Change and Continuity in Contemporary Business

Impact of globalization on the way organizations conduct their businesses overseas, in the light of increased outsourcing. The strategies adopted by General Electric. Offshore Outsourcing Business Models. Factors for affect the success of the outsourcing.

Рубрика Менеджмент и трудовые отношения
Вид реферат
Язык английский
Дата добавления 13.10.2011
Размер файла 32,3 K

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The world economy is largely distinguished by the processes of globalization that are implemented by strengthening the role of the world's largest corporations and increased competition between them. In modern conditions, one of the tools to increase companies' competitiveness is the improvement of the efficiency and value of their brand portfolios. At the same time to increase the value of the brands, companies reduce the number of local brands, using a global branding. Most firms accomplish this by reducing the costs of adaptation to local conditions and the general lowering of costs to source/deliver their brands to international markets which contribute to increase the value of brands-this is called a global strategy.However, nowadays any company may face competition in anywhere in the world. Most of the world's largest companies have ability to produce and operate their products and services in many other countries, and they have global brands which can be famous in the world.

The aim of the course work is to evaluate the impact of globalisation on the companies' business activities overseas, on the basis of the increased outsourcing. In accordance with the intended purpose of the report the following objectives are provided:

methodological principles needed to transform the management of companies in the face of increasing competition and the development processes of economic globalization;

development strategy for the company's competitiveness through the use of the outsourcing in order to maximize the efficiency of internal and external sources of business growth;

strategies adopted by the company as outlined in the case study (General Electric).

Impact of globalisation on the way organisations conduct their businesses overseas, in the light of increased outsourcing

Globalization of the world economy leads to a constant increase of international competition between products, companies, sectors and countries, resulting an aspiration of main actors in international economic relations to enhance their competitiveness in the global economic environment, by using advantages of international division of labour, and deep eningparticipation in it. As economic evolution is inevitable, the companies will always chose cost-benefit strategies transferring production or service jobs to abroad attaining lowest labour cost.

Furthermore, global financial crises have further updated the problem by forcing all countries and entities to seek new forms of international cooperation. However, the changes that companies try to make are more difficult than ever. Many analytics say that most of these change efforts fail to achieve companies' goals, putting even more pressure on managers to find a new major innovation which can help the company to be more competitive. The example of these major areas of change that can affect every organisation can be off shoring and outsourcing strategies. The effectiveness of these strategies is confirmed by international practice, indicating that at the moment, more than half of foreign companies are using outsourcing in its business for cost efficiency.

Global outsourcing is a form of business organization on an international scale and reflects the processes of economic globalization including: Liberalization of trade and services, globalization and associated free movement of technology, know-how and products of human labour form a new environment of modern business. According to the director of General Electric; “a real global company is that, which uses the intelligence and resources from all over the world”. (Adamov, 2009)

A typical example of global outsourcing is offshore programming, which is a significant part of the total market of IT-outsourcing. Nowadays, active resource providers on the market of offshore programming are India, China, Mexico, Ireland and Eastern Europe. The scope of the work is transferred to the place where it is running efficiently and cost-effectively. The process of globalization has opened new horizons for outsourcing non-essential and did sign the geographical location of companies.

Thus, the entire modern management concept is aimed to improve the efficiency and competitiveness of the company. If in the 90s of the last century as the main themes in the discussion of outsourcing were cost savings and introduction of new information technologies in management, but now it focused on the building strategic alliances in the global outsourcing projects.Also former forms of employment become ineffective, due to the globalization, increased competition in global markets, and global financial crisis. Therefore it led to the development of new human resource management areas as out-staffing.

However, in Europe until the 60s of last century out-staffing was not so famous in business circles. For example, only in 1956, after opening a new office in London by Manpower began promoting of this service. Over the next 15 years all the major recruiting agencies opened their offices in London, Paris and Amsterdam. The company currently has more than 4,400 Manpower Offices in 73 countries. Kelly Services now has offices in 37 countries, and Swiss Adecco provides its services in 7000 offices in 60 countries. (The Origin of, 2011)

In the current circumstances, the task for managers is to create highly competitive and efficient systems out of the company. It is also necessary to reduce the service costs of business processes, which often leads to a complete transformation of the structure of business through the introduction of new high-performance tools, such as outsourcing and out-staffing.

Consequently, in today's business making management decisions leaders must use all previously accumulated expertise and experience to perform tasks involving highly skilled specialists and implement innovations, which is possible only with deep expertise in the key area.


