Name: Oginni Samuel

Matric No: 159029018

(stream 1)

Course IRP 800

Dr Ayim

THE EFFECT OF

OUTSOURCING IN A
 RECESSIONARY

ECONOMY

INTRODUCTION

In todays business world, international experience has become critically

important. Global trends have had an impact on the processes and outcomes of

business fortunes even in developing countries; and have caused industrial

relation actors to think differently about their goals. The current global

economic crisis has been interpreted in many ways, chief of which is that it

signals the end of capitalism or free market economic doctrine as exemplified

by the American economic system. It is said to reincarnate the world economic

depression of the 1930s which saw huge loss of wealth in both the money and

capital markets around the capitalist world and led to actual and attempted

suicide by many investors. It was a crisis that arose from the failure of the

market to correct itself. Global economic recession describes the growing

economic, political, technological, and cultural linkages that connect

individuals, communities, businesses, governments and countries around the

world and the negative impacts it carries with it as felt in the economies of

different states and countries. The Nigerian economy faces the rippling effects

of the global economic crises resulting to breakdown and decline in economic

vigor. The effects find expression in downsizing, mass unemployment, and

crashes in the money market. There is need to understand the dynamics of the

present global economic meltdown with careful study and examination of the

issues involved. The Nigerian economy has continued to witness renewed and

sustained recession, characterized by galloping inflation, unemployment and

declining businesses.

One of the suggested human resource management strategies to REDUCE

recessionary effect is outsourcing. Outsourcing has been taken as a major way

to avoid mass retrenchment. This is because in many ways the scheme is cheap

and easy to manage unlike direct sourcing of staff for employment. Other

strategies to make staff into contract personnel are also a welcomed strategy

instead of downsizing. The Nigerian situation cannot afford to continue the

buildup of unemployed individuals on the streets. This would come with

attending consequences that would outweigh possible solutions to the problem.

The term "Outsourcing" is generally used when Companies contract out certain

business functions to an external supplier, eliminating the need to maintain

internal staff necessary to perform that function. Outsourcing does not

necessarily imply that jobs and production are relocated to another country

(Vander, 2006)

Importance of outsourcing

Outsourcing today has become an essential revenue and growth strategy for

almost every existing corporation. It creates flexibility in the company, ensuring

the maximum utilization of available resources within the company. It also

offers corporations cost advantages and help free up their management

resources.

More importantly, outsourcing helps firms to be focused. Since the most

valuable resource within management is time, once a process is successfully

outsourced, the management gets more and effective time to explore new

revenue streams, time to accelerate other projects and time to focus on

customers. Traditionally executives spend 80 percent of their time managing

details, and only 20 percent on planning and customer relations, in other

words, a successful offshore outsourcing process can help reverse this ratio.

Outsourcing can also help companies to have access to new technologies that

might not be used in their company. This is mainly because the offshore

outsourcing destinations use the latest state-of-the art technologies to serve

their international clients. And this might also increase the chances of rapid

migration of these companies to new technology. Offshore outsourcing also

helps multinational companies to exploit the time zone advantage, by reaping

the benefit of 24-hour development cycle. Receiving round the clock service

benefits as well as providing it to their customers when needed.

Job outsourcing avails organizations the opportunity to concentrate her core

competencies on definable preeminence business area and provide a unique

value for customers. The goals of outsourcing are strategic: improved

efficiencies, lower costs, improved flexibility, higher quality, and a greater ability

to achieve a competitive advantage.

Outsourcing is not a new development in the global economy. Pankaj

Ghemawat, a Harvard Business School professor, traces its roots to whaling

fleets and floating factory ships of the late eighteenth century (Relocating the

Back Office, 2003), Economist Arthur T. Denzau describes the more recent

example of Motorola in the 1960s, when the company outsourced its labor-

intensive assembly process to Malaysia, Korea, and Monterrey, Mexico. As is

often the motive for outsourcing, the move allowed Motorola to compete

effectively with other firms in the United States and, later, Japan (Brian and

Marilyn 2004),
The scale of outsourcing in the past few years dwarfs the levels witnessed in

previous eras. The advances in computer and communication technology as

well as globalization in general, job outsourcing is now much more prevalent

than ever, involving large numbers of both developed and developing countries.

