1.1. TOWARDS A NEW DIVISION OF LABOR AND THE GLOBALIZATION OF THE WORKFORCE
Globalization has touched previously unthinkable aspects such as the culture and lifestyles of the inhabitants of the countries, and it is there where the great impact that globalization has had on the human factor during the last decade is recognized, which is why sociologists assure that the American culture of fast food and the conception of man as a purely economic being (Homo-Economicus) will be the one that prevails in the long term, giving way to a cultural crisis.
The situation in the business world that companies are facing today forces them to look for solutions and tools that allow them to survive in an increasingly competitive market, in this tireless search tools such as Offshoring arise that inevitably it will have an impact on the human factor of companies that risk using this tool.
Based on the factors of production (land, capital, labor and technology), the factor that globalization had not been able to touch is work and the human factor due to the protectionism of nations and their fear of losing their The labor force necessary to guarantee economic growth that guarantees the creation of a better quality of life for its population, added to a lack of international legislation that guarantees companies the use of other labor forces located in distant places, obtaining advantages in costs and with greater or equal skills than the workforce of the country of origin.
With the reduction of protectionism and of the barriers in policies that limited foreign investment and trade during the last ten years1, progress has been made in labor matters and companies are already using the tool obtaining competitive cost advantages, which has generated an increase in company profits and a benefit for consumers
with the best prices, maintaining the quality of the products and / or services; But the big boost comes from the policy change in China, which creates a new way of doing business2 combined with the decrease in telecommunications costs and the digitization of some routine business processes3 that allowed managers to Business leaders focus on activities that add value to the business supply chain.
In addition to these factors as drivers of the new trend, technological development and the application of the Internet as a fundamental tool for business in areas such as telemarketing, customer service and document management, contributed to the development of the new concept and is expected to generate great changes both in the way of doing business and in the globalization of the workforce without cultural barriers, to extract all the potential with which it comes.
1.2. DEFINITION
In the era of competitiveness and productivity, companies are forced to seek new ways to produce their goods and services, seek new markets that are attractive and sustainable over time, for this, Offshoring was born as a tool that helps companies to decipher the current map of the troubled world of business.
Although the terms of Outsourcing and Offshoring tend to be confused, it is important to mention that they are different terms, although in practice they have similar applications, so it is decided to rent a security company to take care of the lands around the plant instead of doing it internally, This process is called outsourcing, while Offshoring means buying from a seller in a country with low wage costs, rather than buying from a seller in the United States or elsewhere where high costs are a feature, or it also means placing a production process in a low-cost country, which replaces the same process in the United States.
The “Outsourcing” activities such as Offshoring and Outsourcing have a fundamental difference that helps to understand the theoretical conception of the concepts from a practical point of view, a company that decides to enter into an outsourcing process does so because it wants to get away from the concept of the business and dedicate itself to the fundamental part of this and where the true added value is, while a company that decides to enter an Offshoring process does so with the intention of reducing costs regardless of which process of the company is the one that It is going to be outsourced abroad, adding that it does not necessarily have to be a third party, but it can be a subsidiary company located in a low-wage country that acts as a third party.
The authors agree on the definition of Offshoring, for Kraemer and Dedrick researchers from the University of Irvine, it is Outsourcing the activity to a supplier that does the work, but with the characteristic that it is in another country, to reduce costs and increase productivity, and for Farell, director of McKinsey Global Institute, one of the best consulting firms at the
International is the significant reduction of costs by moving work to places with lower wages, with the aim of attracting new clients and entering new markets6. In addition to these authors such as Wallace, Wilson and Smith from the University of Memphis, they point out that the proposal aims to take advantage of lower labor costs, increasing their profits, obtaining greater competitiveness with the help of the increase in the global economy7. Although everyone agrees on the definition, the importance of the trend is that it presents a win-win game for the parties involved, since for developed economies it presents a challenge to pay attention to activities that generate greater added value, for emerging countries means more foreign investment,Combined with economic growth and for companies it represents competitiveness and productivity, the general characteristic is that the authors do not differentiate which activities should be relocated, maintaining the difference with Outsourcing.