Outsourcing idea started to develop in the United States in the field of information technology as a cost effective method, and then spread to the traditional types of business(automotive, aviation, light industry, food industry, etc.). The theoretical elaboration of basic principles and practical recommendations for the use of outsourcing has become popular in developing counties. In fact, more than 500 countries from United States are already outsourcing to India, China, and other developing countries. (Robert B., 1998)

Many foreign companies transfer series job functions to free-lance professionals to reduce costs. Nowadays, centre of this outsourcing are India and China, where wages are lower than in Europe and the USA. The facts that salaries of employees in these countries are much lower than their European and American colleges and responsibilities which they pass are even more. According to Richard H., (2007), lowering labour costs is one of the main reasons for companies that choose outsourcing. For example, in United States a company pays for a financial manager $35 per hour, but in India it can be paid $10 per hour. Cost difference in the manufacturing sector even higher. Employees working in United States earn between $11 and $20 per hour, but it can be replaced by the same workers in China and Mexico who are willing to work for $1 and $2.50 per hour. (Richard H., 2007).

Outsourcing and off shoring are used as a way to reduce production costs, but in most cases for the companies that have sustainable growth, regularly referring to these methods to achieve strategic objectives - to acquire the capabilities that they do not have at home, or enhance the ones they have. Scholars found that 85% of the best companies use outsourcing solutions for a variety of roles, searching talented staff from the world and quickly bringing to market new products and transform its business model. In other words, they went farfrom cost savings.

Leading companies are using outsourcing to achieve five main strategic objectives:

Entry to global talent. Lack of talent especially in emerging markets may stop the growth of the company. For example, Texas Instruments overcame these difficulties by creating search centres in India. The centre not only helped to reduce costs, but also became a rich source of talented people, ensuring the company to increase influx of patents. (Glass door, 2009)

Creating long-term partnerships which reduce risk and capture value. Although the risks of the outsourcing in recent years have grown, many companies continue to keep their partners in a distance. Whereas in fact they have to exercise control. For example, the toymaker Hasbro is considering how to accomplish relations as strategic partners, contractors, or even a kind of foreign affiliates. Mainly thanks to Hasbro's strategy its business was not affected by "lead paint crisis" that erupted in the toy industry in 2007. Among the precautions, are preliminary assessment of compliance with standards and on-going monitoring of quality overseas factories. (Mattel Recalls, 2007)

Expansion into new markets. Companies have to find ways to gain a foothold in emerging markets before the competitors. Astra Zeneca has entered the growing pharmaceutical market in China due to massive investments in everything from production to sales, as well as through collaboration with local universities, government agencies and companies in China. Consequently, Astra Zeneca became one of the largest multinational pharmaceutical companies in Chinese market of prescription drugs. (Net resource, 2011)

Fast entrance to market and innovation. In a rapidly changing market for companies producing consumer goods, crucial role plays going ahead of the competition and to create new products. For instance, After Procter & Gamble transferred some R & D to other countries, sales rose by 40%. 400 new products developed abroad, bringing the company more than $ 10 billion. Nowadays, about 35 % of P & G innovation arrives from abroad. (Henry W., 2008)

The breakdown of traditional business models. Taiwan's Acer, setting of its own contracting business in a separate case, learned to use outsourcing itself, thus becoming the second largest manufacturer of personal computers in the world. The company's management realized that they have ability to do the best branding and marketing, and gave on the side of everything, with nothing worse than cope, such as manufacturing. This step led the company to the rapid sales growth and winning greater market share. Now the company employs its own staff about 6800. (Acer Group, 2001)

The strategies adopted by General Electric

To establish outsourcing is not necessarily reinventing the wheel, it is possible to follow the others and learn from their mistakes. Today, there are some models of outsourcing, offshore placing and selection of suppliers which 5-10 years ago could not to speak of, willing to have a better chance to catch up with leading companies. For example, the creation of an offshore company with local staff and independent charter and management company increases the long-term chances of success. General Electric has launched the largest multi-purpose research and development centre in India, raising a lot of talent. Centres being managed by the local leadership which helps companies to stay globally.

Transactional Corporation General Electric has been long time as a pioneer in many areas of business, including outsourcing. The company was the first which decided to move its central office, data centre and call centre to the country with low costs, India, by establishing a special department GECIS (General Electric International Service). The company has been providing services including finance and accounting, customer verification, e-learning and business intelligence, and IT outsourcing and software development support about a thousand business processes in the eleven units of General Electric. By the end of 2004, in GE worked more than 12 thousand people, and we can imagine how much General Electric has saved only on the salary of these people because they worked in India, but not in the States.