For example, many American companies have outsourced jobs to China and

elsewhere. Nigeria banking firms have outsourced jobs to India. German

companies have outsourced accounting jobs to Poland. Some Japanese

companies have shifted operations to northeastern China, where Japanese is

spoken (http://www.bhuivan.com/, 2004). Outsourcing is such a worldwide

phenomenon that Nigeria, the global leader in outsourcing business, now faces

competition from many other parts of the world, including elsewhere in Asia

and even the East European countries that joined the EU in 2004. Typifying

the controversial nature of job outsource, Perrier, the Swiss-owned mineral

water company, set off a political storm in the small town of Vergeze, France,

when it threatened to move to lower cost locations (Afzal 2004) ,

RELATED LITERATURES

Job outsourcing is the process of replacement of in-house provided activities by

subcontracting it out to external agents. Consequently, the management and

development of innovations in outsourced activities become the responsibility

of an agent external to the firm. Outsourcing avails organizations the

opportunity to concentrate her core competencies on definable preeminence

business area and provide a unique value for customers (Behara, Gundersen, &

Capozzoli, 1995). The goals of outsourcing are strategic: improved efficiencies,

lower costs, improved flexibility, higher quality, and a greater ability to achieve a

competitive advantage

Core competencies are the collective institutional learning capabilities of the

company that allow it to supply products and services that uniquely add

absolute preeminence in those competencies (Hilmer & Quinn, 1994). Core

competencies are the innovative combinations of knowledge, special skills,

proprietary technologies, information, and unique operating methods that

provide the product or the service that the customer value and want to buy

(Greaver, 1999)

When job outsourcing decisions are made on the basis of an in-depth

understanding of the organizations core competencies, and are intended to

build or enhance the organizations competitive advantages, outsourcing

becomes strategic (Bettis, Bradley, & Hamel, 1992).

Kotabe (1998) identifies three types of performance measures as necessary

components in any outsourcing performance measurement system: strategic

measures; financial measures; and quality measures. Malhorta (1997) used

additional dimensions of market performance such as costs savings, cycle time,

customer satisfaction, and productivity to measure the effectiveness of

outsourcing strategy.
 CONCLUSIONS AND RECOMMENDATIONS

Job outsourcing strategy is at the center of the process of organizational

changes and business structure. In this respect, these processes may be

preceded by radical changes which lay the ground work for process re-

engineering. The trend towards virtual corporations based on the relationship

of cooperation among several firms starts with the identification and

exploitation of the concept of core competences, in such a way that new

advantages are obtained from specialization and that the customer receives

added value superior to the levels previously offered. The contemporary

relationship of firms to their business surroundings are conditioned by the

changes in technology and the economic environment. Firms face these

alterations to their surroundings by making qualitative change in the way that

they perform their activities and structure their organization.

Job outsourcing has a series of advantages and disadvantages which can be

divided for analytical purposes into strategic and operational nature. The main

strategic advantages are the creation of competitive advantages, the reduction

of risks, an improved long-term cost structure and an increase in

organizational sale turnover and profitability. From a strategic standpoint,

outsourcing allows the firm to concentrate its efforts on consolidating and

expanding its core competences. On the other hand, among the operational

advantages, we find an increase in efficiency as a result of activities being

carried out by specialized firms and reductions in permanent staff, which then

become variable costs related to the level of activity. As for the disadvantages of

a strategic nature, the most important are the loss of control of activity done

through outsourcing, the transfer of sensitive information, the possibility of

exorbitant price increase by the suppliers at a future date, along with

fluctuations in quality. The operational problems we have observed are

difficulties related to the making of the contract arising from the effects on

human resources.

With respect to problems of an internal nature, it is certain that firms have

turned to outsourcing as a short-term solution to avoiding the rigidities caused

by labor laws. These firms may limit themselves by viewing outsourcing merely

as a simple way of freeing themselves of permanent staff. From this

perspective, outsourcing could represent a phenomenon of opportunity, while

labor legislation is being in accordance with the needs of firms for more flexible

organizations and more professional and motivated workers.

 RECOMMENDATIONS

First of all, outsourcing usually reduces a companys control over how certain

services are delivered, which in turn may raise the companys liability

exposure. Companies that outsource should continue to monitor the

contractors activities and establish constant communication.

Secondly, job outsourcing should come from the workers themselves. That is,

workers should be made to embrace the strategy before implementation so as

to alley the fear of loss of Jobs.

Also, successful implementation of an outsourcing strategy has been credited

with; cost increase profitability and productivity. Therefore, organizations are

system; enjoined to reduce the outsourcing strategy and improve their service

delivery. Company managers agree that successful outsourcing requires a shift

in their mindset, which means that they must manage their contractors and

workers in order to improve on efficient service delivery. Integrating and

managing a diverse, split work force embodying different corporate cultures

and perhaps divided loyalties can be a daunting assignment compared to the

more traditional approach to work force management.

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