“Offshoring is when a company takes one of its factories that it is operating in Canton, Ohio and moves the whole factory to Canton, China” With this simple statement we give thanks to well-known author of The World is Flat, Thomas Friedman, for he puts the very complex concept of offshoring into a fairly understandable one. But the concept of offshoring is far from a simple strategy that firms across the globe partake in. Although one cannot introduce offshoring as a new concept, its rapid global expansion throughout more countries is certainly shedding light on the development of a new dynamic. Offshoring, formally known as “the relocation of production processes abroad” (Bottini & Ernst, 2007), has proved to become a major strategy in the business world and in the face of a rapidly evolving specialization in technological advances. Furthermore, “outsourcing’s continuing growth is due to increasing expertise, reduced costs of more reliable transportation, and the rapid development and deployment of advancements in telecommunications and computers” (Heizer & Render, 2011).
Although offshoring/outsourcing may easily seem like a very cost-effective transition for a firm to lean towards, there are many risks that come about when analyzing potentially negative impacts of the strategy. One aspect that has streamed a constant debate throughout the domestic workforce is the enabling of hiring offshore labor as a result from workers hesitant to relocate to the developing countries. Furthermore, ethical debate has been sparked for the profit firms gain from such extreme cuts in production costs when comparing with costs for the same job in the United States or when focusing on compliance or lack thereof safe labor practices in the developing countries. On one end, there could be a positive economic growth and development through a change in the country’s specialization pattern and an improvement in firm’s productivity. Firms then face the risks with an implication of high adjustment costs through unemployment or inequality. [...]
“Offshoring is when a company takes one of its factories that it is operating in Canton, Ohio and moves the whole factory to Canton, China”With this simple statement we give thanks to well-known author of The World is Flat, Thomas Friedman, for he puts the very complex concept of offshoring into a fairly understandable one. But the concept of offshoring is far from a simple strategy that firms across the globe partake in. Although one cannot introduce offshoring as a new concept, its rapid global expansion throughout more countries is certainly shedding light on the development of a new dynamic. Offshoring, formally known as “the relocation of production processes abroad”(Bottini & Ernst, 2007), has proved to become a major strategy in the business world and in the face of a rapidly evolving specialization in technological advances. Furthermore, “outsourcing’s continuing growth is due to increasing expertise, reduced costs of more reliable transportation, and the rapid development and deployment of advancements in telecommunications and computers” (Heizer & Render, 2011).
Although offshoring/outsourcing may easily seem like a very cost-effective transition for a firm to lean towards, there are many risks that come about when analyzing potentially negative impacts of the strategy. One aspect that has streamed a constant debate throughout the domestic workforce is the enabling of hiring offshore labor as a result from workers hesitant to relocate to the developing countries. Furthermore, ethical debate has been sparked for the profit firms gain from such extreme cuts in production costs when comparing with costs for the same job in the United States or when focusing on compliance or lack thereof safe labor practices in the developing countries. On one end, there could be a positive economic growth and development through a change in the country’s specialization pattern and an improvement in firm’s productivity. Firms then face the risks with an implication of high adjustment costs through unemployment or inequality.
Undeniably, the strategy of offshoring for firms has a rollercoaster of opportunities and risks. Though taking a deeper look into current approaches, there are many firms that outweighed the opportunities from the risks. The leading countries in 2009 for desirable outsourcing destinations based on A.T.Kearney, Inc. were India, China, Malaysia, Thailand, and Brazil. But as analysts begin to take a broader look at the global trends in activities of ITO (Information Technology Outsourcing) and BPO (Business Process Outsourcing), there seems to be an up and coming interest in a focus on the Latin American countries such as Brazil, Mexico, and Argentina. Firms now have an array of countries to choose from rather than just one- and Latin America has arrived front and center offering “low-cost Spanish-language capability and a growing, relatively low-cost, skilled bilingual workforce…with time zones and cultures closely aligned with those of the United States” (A.T. Kearney, Inc., 2007). With so many attractive qualities, firms are starting to question why they didn’t think of Latin American before!