Conservatives like Kedia, Lovvorn and Lahiri also from the University of Memphis argue that activities that are part of the core of the business should be kept In-House, while routine processes that do not add significant value to the value chain They must be relocated in order to reduce costs while maintaining quality, as a kind of international Outsourcing that will help the company access the latest technology and flexibility, lead to better financial performance and increase competitiveness.
The costs in some cases can be a tenth of what is done in the United States and in developed countries, taking into account all the technological advancement and the reduced cost of telecommunications that companies face these days.
On the other hand, consulting companies such as Forrester retain the original concept of Offshoring, but make a division that depends on the location of the place where the activity is to be located, which is why they define offshoring as the use of different services from a provider located in a country of at least 500 miles away from the G7 countries (United States, Great Britain, France, Germany, Italy, Canada and Japan), countries where buyers are located, adding that the cost savings is at least 50 % are compared with the countries of origin, different from nearshoring which refers to the use of services from a provider located in a country less than 500 miles away from the G7 countries, with cost savings of between 20% and 30 % the countries of origin are compared.
1.3. PROJECTION OR TRENDS
Many authors support their research on Forrester's projection that by 2015 3.3 million jobs in the United States are expected to have moved to low-wage countries10 and have already lost 2.3 million jobs over the last three years11, added to that according to the projections of Parker associate researcher of Forrester who says that Europe will lose an accumulated of 1.2 million jobs in offshored operations by 201512, with the United Kingdom leading the loss of jobs in the same proportion as the United States, for Drezner associate researcher of Foreign affairs (A Council for International Relations) the prediction of 3.3 million jobs lost over the next 15 years would mean 220,000 jobs per year,a figure that sounds impressive until it is considered that total employment in the US is 130 million and that about 22 million new jobs will be added between now and 2010, annually offshoring could affect 2% of North American employment. However, this loss of jobs is compensated by the opening of such attractive markets as the Chinese with more than 1200 million inhabitants willing to enter to consume foreign products.However, this loss of jobs is compensated by the opening of such attractive markets as the Chinese with more than 1200 million inhabitants willing to enter to consume foreign products.However, this loss of jobs is compensated by the opening of such attractive markets as the Chinese with more than 1200 million inhabitants willing to enter to consume foreign products.
Although workers in developed countries will face long periods of unemployment, the situation will force them to work in jobs with lower wages, but sometimes with higher added value; On the other hand, in developing countries, given all the foreign investment and economic growth that will occur in the following years, the economy will face inflationary pressures, a situation in which the labor cost savings that the trend presents will not be so attractive to companies and sometimes wages will equal those of developed countries; additional to the shrinkage of companies in order to make them more competitive and productive.
Mckinsey assures that by 2008 it is expected that remote operations could be half a trillion dollars with savings close to 400 billion dollars in offshoring operations.
Mark Minevich, global consultant in international technology and strategy and Frank Richter president of Horasis: A community that develops scenarios related to the problems that companies face with globalization, developed an indicator that helps companies decide where to locate their operations taking into account factors such as costs, risk that includes political risk, risk in human capital, economic risk and legal risk, and the market opportunity rate including global competitiveness of the country and analysis of the suppliers of each country, for now The Top 3 is headed by India, followed by China and finally Costa Rica and in the projection for 2015 the first place will be occupied by China, followed by India and the United States;India, the current leader in offshoring operations, has a low cultural risk and a high degree of education for its population, but the increase in costs for 2015 would cause a loss of its competitiveness; China hopes to develop Information Technologies and Software to consolidate itself at number one within 10 years with its large labor force and although the United States has not yet appeared on the scene, inflationary pressures from other countries will make its costs more competitive in 10 years.China hopes to develop Information Technologies and Software to consolidate itself at number one within 10 years with its large labor force and although the United States has not yet appeared on the scene, inflationary pressures from other countries will make its costs more competitive in 10 years.China hopes to develop Information Technologies and Software to consolidate itself at number one within 10 years with its large labor force and although the United States has not yet appeared on the scene, inflationary pressures from other countries will make its costs more competitive in 10 years.
