Global Competitiveness and Outsourcing in Business

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Abstract

Globalization, especially economic globalization, has led to a competitive business environment. To meet the demands of globalization, firms have undertaken various strategies including outsourcing and international diversification of their operations. Outsourcing has the advantage of lowering operational and net production costs.

However, companies outsourcing abroad must consider various factors associated with the foreign supplier business practices. In addition, to enhance global competitiveness, supervisors need to identify specified personality traits, which sometimes result to problematic workplace behaviors.

In this way, employee performance can be improved. Globalization has some benefits and associated costs to the economies, regionally and globally. In particular, the distribution of the benefits often raises the issue of equity and has the potential of resulting to conflicts.

What are the key issues for consideration before sourcing production abroad?

In recent years, there has been a trend where manufacturers in industrialized nations outsource production, call centers, and vendor services to companies abroad.

Given this increasing trend, there are some issues which American companies must consider when outsourcing vendor services or manufacturing from either domestic or foreign sources. Among the principal issues are the issues of product pricing, product trade name, product warranties and contract enforcement issues.

Product pricing and contractual issues involving the vendor and the distributor often arise in any outsourcing from foreign sources (Kotler, & Keller, 2009, p. 116). In particular, contention as to which party between the vendor and the distributor should incur the initial cost of product design and development often arise in outsourcing.

The supplier may not bear the initial cost of product development if the projected return from the investment is low. Additionally, the supplier may prefer a long-term contractual agreement, which ensure sustainability by generating enough returns to cover the tooling costs.

The distributor, on the other hand, may consider outsourcing services from a different firm if the product is not performing well in the market (Kotler, & Keller, 2009, p. 114). In the light of this, the two parties often agree on a multi-year form of contract, which provide for reimbursement of initial production costs between the parties. However, multi-layer contracts often raise the issues of product pricing.

As the production costs are dependent on volatile labor rates and material prices, developing a formula for pricing is often a challenge. Often, the foreign manufacturer proposes a price adjustment yearly. However, the American market may opt for cheaper alternative products. Therefore, the American firm should advance or reimburse the tooling costs to a foreign firm, which, however, should be returned upon contract termination.

Issues of products liability and cover also arise in outsourcing agreements. The American distributor may prefer that the costs resulting from personal injuries or damage to property be borne by the foreign firm or its insurance cover.

However, in some countries such as China, it is often difficult to transfer coverage or product liability to the foreign firm. In effect, most Chinese firms may not provide coverage for product liability. This implies that the American company should consider the insurance costs during outsourcing contract negotiations.

Product warranty is another issue that affects outsourcing agreements. Often, the product warranty is a preserve of the foreign manufacturer.

Since customer claims regarding defective products may not be covered by the product liability insurance, the American firm must seek for warranty for protection. However, since product design involves collaboration between the two parties, the foreign firm may fail to give a long-term product warranty. Additionally, warranty issues such as shipping costs or repair costs should be addressed during contract negotiations.

Fluctuations in currency exchange rates present challenges to outsourcing. Often, the American firm may prefer payment to be made in dollars to avoid the risks associated with currency fluctuations. However, the foreign firm may not prefer this especially for large transactions. Trade name or logo is another issue that American firms should consider when outsourcing from foreign companies.

Often, since the products are primarily meant for the American market, the foreign firm will apply the logo and trade name of the American company. However, in the agreement should strictly limit the use of the logo and name to the product(s) only.

Additionally, enforcement issues are often a challenge. In case of disputes, litigation in foreign jurisdictions is problematic due to variations in business laws across countries. However, arbitration can resolve disputes compared to litigation.

What are the strategies for dealing with three types of difficult workers? First, you have to identify the type and then provide the strategies

Difficult people demonstrate behaviors that make it difficult for other people to work with them. Difficult human behaviors originate from either hereditary factors or formative life experience (Meredith, & Shafer, 2010, p. 76). In order to deal with difficult behaviors effectively, it is essential for supervisors to recognize the role of personality in shaping difficult behaviors.

Four personality traits exhibit difficult behaviors in the workplace: dominant, patient, extrovert and conformist personality traits. The dominants exhibit many qualities that make them easily identifiable. They are self-assertive and active in their tasks and aim to accomplish the goals of a project.

They lead by example, enjoy challenging tasks, and are confident decision makers. Most importantly, the dominant personalities prefer to control people and resources to achieve specified goals.

However, dominants often exhibit difficult behaviors in response to situations they dislike. Dominants sometimes can exhibit insensitivity towards other people’s feelings especially those who restrict their goal accomplishment. The strategy to counter this behavior is to confront them and encourage them to consider other people’s feelings or perceptions before taking any action.