This new focus on Latin America’s development and opportunity growth with outsourcing has targeted the most evolving sectors, including IT maintenance, software development and operations support to business process outsourcing (BPO), shared service centers, as well as call centers. To many, these broad sectors may not seem too familiar. But if we take a look at leading global companies such as General Motors, Exxon, Procter & Gamble, and American Express, we can have a better idea of just what kind of affect the development in Latin America has on the most important firms because they have taken the step to set up large off-shore operations. While Brazil is a top information technology outsourcing services provider and has the largest call center market in Latin America, Mexico contributes to more of the successful developments by serving consumer goods and telecommunication services to U.S. Hispanic customers. Among the key outsourcing providers in Mexico include Telvista, AtenciónTelefónica, Hospanic Teleservices Corporation and Impulse Telecom. Many global leaders in telecommunications have taken the initiative to set up large operations in the northern cities of Tijuana and Monterrey to position them as the leaders in Mexico’s contact center and BPO market. Interestingly, “the major international call centers in Mexico typically have anywhere from 35 to 70 percent of their positions staffed by bilingual agents” (A.T. Kearney, Inc., 2007). This is of primary importance because it faces one of the factors that contribute to Latin American country’s competitive advantage of language skills.
Frequently Asked Questions
What is offshoring, according to Thomas Friedman?
Offshoring is when a company moves its entire factory from one country (e.g., Canton, Ohio) to another (e.g., Canton, China).
What is the formal definition of offshoring?
Offshoring is formally known as "the relocation of production processes abroad."
What factors contribute to the continuing growth of outsourcing?
Increasing expertise, reduced costs of transportation, and rapid advancements in telecommunications and computers all contribute to outsourcing's growth.
What are some potential negative impacts of offshoring?
Potential negative impacts include enabling the hiring of offshore labor, ethical concerns about profit from extreme cost cuts, and high adjustment costs due to unemployment and inequality.
Which countries were leading outsourcing destinations in 2009, according to A.T. Kearney, Inc.?
India, China, Malaysia, Thailand, and Brazil were leading outsourcing destinations.
What is driving the increased interest in Latin American countries for outsourcing?
Latin America offers low-cost Spanish-language capability, a growing skilled bilingual workforce, and time zones and cultures closely aligned with those of the United States.
Which sectors are being targeted for outsourcing in Latin America?
Sectors include IT maintenance, software development and operations support, business process outsourcing (BPO), shared service centers, and call centers.
Which major global companies have established large offshore operations in Latin America?
Companies like General Motors, Exxon, Procter & Gamble, and American Express have set up large offshore operations in Latin America.
Which Latin American countries are prominent in specific areas of outsourcing?
Brazil is a top information technology outsourcing services provider with the largest call center market in Latin America. Mexico serves consumer goods and telecommunication services to U.S. Hispanic customers.
What percentage of positions in major international call centers in Mexico are typically staffed by bilingual agents?
Typically, 35 to 70 percent of positions in major international call centers in Mexico are staffed by bilingual agents.
Why do U.S. companies continue to pursue offshore initiatives in Asian countries?
U.S. companies pursue offshore initiatives in Asian countries due to the necessity of savings on operations costs and the extremely low wage rates.
What is an example of a company that has demonstrated performance improvements through offshoring in Asia?
ETelecareGlobal Solutions, Inc. in the Philippines has reduced the average handling time on inbound calls.
Besides labor rate savings, what other benefits can be gained from offshoring manufacturing operations in Asia?
Time to market can be reduced in electronics hardware products, and software development projects can be completed faster without reduction in quality.
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- Lauren Real (Author), 2012, Destination: Latin America - The Growing Offshore Demand for an Outsourcing Alternative, Munich, GRIN Verlag, https://www.grin.com/document/195026
