Technology as India is the hub of Information Technology where they have their Silicon Valley located at Bangalore (“The Major IT Hubs in India are Bangalore, Pune and Chennai.”, n.d.).
In other hand, the benefits that the host country gain by providing offshoring services is the increase of export earning as well as the increase of total investment in capital and technology spillover where host country can get the technology from the offshore firms (Sako, 2005).
2.1.7 Impact and Issues of outsourcing and offshoring
It can be seen that most developed country offshore and outsource their resources to other country or from third party. This practice are practiced by developed country in terms of economy, but there are few issues that are faced by firms even if they want to outsource or offshore. Mainly the issue is classified into political, economic as well as regulatory issue (Babu, 2015).
Offshoring is getting work done in a different country while outsourcing is to contract the work out to an external organization (“Offshoring vs Outsourcing – Difference and Comparison | Diffen”, n.d.). But due to offshoring it slow down the pace of job growth in the United States, therefore it was often been blamed while outsourcing is one of the main hot political topic in the Europe (EFEND?O?LU, 2007).
Political issues are mainly related to the policy and practice run by the government that will affect the country or business directly. Most businesses will keep an eye on the legislation, regulatory shifts which will have an impact on the way the company operates or going into the market or country (“What is political factor? definition and meaning”, n.d.).
The increase of economic patriotism in Europe causes the government to start a few blocks on foreign takeover in order to protect their corporate business from rivals in other states even if their economy has bloomed due to foreign investment (EFEND?O?LU, 2007). Therefore businesses will prefer to operate in countries that are more stable in terms of political wise.
Firm also faces risk like socio-cultural where there is cultural differences between host country and the country that try to offshore their firm to. This difference will cause misinterpretation and causes conflict between countries. Countries that have special interest group, trade union might want to obstruct foreign company business activity as it doesn’t bring any benefit to the local community. Different religions will also affect the behavior of firms as well as labour (Djavanshir, 2005) and that is the reason why offshore destination that is decided by the firm are made based on the cultural concern regarding the differences (Gabzhalilov, 2016).
In conclusion, offshoring is the way toward completing work in another nation. Outsourcing is not new; globalized organizations around the globe have utilized it for a long time. Be that as it may, the development of the Internet and progression in correspondence innovation, offshoring and outsourcing have now turned out to be more available and a reasonable choice for entrepreneurs.
2.2.1 Nike Incorporation
Nike Incorporation was founded on 25 January 1964 as Blue Ribbon Sports (Nike Incorporation, 2015). However, from 30 May 1978 onwards, the company then officially became Nike Incorporation (Nike Incorporation, 2015). It is a company that involved in marketing, design, development, selling of athletic footwear, clothes, equipment, services and accessories (Editorial, 2018). Nike world’s headquarter is located at Beaverton, Oregon (Contact Nike, Inc., 2018). Nike Brand, Hurley, Jordan Brand and Converse are Nike Incorporation portfolio brands (Editorial, 2018). Besides selling their products through retail stores and online website, the company also sells their product through mix of independent distributors and licensees around the world.
Nike Incorporation had supplied the largest amount of athletic shoes in the world. However, 100% of its shoes production had been outsourced and only produce key technical components of its Nike Air system product (Nike Outsourcing, 2018). As the labour force is productive and relatively cheap in Asian region, Nike chose to outsource and offshore their activities in the Asian region instead of other region. In terms of outsourcing strategy, Nike uses only subcontractors throughout the world (Nike Outsourcing, 2018). Vietnam, China, Indonesia, Taiwan, South Korea and Philippines are the places where most of the productions come from (Nike Outsourcing, 2018). Factories that located in these countries are owned by subcontractors and majority of the outputs are Nike products (Nike Outsourcing, 2018).
According to Arnaud, B. (2018), Nike starts its manufacturing in sportswear firm in United States and Germany and relocates again into Asian continent such as Taiwan, Japan and Korea. Nowadays, this manufacturing process had moved to Indonesia, China, and Vietnam (Arnaud, B, 2018). Situation like this is unstable for Nike due to the development of the countries where it is offshoring nowadays and the increasing of the labour cost. Thus, Nike and its competitors will seek for other offshoring opportunities like Pakistan, Cambodia and those developing countries who offer the lower labour cost.