They are usually apologetic and usually respond accordingly (Meredith, & Shafer, 2010, p. 82). Other dominants’ difficult behaviors include their constant agitation for change and innovation, which may be disruptive to others.

The response to this should be to ask them to involve the other people’s input before taking action. Additionally, the supervisor can request them to communicate their change plans openly and expect feedback before taking action.

Another problematic behavior shown by dominants is the tendency to ignore authority, which can be disruptive especially to the supervisor. The supervisor should ask them to evaluate their behavior from the supervisor’s perspective and explain how ignoring established authority can create misunderstandings.

The dominant’s desire for a challenge and risks make other people anxious and uncomfortable, which kill teamwork spirit. To counter this, the supervisor should ask them to offer solutions or alternatives to current problems before trying a new venture.

The extroverts are more people-oriented than task-oriented and thus, excel in activities that involve teams. However, extroverts sometimes exhibit defensive, often emotional, when their reputation is threatened especially with regard to their social standing in a group. Additionally, due to their outgoing nature, extroverts find it difficult to remain focused on a given task, follow instructions, or rules, and be punctual in meetings.

To help extrovert employees, supervisors should assign them tasks that involve people or teams. Additionally, complimenting their efforts during teamwork can motivate them. The supervisor should also pay attention to their opinions and confront them when they fail to follow rules or protocols.

The patient personality types, on the other hand, exhibit a balance with regard to task and tasks. They show patience during task performance and prefer to handle one task at ago with no interruptions. They are adept at setting priorities and emphasize on quality when performing tasks. However, patient personality individuals find it difficult to take risks or adopt change.

Additionally, they are concerned more of injustice in the workplace and take more time pursuing fairness. To help patient personality individuals, supervisors should provide sufficient information prior to implementing any change or innovation. Moreover, fair treatment of all employees and fair resolution of workplace conflicts can motivate patient personality people.

What are the executive traits? Apply these traits to a global perspective

The impact of globalization on organizations is profound. This calls for a shift in leadership styles in order to confront the emerging challenges of globalization. The challenges of technological advancement and capital and labor mobility call for strategic leaders with more diverse attributes.

A Combination of these characteristics is essential for the effective management of an organization in the wake of globalization and environmental turbulence (Cohen, & Levinthal, 1990, p. 128). Essential executive traits include the capacity to absorb changes especially in technology, future orientation, pro-activity, and the ability to take risks.

One of the principal executive traits of a strategic leader is absorptive capacity. This means that the leader should have the capacity to obtain and analyze new information from an innovation perspective and readily embrace institutional change. Cohen and Levinthal (1992, p.129) hold the view that, absorptive capacity stems from prior knowledge, previous work-related roles and individual cognitive structures.

Often, the gatekeepers and line managers at strategic levels of the organization should exhibit absorptive capacity especially with regard to research and development (Cohen, & Levinthal, 1990, p. 131). Absorptive capacity allows leaders to make effective decisions in the increasingly complex global environment.

Futuristic or visionary is another noteworthy characteristic of efficient leaders. Rowe (2001, p.81) contends that, strategic business leaders should be futuristic with regard to implications of present risks or challenges on future business viability. Additionally, this quality is paramount in making projections about future challenges and competition issues.

This implies proactive use of current information to predict future market conditions both in the short-term and long-term basis. Accordingly, effective executives possess a vision, are inspirational and constantly forecast the future based on facts and values.

The global business environment is highly dynamic. Therefore, future orientation gives the CEO to the capacity to make strategic decisions based on powerful predictions of the future business environment.

Although, conceptualization and strategic decision-making leadership are indispensable qualities of an executive, the capacity to take action in a timely manner is of most significance. The actual action should be timely in order to achieve the desired impact.

Rowe (2001, p.82) defines the ability to undertake an action as the capacity to implement necessary measures at appropriate strategic inflection points (SIPs) in order to achieve optimal impact. In this regard, SIPs can involve technological changes, innovations, or improved products that revive and reinvent the old systems.

Rowe argues that, demographically, younger CEOs have a higher likelihood to act compared to older CEOs who prefer the status quo (2001, p. 85). In this respect, executives must be transformational with regard to change and revival. They know how to utilize information to predict future actions and know the opportune time at which action will have the most impact.

Risk-taking is an essential quality of effective business executives. It involves effective cost-benefit analysis of available options to make a decision event with scanty information. Under these situations of uncertainty, the chances of success or failure are not clear. Effective CEOs must possess relevant skills to evaluate potential risks and be bold to take action.

However, they should be flexible enough to avoid potential disasters associated with poor managerial decisions. Risk-taking is an essential quality of innovative executives (Cohen, & Levinthal, 1990, p. 132).