Latin Americans with the exception of countries such as Costa Rica, Mexico due to their proximity to the United States market, Brazil and Chile do not appear in the projections, pushing Brazil to fourth place as the destination most used by US companies in the coming years.
1.4. TREND DISCUSSION
1.4.1. ADVANTAGE
In addition to the most important advantage of this trend in saving labor costs; When the participation of labor in the final cost of the product is high, advantages such as lower prices can be experienced, offering new or improved products or services, to its existing clients and to new segments of better-income clients14, understanding that Offshoring is not only focused on the transfer of production processes to places abroad, but the trend has extended to services given all the development of telecommunications and the digitization of business processes.
Due to the flexibility of the process and the adoption of economies of scale, it is possible to have savings of 40 or 50%, focused on labor costs15, but also using the advantages presented by developing countries such as India, where most Part of its workforce speaks English, around the world many companies have decided to locate remote operations, taking advantage of their low salaries, focusing on activities, such as call centers, technical support, 24 hours a day 7 days a week or information technologies16. In addition to this, there is a higher quality of service with existing customers, but so far this advantage has not been fully demonstrated, understanding that consumption habits are sometimes one more obstacle that must be overcome by the new trend.Since in some business processes such as technical support and Call Centers, confidential data must be obtained, it is there that fear appears on the part of the consumer, hindering on some occasions the proper development of the process.
The Kraemer study shows that the decrease in labor costs is the first benefit expressed by 80% of the firms, there are also savings in taxes, environmental regulations, ease of being connected 24 hours a day, 7 days a week. week and savings in the time of production processes.
The trend also presents a win-win game for the countries involved in the process, as indicated by Kart Sauvant, director of UNCTAD (United Nations Conference on trade and development), Robert Gandossy and Tina Kao of the consulting firm Hewitt, on the part of developed countries. The trend generates an attractive demand in developing countries, additionally that the savings can be invested in new business opportunities, this investment will increase productivity and create new jobs, which should on average have a higher added value and helps companies invest in next generations of technologies and business ideas,taking into account that the world is more flexible and with an innovated economy, in addition to the fact that suppliers located in developing countries also use materials for the assembly of Offshoring processes in their country, a situation that creates more exports from developed countries18; For developing countries, the advantages expressed are the greater export of goods and services, generating a positive balance in the trade balance, with adequate policies on the part of the governments, developing countries attract more foreign investment that is invested adequately in education, infrastructure, technology and telecommunications will generate economic growth and a higher quality of life for its inhabitants.situation that creates more exports from developed countries18; For developing countries, the advantages expressed are the greater export of goods and services, generating a positive balance in the trade balance, with appropriate policies on the part of governments, developing countries attract greater foreign investment that is invested adequately in education, infrastructure, technology and telecommunications will generate economic growth and a higher quality of life for its inhabitants.situation that creates more exports from developed countries18; For developing countries, the advantages expressed are the greater export of goods and services, generating a positive balance in the trade balance, with appropriate policies on the part of governments, developing countries attract greater foreign investment that is invested adequately in education, infrastructure, technology and telecommunications will generate economic growth and a higher quality of life for its inhabitants.With adequate policies on the part of the governments, developing countries attract greater foreign investment, which if properly invested in education, infrastructure, technology and telecommunications will generate economic growth and a higher quality of life for their inhabitants.With adequate policies on the part of the governments, developing countries attract greater foreign investment, which if properly invested in education, infrastructure, technology and telecommunications will generate economic growth and a higher quality of life for their inhabitants.