Besides that, Nike also outsourced the advertising element of the marketing program to Wieden and Kennedy who drive Nike into the top of the product recognition scale (Strategic Outsourcing, 2018). Furthermore, Nike’s growth rate had been grown at a compounded 20% and gain 31% of return on equity for its shareholders through most of the past 10 years (Strategic Outsourcing, 2018).
Outsourcing and offshoring can be a weakness and negatively affect the company’s reputation. For instance, certain subcontractors of Nike employing child labour and Nike was highly criticised for its offshoring strategies (Arnaud, B, 2018). However, it also can be a very profitable strategy for Nike. Outsourcing and offshoring had allowed Nike to reduce their expenses and also become more competitive company. Nike able to decrease its competitor by having a competitive advantage such as it can more competitively price its product at a competitive rate as outsourcing helps Nike to reduce the costs and more efficiently in producing its products. The cost can be reduced by reducing the cost of paying to the workers. This situation allows Nike to invest the additional profit into other area and increase in company growth. By this way, most of the investor will be attract and retain by the company profit that is increasing. Besides that, Nike had earned 47% of market share of their domestic footwear industry with $3.77 billion of sales (Arnaud, B, 2018). Nike has been manufacturing throughout the Asian region for over twenty-five years, and there are over 500,000 people today directly engaged in the production of their products (Arnaud, B, 2018).
Furthermore, Nike also can have a finances and risk reduction by outsourcing (The Advantages of Outsourcing for Nike, 2018). Outsourcing helps Nike to undertake the financial obligations under the laws in the United States. Nike will be less risk in insurance liability when it outsources to its subcontractors.
2.2.2 General Motors
General Motors Corporation or GM, which was the world’s biggest motor-vehicle manufacture that located in American. GM’s main products included automobile, trucks, engines, automobile spare parts, and also involved themselves in financial services. The General Motors was founded in the year of 1908 with the contribution of William C. Durant. In 1929, General Motors has a global expansion growth passed over the Ford Motor Company and became the global leading automobile manufacture in American (“General Motors | History, Deals, & Facts”, 2018).
In the past few years, General Motors faced some problems when competing in the United State with others automobile industries. But, this would not harm the capability of the General Motors to competing with the competitors in the global market. The reasons General Motors outsource their production to other countries are the advantages of lower labour and production cost, new technology, quality improvement, fast delivery time and others (Benefits and Effects of General Motors Outsourcing, 2018).
By outsourcing, General Motors is able to gain competitive advantage globally and restructure their costs. Besides that, another reason that General Motors outsourced their production is the needs to develop their core business. For instance, this was became an incentive for General Motors to outsourced their Informational Technology support to foreign countries and reduced the number of their primary Informational Technology supplier from existing 18 main suppliers to only 6 supplies (Benefits and Effects of General Motors Outsourcing, 2018). Meanwhile, when General Motors outsourced their Informational Technology support to foreign countries, it made the company become more efficient and reduced the cost. Another reason that encouraged General Motors to outsource their production is the United States Government offered them a tax discount in order to motivate them to move their production and created more jobs in other countries (Benefits and Effects of General Motors Outsourcing, 2018).
2.2.3 Apple Incorporation
Apple Incorporation, formerly known as Apple Computer, Incorporation, was the world’s famous multinational company that selling computer software, smartphone, tablets, commercial server and other electronic gadgets (Steven Levy, 2018). Apple Incorporation was established in Cupertino, California (Steven Levy, 2018). The most popular products in their company among the global consumer are IPod, IPhone and IPad (Steven Levy, 2018). Besides that, the segmentation market of the company included American, China, Japan, Europe, and other Asia Pacific nations (Editorial, 2018). Apple was the most profitable and valuable company in the world, they are also the biggest tax pay contribution in the world. For instance, they have paid about 35 billion dollar for corporate income tax in the past few years (“The facts about Apple’s tax payments”, 2018). However, even though Apple was the largest taxpayer in the world, but this would not harm their ability to growth the company in the global competitive market.
