Kristen Valla
BBMBA 9111
Case Study 1
Offshoring at Global Information Systems, Inc.
Background/Overview
In 2004, Global Information Systems, Inc. began to put into motion the consideration of offshoring 3,000 jobs from here in the U.S to company locations in China, India and Brazil. These were highly compensated job positions. About half of GIS is separated into a division known as Global Services Divisions. A considerable portion of GSD’s business came from customers outsourcing their business process needs. GSD began to seek ways to cut costs and improve performance by “offshoring” certain activities in order to present the most attractive value proposition to potential customers.
This case examines the issue of
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Risk/reward It was clear to management in GSD that although these numbers are very compelling and give the company an opportunity to save a vast amount of money, offshoring would still be a very sensitive decision. Historically, the benefits of free trade had been premised on the logic of comparative advantage. Management at GSD wondered whether the concept of comparative advantage was losing its relevance as an argument in favor of free trade. The question was put forth that, if free trade simply transferred jobs, where would the new jobs come from to utilize the skills of highly trained displaced developed world workers who had grown accustomed to high levels of pay? In 2003, a newspaper article commented on a political debate related to offshoring jobs of radiologists from the hospital of Massachusetts General Hospital. It stated, “The hospital would beam images electronically from some scans to India, to be worked on by radiologists there”. As one would expect, US radiologists were up in arms over this. “Who needs to pay us $350,000 a year if they can get a cheap Indian radiologist for $25,000 a year?” (Who’s Reading Your X-Ray, The New York Times. Nov. 16, 2003). This is the exact view that GSD would not like to portray. Their reputation both internally as viewed
Supporters argue that outsourcing has a minimal effect on job losses, and has increased economic growth in some cases. In actuality, outsourcing has decreased the domestic economy by decimating job opportunities and lowering wages. Steven Pearlstein, economics columnist for the Washington post reaffirmed arguments that outsourcing has decreased employment availability and stability of the economy by saying “There are growing numbers of people who think that what started as a sensible, globalized extension of sending some work outside a firm to specialized companies may in fact be creating long-term structural unemployment in the United States, hollowing out entire industries”. (Pearlstein 3) The IT industry has been especially affected by outsourcing, with many jobs moving overseas to India and Bangladesh, leaving employees in the United States without a job, unable to compete with lower wage offerings. Supporters of outsourcing argue that this business strategy increases everyone’s productivity, raising everyone’s income, and boosting economic growth. Many such studies tend to focus on large multinational corporations, for which the data and anecdotes are more readily available. And indeed, during the 1990s, the data seemed to show that for every one job added abroad, companies added almost two new
to be completed by countries who pay their employees as little as 10% of the average earnings in America. Although this is happening in many professions, it is extremely noticeable in engineering with the managers of these large companies hoping to save a net cost of 70 percent (Ron Hira). This strategy, which is commonly known as offshoring, has been increasing in popularity exponentially and there have been many debates as to whether this method of production is a benefit, or a burden. It is uncertain what the overall effect of offshoring will have on the American economy but the workers, namely engineers, should begin adapting.
Despite that an excessively excellent image of outsourcing was provided to individuals one or two of years back, the truth check they were confronted with shattered the dream badly. Recent statistics reveal that over four-hundredth corporations are concerned either in experimenting or are already engaged in shifting their services overseas in search of low-cost labor and services that are being provided by countries like China and Bharat. Such efforts have left native market labor at extreme disadvantage wherever they're finding it vastly tedious to create each ends meet, leave behind the back-breaking burden of taxes they're being obligatory to. With over four-hundredth major company executives registering their opinion by discouraging the method of outsourcing the controversy that was antecedently being won by the
The U.S. economy has seen many hardships within the last decade. The economy has suffered from a recession that is still threatening to cripple some Americans and unemployment has been at an all time high. People have lost homes and jobs and many businesses have gone bankrupt simply trying to survive. However, in the midst of this economic crisis some companies have managed to survive. Many companies, approximately 36% of them, have found a way to avoid economic collapse by cutting costs (Job Outsourcing Statistics, 2014). One of the most popular cost reducing strategies of our time is called outsourcing.