Companies with this type of practice obtain competitiveness and productivity, with an additional element that if routine business functions are transferred to other places, business leaders gain time, energy and skills to focus on the functions that form the core of their business. survival and growth of the business19, which is why it should be considered as a viable business strategy, which with high competition and pressure to reduce costs is a necessary strategy within the company.
In response to those who say that the Offshoring trend and the large labor force in China and India could cause unemployment problems in the United States and Europe20, Hewitt assures that the solution to this job loss lies in entrepreneurs and an innovative spirit of businessmen, in which they may be able to generate more jobs for developed countries than offshoring destroys by developing and promoting products for consumers in emerging markets.
1.4.2. PROBLEMS OR RISKS
Contrary to the defenders of the trend, there are a series of authors, who, supported by bad experiences evidenced in companies that have decided to enter the trend and by research carried out by them, have concluded that Offshoring is a business strategy, which in contrast to what the defenders say, the negative impacts in the developed economies will not wait if the trend continues. Some workers in the United States and Europe will lose their jobs, the logical response to the trend is to make the workforce in developed countries more flexible and have a greater force for change, however the problem arises when experts like Farell argue that the problem It occurs in that trade in services is different from trade in goods,Therefore, it produces fewer benefits for the economy, since it is not a real sector of the economy, in addition to the fact that the unemployed in developed countries are not willing to be employed with lower wages or to work in sectors for which they are not trained.
The problems evidenced with the loss of quality of customer service in the case of Call Centers located mostly in India due to cultural problems, such as Anglicisms and dialects that the companies' customers present in some cases are clear evidence of the barriers that arise in this new trend; although the country produces annually 120,000 professionals annually, all mastering the English language. In the case of the manufacturing sector, the most obvious problems are in the logistics area, since the most attractive countries for companies are Asian countries due to their low costs, so distance is the worst enemy that companies must face where average boat trips are between 4 and 6 weeks,situation that does not allow adequate planning of "Just in Time" due to the tight schedules. Based on the fact that costs according to a study by Hewitt were 60%, however in practice the savings only reached 12.2%, since the hidden costs brought by the relocation processes were not taken into account (such as logistics and the remanufacturing of defective products, given the loss of control or the fear of customers to give confidential information to people with different dialects in the case of call centers).since the hidden costs brought by the relocation processes were not taken into account (such as logistics and remanufacturing in defective products, given the loss of control or the fear of customers to give confidential information to people with different dialects in the case of call centers).since the hidden costs brought by the relocation processes were not taken into account (such as logistics and remanufacturing in defective products, given the loss of control or the fear of customers to give confidential information to people with different dialects in the case of call centers).
But the problems are not the cause of the Offshoring trend and have arisen during the outsourcing era where the main problem arose when companies preferred low costs over quality22, in addition to the lack of control that the tool presented.
The biggest risks are that in many cases the true costs are not being taken into account when budgets are prepared, and in many cases the budgets do not adjust to the reality of the situation. Cost savings are incredibly calculated only on labor costs, others, including tangible or intangible ones, are rarely taken into consideration, because they are not part of the cost of the product, but are paid from other budgets23; Added to the fact that the lack of flexibility in the schedules in the transfer of processes to countries like China has triggered a reevaluation of the trend.
Problems with cash flow is a characteristic of companies located in developed countries, since many Asian logistics companies ask that payment be made when the container door closes, increasing risks and having to wait at least 4 weeks for the product to reach the final consumer, that without taking into account the other problem that occurs when the product is once in the ocean, due to climatic factors or defects from emerging countries due to loss of control, The company realizes that it has to be remanufactured, and the products cannot be returned so the remanufacturing must be done when the product reaches the distribution zone located in a developed country.
Companies also insure cargo against all kinds of losses, taking into account that 90% of the world's cargo is made by sea24, causing the risk of a collision to be very high and pirate attacks to be constant, however the transport companies They do not report this type of accident so that insurance companies do not increase the risk and therefore the insurance rates. The problem with shipping the product by air is the limit of its capacity.
