Globalisation, Outsourcing and The Importance of Geographical Coverage

Introduction

In my dissertation, I plan to cover Globalisation, Outsourcing and the importance of Geographical Coverage for global firms and the many different factors that are considered when choosing to expand to a new location. On the back of this my research question will be: What is the importance of Globalisation, Outsourcing and Geographical Coverage for Trans-National Corporations?

Globalisation is the process by which firms expand and thus integrating international trade, investment and cultures. By using globalisation firms can gain a competitive advantage by lowering operating costs, seeking new raw materials and access to a wider range of talent. Outsourcing is the agreement between two companies in which one company contracts out a part of an existing internal activity to another company (McCarthy and Anagnostou, 2004).

I will look into how globalisation and outsourcing play a major part in today’s economy and investigate the pros and cons of each. As my team has recently outsourced a large portion of its processing functions and are now primarily a governance team, I see this as an opportunity to gain insight into the positives that outsourcing has brought. When choosing a new location company have to take in to account many factors from location costs to geographical location in case of natural disasters to accessibility and many more. Multi-National Companies have offices all over the world for example Morgan Stanley has offices in 42 different countries (Morgan Stanley, 2018) and each of these offices will be strategically placed to maximise productivity and lower costs.

I will look into the factors that companies take into consideration when choosing to expand to new locations including the use of the Follow the Sun Model (FTS), Strategic Positioning and Efficiency and find out which have the most influence. I will look into and analyse examples of where companies have struggled and strived because of their location strategy as well as look into recent industry trends on the same matter. To support my analysis, I plan to use a wide range of academic journals, books and newspaper articles to gain wider knowledge on the subject. On top of this I will be able to build on what I have learnt in my modules from Part A & B of my course.

Globalisation

Globalization represents the global integration of international trade, investment, information technology and cultures. (Investopedia, 2018)Globalization refers to the increasing interdependence of world economies as a result of the growing scale of cross-border trade of commodities and services, the flow of international capital and wide and rapid spread of technologies. (United Nations, 2000)The process by which businesses or other organizations develop international influence or start operating on an international scale. (Oxford Dictionary, 2018)

As seen in the definitions above globalization doesn’t have an absolute definition and on the most part remains a loosely defined theory. A certain fact however is that it is a complicated process that has widespread and varied impacts on both the developed and developing nations. In this section, a few of the pros and cons of globalisation will be discussed as well as the effect it has on today’s economy.

Effect on Today’s Economy

Major changes in the economic environment of any nation is more than likely driven by globalisation. As previously mentioned globalisation allows for the free movement of labour, trade, assets and people. This in turn causes global economic growth as free movement generates a positive impact in the quality of life of a nation’s population. Of course, globalisation and economic growth can have good and bad effects on a nation’s society.

The most apparent benefit of economic growth is the increase in living standards as a result of higher GDP per capita. More of the pros and cons will be reviewed later on in this section. A prime example of Globalisation can be found by looking at the majority of MNC’s. For example, Microsoft Windows is a U. S company that has outsourced its technical support to India. This in turn creates a large number of job opportunities in India for IT professionals.

Although MNC’s create a large number of jobs in developing and emerging nations the revenue that is earned in that nation as a result of the jobs created doesn’t stay within that economy and instead the eventual benefit goes to the MNC’s home economy. An example of this is Nike, you can purchase Nike products almost anywhere in the world but ultimately the economy that benefits is America, yet Nike can still relish the opportunity of cheaper labour and resources. In the next part, some of the pros and cons of globalisation will be discussed in depth:

Free Trade is trade without any restrictions. This means reduced or no barriers such as value-added tax, tariffs, subsidies etc. All in all, this would be conceived as a pro to globalisation however it isn’t as simple as it seems. According to the Washington Post, ‘the problem is that the big G20 countries added more than 1,200 restrictive export and import measures since 2008’ suggesting that the idea of ‘Free Trade’ is not actually as it seems.

As exports increase due to free trade the costs per unit decrease due to the increased total output of a product. This benefits production of goods due to the decreased costs.

For many developing nations, the injection of foreign capital and technology has presented the chance of economic growth through the spreading of wealth. This has also allowed many developing nations access to the markets of developed nations allowing them to export goods globally.

Globalisation has helped nations learn about other cultures around the world and become more tolerable of them. As well as promoted tourism to many developing countries again injecting wealth into multiple nations and this aiding with economic growth. On the downside of this globalisation has led to the loss of cultural identity because Western thoughts have been transported to the East.

As a result of Globalisation, many firms now outsource their services to emerging countries such as India and China in a bid to minimise costs. This leads to a loss of jobs in developed countries resulting in higher levels of unemployment. Outsourcing will be discussed more in-depth throughout.

The increased production and consumption of products has led to a number of pollution problems which can be seen all over the world. For example, the increase in the number of products being produced and transported leads to a rise in air pollution.