Apple Incorporation was considered the global leading company in smartphone industry. However, most of the manufacturing is depending on the main offshored manufacture which located in China (Vietes, 2018). They believed that manufacturing in China will helps them to save more labor and operation cost because China are considered as low-cost country and they can produced the similar products with the cheaper price as compared to other countries especially American (Vietes, 2018). Besides that, there is also another advantage for Apple to offshored their manufacturing to China is the strategic location has become the bigger interest of Apple in which they can easily to enter into the Asian market (Vietes, 2018).
Furthermore, Apple’ offshore also help them to save billions of dollar taxes. For instance, Apple switched their subsidiaries such as Apple Sales International and Apple Operations International from Ireland to Jersey with free taxes for foreign country (Jersey, 2018). By reducing the amount of tax bill in Jersey, Apple has earned about 44.7 billion dollar in the foreign country and only paid 1.65 billion dollar for the taxes (Aaron Pressman, 2018). This is much lower as compared to the previous subsidiary which is Ireland with about 15.4 billion dollar in tax bill (Nick Statt, 2018).
Even though Apple has successfully growth the business throughout their offshoring strategy, but this also caused some issues when they offshored their subsidiaries to foreign countries (Cassandra Gonzales, 2018). For instance, one of the issues facing by Apple in China was the labour problem. The uncivilized working conditions had caused worker suicide case in Foxconn at where the Apple products are made in China (Erik Sherman, 2018).
3.0 Issues or Challenges Identification and Explanation
From the literature review, we discovered socio-cultural is one of the challenges that offshoring will be facing. This is because the culture are different between the host country and the country that the organization trying to offshore their business to. Geert Hofstede has identified five dimensions to better explain the cultural differences which is power distance, individualism or collectivism, uncertainty avoidance, long-term orientation and masculinity or femininity (Kaushik, A, 2009). Different working culture may cause inefficiency in the production because the worker perceived different type of value while completing their task. This may not help the organization to save the cost of offshore services but may lead to some difficulties for them. The example that we can take into account is India. United State companies would like to offshore their Information Technology (IT) services to India but they experience a culture shock because they did not pay attention in their cultural differences that occur between two workforces (Dubie, D, 2009). Analysts mention that India workers are often job-hops for more pay instead of contribute to the organization (Dubie, D, 2009). This is the major problem that currently experiencing by many of the offshore providers especially North American-based businesses due to the cultural differences between them and the India talent pool (Dubie, D, 2009). These cultural differences impact interactions, communication, interpretation, understanding, productivity, comfort and commitment (Dubie, D, 2009). For instance, American business culture is more result oriented but Indian business culture is concern on the correct process of the task. By having differences cultural, the management team is difficult to interact or communicate between each other and they faced difficulties in delivering the messages to the offshore workers. In consequence, it is hard for them to work for the similar target since the values that they perceived is different and the organization may takes longer times to achieve the expected service levels and may result in increasing the hidden cost. As a result, the offshore organization is difficult to improve their productivity due to the negative impact occurred between cultural and they need to put in more effort in solving this issue.
When talk about offshoring, one of the issues that concern by the people is the ethics of the working conditions (Scott Linden Jones, 2018). In the case of Apple Incorporation, the working condition in foreign countries is very worst especially in Foxconn, China (Cassandra Gonzales, 2018). According to the China Labor Watch (2018), found out that ten China’s Apple factories were in harmful and damaged working environments. Besides that, throughout the investigation of Apple’s working conditions issue, there are extensive problem faced by Apple which included illegal longer working hours during top production period, working in a dangerous and unsafe conditions, unfair calculation of working time in factories, worker’s dissatisfaction towards the food in the factory, unfamiliarity of worker’s actual functions, overtime working with low wages, and worker did not received insurance as required by labor law (China Labor Watch, 2018).