Sales forecasts are also modified in companies in the long term, since once it is decided to locate processes in emerging countries, in contracts with suppliers the characteristics of the products such as quality and design are stipulated during the time they establish the parties, the risk appears when the consumption habits of the clients change drastically, requiring companies to change characteristics or innovate in new products, causing companies to renegotiate the contract with suppliers and that is where they change conditions and costs for companies are increased. In the short term, the forecasts defined 4 or 6 weeks in advance are modified according to how the demand behaves,As the products are consolidated in Containers to pre-established distribution centers, the problem is that new routes to places where demand is attractive must be defined starting from this distribution center, understanding that consumer tastes may change in question. weeks or days, however companies are using deconsolidation centers close to the ports of arrival of the product and thus make decisions where to send the products.However, companies are using deconsolidation centers close to the ports of arrival of the product and thus make decisions where to send the products.However, companies are using deconsolidation centers close to the ports of arrival of the product and thus make decisions where to send the products.
Problems with product quality are also frequent in offshore operations, added to the low control of the company over production, it is added that the raw material in emerging countries is not adequate to maintain quality, so the raw material must be transported from developed countries to the destination country, increasing costs due to the lack of infrastructure that exists in developing countries and on other occasions quality is sacrificed for low cost.
In addition to this, the executives of the companies in the planning period must make constant trips to emerging countries that take an average of 20 hours, so the executives must travel with the greatest comfort and stay in the best hotels, this amount of costs, as they are not part of the final cost of the product, they are not taken into account. In addition to the selection of the vendor for the operation, it is the most critical step in planning and takes a lot of time and effort, so due diligence, evaluation, documentation and responsibilities make the cost rise.
A frequent problem that had already arisen in the case of Japanese companies located in Taiwan in previous years is the replications to the products, in the case of Offshoring, what companies are doing is creating a new direct competitor for their products in foreign markets with more competitive prices26. Suppliers use the engineering used in production processes to create identical replicas and in this way use the cost advantages they have to exploit both the domestic market and to penetrate new markets.
Finally, in emerging countries, social problems are common, the situation of the population in some cases is extreme poverty, the economic and political situation is dangerous, so the business environment is risky and, most importantly, contagious diseases could enter developed countries in products that have their process in emerging countries. Added to the legal problems, cultural difficulties and the position of some nations to open their doors to foreign companies.
1.5. THE TREND AND ITS RELATIONSHIP WITH THE VALUE CHAIN
The location of each activity in the value chain of the company represents its importance and its contribution to the key activities of the business, therefore, before entering a relocation process, it is advisable to evaluate each activity with critical factors that affect the value chain, such as availability, waiting time, flexibility, quality and costs, just like each activity has subcategories that do not necessarily have to be relocated, but that should also be evaluated, in order not to lose the core competencies that will allow the company to establish a competitive advantage; For this reason, routine business activities such as technical support and accounting are those that have the greatest risk of being developed in different locations, given their little contribution to both competitive advantage and core competition.
The competitive advantage developed by Porter finds its base from three dimensions which are cost leadership, differentiation and focus on strategy; Offshoring as a business process helps companies to obtain advantages in the three dimensions, by means of cost leadership, companies that decide to enter the trend decrease their cost structure, showing leadership in this aspect; Differentiation is a fundamental aspect for the company, that is why with the process a difference is obtained that is very noticeable by the consumer, the activities that are not core are relocated, with this, managers take time to develop and enhance the activities that constitute the center of the business through innovation which is the key to the hypercompetitive business world;it is only achieved if there is rigorous monitoring of emerging markets without having to pay attention to routine activities28; and finally, the focus on strategy allows the company and its leaders to focus on the key activities of the business situation that with the help of locating activities in different geographical parts with the same efficiency and effectiveness as if it were done in the country of origin, contributes to cost and time savings being used in key activities of the company.and finally, the focus on strategy allows the company and its leaders to focus on the key activities of the business situation that with the help of locating activities in different geographical parts with the same efficiency and effectiveness as if it were done in the country of origin, contributes to cost and time savings being used in key activities of the company.and finally, the focus on strategy allows the company and its leaders to focus on the key activities of the business situation that with the help of locating activities in different geographical parts with the same efficiency and effectiveness as if it were done in the country of origin, contributes to cost and time savings being used in key activities of the company.
