Since the fall of the Berlin wall in 1989, the world has become more globalised than ever (Global Policy, 2003). This globalisation has changed the world and especially the economic and business structure of emerging countries.
Outsourcing is a contractual delegation to an outside supplier (vendor) of a service or an activity that is normally (not always) performed in-house' (Nicholson, B., Jones J., Espenlaub S., 2006). It was first implemented in the 1950s. However, it was only during the 1980s when a wave of globalisation started and the outsourcing strategies adopted by international companies became an important phenomenon (Hatonen J., Eriksson T., 2009). In allowing companies to remain competitive in domestic and international markets, outsourcing has never ceased to increase particularly in emerging markets (Javalgi, R. G., Dixit, A., Scherer, R. F., 2009). Information technology IT' and business services are the leading outsourcing markets as they generated $55 billion in 2008 with an expected growth rate which can reach 20% for the five next years (Oshri, I., Kotlarsky, J., Rottman, Joseph, W., Willcocks, Lesli, L., 2009). Moreover, outsourcing evolves and new sectors are subjected to outsourcing. At the beginning, the biggest companies outsourced only their call centers. Nowadays, big and medium companies continue to outsource their call centers and also new activities like financial services, IT and Business Process Outsourcing BPOs. Outsourcing has taken such scope that every country receives outsourced activities from abroad. Concerning emerging markets, the main outsourcing receivers are the BRIC countries, especially India and China, and also South American countries, East European countries and South Asian countries.
Why outsourcing in emerging countries can be used to gain competitive advantage?
[...] Porter's Five Forces advance that a competitive advantage can be gained by economies of scale in order to be cheaper than its competitors (Porter, M., 1998). The other factor demonstrated by Porter to gain a competitive advantage is differentiation. Differentiation consists of developing unique assets in the market by creating added-value to the products or services. What are the key factors of outsourcing in emerging markets? First of all, the financial reason is, in many cases, the first key driver that encourage companies to outsource to emerging countries (Karyda, M., Mitrou, E., Quirchmayr, G., 2006). [...]
[...] The same time zone or a small time zone difference encourages international companies to outsource a part of their project, their research and development department, call centers to emerging markets as their offer has better competitiveness at a lower cost. With the same time zone, companies get much more flexibility, because decisions are taken rapidly, and also because there is an interactive collaboration between the engineers in emerging countries and those in the parent company (Willcocks, L., Griffiths, C. Kotlarsky, J. [...]
[...] However, not all companies gain a competitive advantage in outsourcing to developing countries, because outsourcing is not without risks. The biggest problem that a company can experience is the intellectual property risk. As we have seen previously, emerging countries have increased their level of labor workers and also their technology. Even if there are some rules, for example the agreement of the WTO on the intellectual property right (TRIPs) which has for an objective to protect the patents (World Trade Organization, 2010), emerging markets still attempt to copy processes or products from developed countries. [...]
[...] This high-skilled, lower paid labor force allows companies to gain competitive advantage in cost leadership and also in differentiation. The differentiation is made by the fact that new high- skilled workers bring high added-value to the company and thus offer better quality products and services. Even if companies outsource to emerging markets for reducing their costs, they maintain it as a rule for making quality products (Willcocks, L., Griffiths, C. Kotlarsky, J., 2009). Nowadays, the quality of labor skills is so high that it allows companies to employ Indian radiologists directly in India to analyze tomography scans, chest x rays of clients etc. [...]
[...] This report answers the question outsourcing to emerging countries can be used to gain competitive advantage?' in explaining that competitive advantage is realized when you have cost leadership and differentiation. Emerging countries have perfectly understood the role that they must play to attract international business in order they gain competitive advantage. Indeed, they offer low costs and high skill labor force which is able to produce high quality products and services. Moreover, they offer some other advantages like culture adaptability, language skills, time zone etc. [...]
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