At the time of development of globalization there were many concerns about its benefits. However, it has brought significant changes in all segments of human life and International business is one area in which it contributed heavily (Reich, 1998). Companies all over the world are currently formulating their business strategies mainly after considering the trends in global market instead of domestic market. Outsourcing and offshoring are some of the new business principles emerged in this world after the implementation of globalization (Samimi and Jentabad, 2014). The core of these new business concepts is to exploit the business opportunities in overseas countries as much as possible (Samimi and Jentabad, 2014).
Ferreira, J., & Prokopets, L. (2009). Does offshoring still make sense? Supply Chain Management Review, 13(1), 20-n/a. Retrieved from http://search.proquest.com/docview/221135949?accountid=12085
“Outsourcing refers to the practice of contracting workers outside of a company or business for work duties or services previously performed by company employees or “in-house”. This practice is also often referred to as offshoring due to the increasingly prevalent use of “non-U.S.” service providers for these outsourced duties. However, strictly speaking, outsourcing can and does refer to the use of contracted labor provided by individuals outside of an organization, but still within the U.S.; whereas when these same services are provided outside the U.S., it is both outsourcing and offshoring.”
In today’s society, outsourcing has become a very critical and controversial issue to companies and other countries. Outsourcing is known as offshoring as an organization’s use of an outside organization for a broad set of services. As technology continues to grow and advance more, outsourcing becomes more popular. Many American white collar jobs are being taken over by foreign countries around the world. Almost every occupation or career in the United States has some effect of the outsourcing. As a result, many Americans become unemployed and financially challenged; being that outsourcing can increase the United States unemployment rate. Employees who live in the US rather keep jobs in the country to create more opportunities. On the other hand, few stakeholders
The IT Service industry has expanded rapidly. Many companies worldwide have made the decision to outsource this industry to offshore companies. Worldwide demand has increased growth to 40 to 50 percent on an annual compounded rate basis. Many developing nations like Latin America and Asia have made an attempt to obtain some of the IT offshoring business from countries like the United States because it is seen as not only a source for
The underlying cause of the great exodus of American businesses leaving the United States to open their headquarters abroad is the existing US tax codes. The United States is taxing our businesses to death, Burger King has even left the US to set up their headquarters in Canada. Numerous pharmaceutical companies have also left the US to open its doors abroad. In the last ten years 47, companies have left the US for lower taxes, also known as inversion or offshoring. (CNN)
“It (outsourcing) is not a our father’s traditional foreign trade. Goods are not being traded. Offshore production is not a case of US making good X and trading it (to another country) for good Y. It is a case of the US ceasing to make X in the US and making it (in another country) instead” (“Outsourcing champs say India critical to their success”). This quote leads to the differences between outsourcing and trade. Trade is a matter that had threatened the unskilled people in the labor force, which encouraged many of them to learn some sort of skill. Unlike trade, however, outsourcing is a threat to skilled workers. It is true that outsourcing had been around for many years and that it is no new matter.
The Reshoring Initiative is focused on helping companies shift collective thinking from “offshoring is cheaper” to “local reduces the total cost of ownership.”
The opponents of "outsourcing" white-collar jobs eagerly present it as an unprecedented, catastrophic phenomenon. The facts belie this. Economists estimate that roughly 100,000 white-collar jobs "move" offshore annually. This figure excludes new jobs created in the United States because of the increased economic efficiency and is in the context of a U.S. economy
This strategic report of ANZ’s offshoring strategy examines the effectiveness and drivers of ANZ’s decision to move towards outsourcing internationally, analyses the impact of ANZ’s offshore programs on stakeholders, explores key risks and opportunities and evaluates the success of ANZ’s offshore system.
Green, Aaron. (2007, September 17). “Part 1: Offshoring basics: definitions, benefits, and challenges.” Retrieved from www.boston.com/jobs/on_staffing/091707.shtml