When the analysis and location of each activity in the value chain are clear, the following matrix will help the company make the decision as to which activity to keep internally and which to outsource or outsource.
The location of the activity in the parent company must be constantly evaluated by business leaders, thanks to the open system in which the company develops, in which an activity that may be a candidate to be relocated at some point in time can become in a key activity that must be kept within the company.
However, risks are also present and could affect the correct functioning of the value chain, taking into account factors such as control and quality of the activity, especially in the case of the supply chain when deciding to locate operations in emerging nations. Therefore, it is recommended that low manufacturing costs do not follow the reality of the company, carefully evaluate the full range of options and project future developments to determine which is the best29 will contribute to the correct development of the value chain.
QUOTES
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3 FARRELL, DIANA. Beyond offshoring: Assess the global potential of your company. December 2004. P. 1-
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4 HOGAN, BRIAN. Going offshore´s easy, right ?. In: ABI / INFORM Global; Proquest Data Bases. (December 2004). P. 75-
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P. 1-8.
6 FARRELL, Op. Cit., P. one.
7 GNUSCHKE, JOHN; WALLACE, JEFF; WILSON, DENNIS; SMITH, STEPHEN. Outsourcing production and jobs: Costs and benefits. In: South Dakota business review. South Dakota. June 2004. P. 1-12.
8 KEDIA, BEN; LAHIRI, SOMMATH; LOVVORN, AL. Seeking competitive advantage on distant shores. In: European business forum. Spring 2005. P. 37-40.
9 PARKER, ANDREW. Two-speed Europe: Why 1 million jobs will move offshore. August 18, 2004. P. 1-13.
10 FORRESTER. 2002. 3.3. Million Us services jobs to go offshore.
11 KRAEMER; DEDRICK. Op. Cit., P. one.
12 PARKER. Op. Cit., P. one.
13 GNUSCHKE; WALLACE; WILSON; SMITH. Op. Cit., P. 6.
14 FARRELL. Op. Cit., P. 5.
15 ANONYMOUS. Op. Cit., P. 7.
16 GANDOSSY, ROBERT; KAO, TINA. Overseas connections. In: Across the board (Jan / Feb 2005). Proquest Data Bases. P. 39-42.
17 KRAEMER; DEDRICK. Op. Cit., P. 3.
18 BAILY, MARTIN; FARRELL, DIANA. Exploding the myths of offshoring. In: The Mckinsey Quarterly. July 2004. Web exclusive.
19 KEDIA; LAHIRI; LOVVORN. Op. Cit., P. 37.
20 BAILY; FARRELL. Op. Cit., P. one.
21 GANDOSSY; KAO. Op. Cit., P. 40.
22 ANONYMOUS. Op. Cit., P. 4.
23 HOGAN. Op. Cit., P. 76.
24 HOGAN. Op. Cit., P. 78.
25 HOGAN. Op. Cit., P. 82.
26 ANONYMOUS. Offshore sourcing: The hidden costs. In: Foundry management & technology (May 2001). Proquest data bases. ABI / INFORM trade & Industry. P. 20-23.
27 KEDIA; LAHIRI; LOVVORN. Op. Cit., P. 39.
28 KEDIA; LAHIRI; LOVVORN. Op. Cit., P. 38.
29 TRUNICK, PERRY. How to Project your global supply chain. In: Logistics today (August 2004). Proquest data bases. ABI / INFORM Global. P. 42-46.
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