Accordingly, outsourcing has become a progressively common reply to pressure on human resource departments in order to be more cost-effective, improve services and to be more strategic. The company chose to outsource HR activities in order to:

Reduce administrative and overall costs of maintaining a high paid staff;

Reduction of tax payments;

Improve business process faster and cheaper being in the core business location;

Enhance and develop services and technology provided to workers;

Transfer administrative jobs in order to focus on main business.

As a result, General Electric decided that GECIS will bring them more income, if a subsidiary of General Electric Company becomes an independent company, and continuing to work to its founders, can provide similar services to other companies. Conceived and it is done. Parts of the shares were sold for GECIS $ 500 million from two venture capital syndicate of investors, but General Electric remained its major shareholder and customer. It was expected that in 2007-2008, GECIS achieved revenues about a billion dollars, while the number of its employees made 32 thousand people. (General Electric, 2011)

All these operations took place within the framework of a common policy elaborated by the executive director of General Electric Jack Welch in the early 1990s, called the rule “70:70:70”. According to Ravi Kalakota, this combination of numbers meant that 70% of the General Electric work shall be a subject of outsourcing, 70% of this amount transferred to offshore development centres, of which 70% will be made available in India.

As Ravi K. stated on his report, there are five outsourcing business models: global delivery, hybrid, build-operate-transfer, global shared services, and multi-sourcing.

Global delivery outsourcing is aimed to manage and deliver commitments and resources through several global locations, thereby enabling service providers to more effectively respond to the needs of customers around the world. If there is a problem in any place, it can immediately shift the work in other places, so that business processes will not be interrupted. 

The hybrid model of outsourcing includes the offshore services to deliver results at discounted prices

Global shared services combine internal processes into mega operation centres.

Build operate transfer: companies start to build their own affiliates.

Multi-sourcing it is a way of using multiple offshore providers to weakness the power of the monopoly provider could have.

End of the past - the beginning of the next century were golden times of outsourcing, considering perhaps the most effective tool for doing business. The leaders demanded from their subordinates calculations, which were supposed to show that it is cheaper - To keep its fleet of vehicles or contract for services with the adjacent car park?

Spend crazy money on equipment and modernization of its own production facilities or move to place orders in foreign production? 

Search for talented young scientists and inventors with innovative thinking, and provide them with the latest equipment for experiments?

Or simply use the services of laboratories, the high reputation which was conquered for decades? 

And the answer was usually unequivocal - outsourcing is beneficial. Emerged even so-called "shell companies", whose dimensions were reduced to a small office, which worked only a few managers. All other functions are outsourced to organizations and enterprises, the number of employees of which exceeded hundreds or thousands of times the number of managers in the "shell" office.

In fact, outsourcing does not fully guarantee a good profit for a particular business. The success of outsourcing will be largely determined by the capability of companies to manage in remote areas, and by the ability and skills of the local workforce. Moreover, there are some external factors that affect the success of the outsourcing operation such as:

political stability

language skills

enforcement and infrastructure of business contracts and copyrights

(Richard H., 2007)

On the other hand, in addition to significant benefits it also can bring quite significant harm.

The first problem is the quality. It turned out that the implementation of procedures for on-going monitoring given over to the side of the process required a cost negates all the benefits of outsourcing. 

The second problem is the inability to preserve the know-how. The technological and other secrets sent to the partner in another country could be a competitor. And sometimes they can do even better start doing the same.

In addition, there are other problems - an independent supplier of raw materials could give preference to another partner, an independent supplier of spare parts shortages occurred because of poorly organized work in the warehouse, etc.

In short, the business of companies benefiting from outsourcing, occurred as many extraneous risk that some of them preferred to build up again the big vertically integrated structure.

In addition, the word outsourcing provokes negative emotions among people in developed countries, including the United States. Of course, not all, for example American Outsourcing University sees it as a dynamic view of optimisation of enterprise activities. But millions of unemployed people, who could work in the places which were sent abroad for cheaper labour, consider themselves being robbed. As stated in American Outsourcing, (2007), the research at the University of California Berkeley shows that, between 2001 and 2003, more than one million jobs in United States had been lost.(Economy In crisis, 2010)


outsourcing business model

Doing research about outsourcing we came to the following conclusions: At the end of XX - beginning of XI century qualitatively new kind of business activity was outsourcing, sweeping thousands of companies in most states. Outsourcing gives each company a chance to succeed in the new global world of business. It enhances communication between the companies in the different countries, increases business opportunities by expanding the horizons of cooperation, adding cooperation increasing liability. In fact, modern outsourcing is the internationalization of industrial relations, which is due to the emergence of a technological revolution and development of communication tools. Outsourcing is based on a system of delegation, introduced to the development strategy of the company, as well as the qualitative change in the mechanisms of specialization and cooperation in many spheres of economic activity.