From the cases, we had found that cost saving is a major positive impact of both outsourcing and offshoring. For example, outsourcing helps General Motor to reduce their operating cost. Throughout the outsourcing process, the fixed cost will be minimized by using newer factories and flexible labor contracts (Benefits and Effects of General Motors Outsourcing, 2018). Hiring cheaper labor from those non-union manufactures can help to reduce the money that General Motor spends (Benefits and Effects of General Motors Outsourcing, 2018). According to Benefits and Effects of General Motors Outsourcing (2018), General Motor can restructure their cost by outsourcing because they got the opportunity to change some of their fixed costs to variable cost. Besides, General Motor may reduce their cost by outsourcing their information technology. This is because information technology is not in their profession therefore they no need to spend a lot of time and money on it (Benefits and Effects of General Motors Outsourcing, 2018).
Since the cultural differences is the major challenge for an organization when they offshore their business, therefore, understanding the cultural barriers is one of the way to overcome this challenge. Mutually supportive cooperation between two nations is important for a successful business deal. Both the host country and the partner country should build mutually respect of the cultural norms in order to build a long-term business relationship. In these practices, the host country management should have cultural awareness by conducting workshop for both sides in order for them to be aware of each other’s cultural practices. By accepting the cultural differences, the employees are willing to commit and contribute in their work because they will not be having conflict throughout the project development. They are willing to adopt and accept the culture of others rather than stick on their own perceptions. In fact, the employees are able to come out with the best ideas or solutions to complete their tasks in more effective ways. In conclusion, by understanding the culture barriers, employees will understand each other deeply and they are able to interact with each other and this will help the organization to prevent hidden cost.
Furthermore, the second issue is when offshore to foreign countries, the working conditions problems will be occurring. An inhumane working environment and conditions have increased the feeling of stress among the employees and this will caused some unnecessarily tragedy such as suicide. In order to avoid this tragedy happen, organization should organize a sufficient working structural and production time table. As the cases mentioned, employee does not clearly understand their real function and role in the company, the effective working structural and schedule might help them to ensure that which part of job they have to work with and also help them to fully identify the company’s projects and objectives thus to effectively planning and managing the projects. Meanwhile, with incorporation of the production time table, it is similar as ‘to-do list’ for maintaining employee performance from time to time. By doing this, the company are able to save more unnecessary cost as all the employees follow the schedule and calculate the estimated inflow and outflow of the cost of the production. Therefore, work structural and production time table is important for management to improve the working conditions and environment in purpose to make preparation in future unexpected risk.
Third issue is about the positive issue that is cost reducing issue. It is talking about the fixed cost and labor cost of the General Motor that had been reduce by outsourcing their production. In this aspect, they had given some suggestion for the General Motor to effectively use the saved cost. We suggest that General Motor can use the saved cost to enhance their productivity. Saved cost can be used to hire the professional mechanic to check the products and give various of training to its employee in order to improve their standard. Besides, General Motor also can use the saved cost in their future planning like using the money to do the research for the car that powered without using diesel engines in future. Moreover, General Motor also can use the saved cost method to do the investment in technological field that is useful for their operation in the future. General Motor can also use the saved cost to expand its business to the possible countries that they still haven’t penetrate in. This may help General Motor to staff the firm with new and more talent worker, increase the pool of potential customer, having new personnel and so on.
In conclusion, outsourcing as well as offshoring is one of the very few important practices to be practice by the firm. A well thought plan are able to not only safe cost for the organization but to help the company from dealing with any of the minor issue. When it mention well thought plan is when organization first understand the differences in terms of cultural, economics and also politics. By understanding all this, firms are able to know whether should outsourcing be done or should not be done. A good outsourcing is when firm outsource the work that they are not good with to other party in order to focus more on their core business, this is when organization are doing their work effectively. While a good offshoring plan is when firm outsource the country with low labor cost and low material cost, this is when firm are doing things right where they do their job efficiently. An effective planning of offshoring and outsourcing are able to help increase a firm efficiency and effectiveness of how the resources of the firm are being use. If the firm doesn’t have a proper planning for this practices, they will suffer issues like communication, understanding, and productivity. It will also lead to high cost when organization didn’t plan their resources and make good use of it.