Consequently, decisions about outsourcing are taken primarily on the basis of development strategy and the estimated level of efficiency's long-term goals of the company. At the same time outsourcing of activities that cannot in the foreseeable future become one of the root of competencies that provide a strategic advantage in their respective markets, can be regarded as a fundamental principle of doing business today. Deciding to outsource the firm will save resources (time, money and management attention) required for primary production, to create a competitive advantage.

Moreover, in the mid-90s, improvement of business forms led to the outsourcing of business process, which involved the transfer not only of certain functions, but also certain manufacturing or service processes as a whole. In this case, a company usually moves personnel, transfers information of production, restructuring of the manufacturing process of the company. This helps to achieve goals such as: reducing costs, reducing the time for innovation, speeding up of entering into the market with new products, increase market value, etc. Along with the external outsourcing, there is growing internal outsourcing, which is closely associated with the system of delegation of authority within the company. Employees have the right to act independently and to solve tasks in the framework of delegated authority. In addition, each employee is responsible for their actions and inactions. Managers are responsible for additional managerial decision making. Delegation of authority within the company enables us to construct a coherent system of corporate linkages, both vertical and horizontal organization, to reveal the initiative and enterprise of employees, to establish a collegial cooperation. At the second level of delegation of authority takes place between business units, i.e. Outsourcing is developing within the company. The advantages of outsourcing within the individual companies can be implemented in main business strategies.

This strategy aims to reduce the number of employees and tax payments.

It saving costs transferring expensive jobs from developed countries.

Give good opportunity for developing countries creating new job places.

Fast deliver of product or services and good connections between companies over the world.

It changes the nature of the majority of employees in the company, resulting in the amount of work in certain areas is reduced (corresponding to the jobs are released) and creates jobs in new and promising directions.

This is along term strategy which includes a pre-stage the first two strategies. It involves the systematic work of top management to involve employees in the process of large-scale changes in the company's management and competitiveness.

The use of outsourcing and delegation of authority is a necessary methodological principle of transformation of the management of American companies in the face of increasing competition and the development of processes of economic globalization.

Reference list

1. Robert B., Kathleen A., (1998), Insourcing after the Outsourcing. MIS survival guide. p.p. 5-9.

2. Richard H., Alexander V., (2007), American Outsourcing, Harvard Business School.p.p.-2-10.

3. Adamov H., (2009), International experience of development and use of outsourcing, (Journal), p-34

4. Nicholson Brian, (1998), Control of relational risk in offshore accounting and finance outsourcing.

5. Gail Forey and Jane Lockwood, (2009), Globalisation, communication and the workplace. p.p.29-35.

6. Milgate Michael, (2001), Alliances, outsourcing and the lean organisation, p.p. 31-39.

7. Minoli Daniel, (1995), Analysing outsourcing; reengineering information and communication systems.

8. The Origin of, (2011), Manpower, Business profile[Online], [Accessed 30 August 2011] Available at:

9., (2009), Texas Instrument-“Pay more attention to keeping your talented employees”. [Online], [Accessed 30 August 2011] Available at:

10. Mattel Recalls, (2007), Communication implications for quality control, outsourcing, and consumer relations. p.p. 10-16, [Online], [Accessed 31 August 2011]

11. Net Resource International, (2011), AstraZeneca Pharmaceutical Manufacturing Plant, Wuxi, China.[Online], [Accessed 31 August 2011] Available at:


13. Innovation Tools, (2008), Opening up Innovation at Procter & Gamble, published by Henry W in 2007. [Online], [Accessed 31 August 2011] Available at:


15. Acer Group, (2011), Management. [Online], [Accessed 31 August 2011] Available at:

16. General Electric, (2011), Home page. [Online], [Accessed 31 August 2011] Available at:

17. General Electric, (2011), GE reports. [Online], [Accessed 31 August 2011] Available at:

18. General Electric, (2011), Financial reporting. [Online], [Accessed 31 August 2011] Available at:

19. Robert B., Kathleen A., (1998), Insourcing after the Outsourcing. MIS survival guide.

20. Richard H., Alexander V., (2007), American Outsourcing, Harvard Business School.

21. Adamov H., (2009), International experience of development and use of outsourcing.

22. Nicholson Brian, (1998), Control of relational risk in offshore accounting and finance outsourcing.

23. Gail Forey and Jane Lockwood, (2009), Globalisation, communication and the workplace.

24. Milgate Michael, (2001), Alliances, outsourcing and the lean organisation

25. Minoli Daniel, (1995), Analysing outsourcing; reengineering information and communication systems.

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