It determines success or failure of an organization both in the short-term and long-term basis. Risk-taking is a fundamental trait in today’s global business environment that is characterized with many opportunities, risks, and stiff competition.

What are the factors that can draw companies into the international area? Expand with detail explanation for each of the factors

Many factors contribute to expansion of the domestic firms to international markets. These factors are the driving forces behind international diversification of local firms and are of immense significance to the investors. Size, penetration projections, market access, annual growth earnings, leveraging advantage are some of the factors that drive publicly traded organizations to diversify their operations internationally.

Baek (2004, p. 135) argues that, a firm’s size can affect its benefits and costs for two reasons; firstly, a larger firm may experience a comparatively larger change in its income, and secondly, the large income change may affect costs and benefits. However, this depends on the firm’s size. In this regard, a firm’s size influences the decision to expand to international markets to minimize its costs and increase the benefits.

Another factor that drives a firm’s internationalization plans is a competitive advantage. Baek (2004, p. 137) contends that, accounting practices of a firm are associated with their size and leverage.

This implies that firms that seek competitive advantage are more risky than risk-averse firms are. In this regard, such firms have a culture of taking risks and are thus, more likely to diversify their operations in markets abroad. Therefore, the leveraging nature of a firm determines its inclination to risk exposure and consequently its decision to invest abroad.

The desire to enhance a firm’s penetration is another factor that drives a firm to international markets. Increased competition in the domestic market often drives some firms to overseas markets to explore opportunities for higher growth (Baek, 2004, p. 139). The expansions also aim at increasing brand recognition in overseas markets and consequently achieve a higher market share.

Of most significance, however, is the firm’s level of penetration of the domestic market. Enhanced penetration of the local market drives a firm to international diversification. Additionally, the level of penetration of the local market also determines a firm’s decision to diversify internationally.

A declining level of penetration, especially of large firms, will influence its decision to expand to overseas markets. Therefore, a change in the penetration rate in the domestic market affects a firm’s decision to expand.

The annual earnings from the domestic market also affect a firm’s decision to expand abroad. In other words, the growth and profitability of a firm bears a positive relationship with its international diversification plans. A firm’s financial performance in the domestic arena determines its decision to establish more subsidiaries both locally and abroad.

Nevertheless, according to Baek (2004, p. 141), if a firm is experiencing positive financial performance from its domestic operations, it may delay expanding to overseas markets, which are more risky. The condition of the domestic market also influences a firm’s decision to diversify its operations internationally.

A rise in the domestic consumer spending, or excess annual market return, will create the impression that there is more room for domestic expansion, which will delay overseas expansion. Conversely, a decline in consumer spending, as indicated by lower annual market returns, will imply a saturated domestic market and hence lead to internationalization of a firm’s operations.

Discuss the costs and benefits of globalization. Provide examples of how globalization has helped or harmed individual nations and the world economy

Globalization is an influential phenomenon that takes multiple dimensions: political, economic, environment, social, health, and cultural aspects. Contrasting views exist with regard to economic globalization; while most people hold the view that it is beneficial to the global economy, others contend that, its effects are detrimental.

Globalization in the context of the world economy encompasses increased global trade, improved foreign exchanges, and an open international trade across national boundaries. It means increased technology transfer, enhanced capital and labor mobility as well as free flows of ideas internationally. The positive effects of globalization stem from enhanced competition on the global front.

Globalization has enhanced competition on a global scale, which has associated beneficial effects in terms of output and production efficiency. Competition enhances market diversification, which brings the benefits of a market system: division of labor and specialization (Eleonore, & Youngs, 1996, p. 157). Specialization and the division of labor have implications on production output and efficiency on a national scale and globally.

Additionally, globalization leads to economies of scale, which has the potential of reducing production costs and subsequently the prices of commodities or services. Lower prices of goods and services attract investments, which stimulate economic growth in countries.

Another benefit of globalization involves the gains resulting from bilateral and multilateral trade agreements. In such agreements, both parties (countries) stand to gain through trade exchanges at the organizational level, economic blocs, national, or continental levels.

Economic globalization often leads to the coordination of production activities and facilitation of labor and capital mobility on a global basis. This enhances productivity both nationally and regionally. In addition, accelerated technology transfer fosters continual innovation and competition on a global scale.

Overall, the economic globalization benefits are potentially advantageous to all nations, as increased output results to higher GDP and wages, and by extension, improved standards of living. However, equitable distribution of globalization benefits is an issue globally.

Globalization also has its costs has the potential of creating problems and conflicts. Among its main costs is the issue of equity of the benefits resulting from globalization between nations, regions, or organizations (Giddens, 2000, p. 69). Much of the gains of globalization end up in developed nations, which results to economic inequalities that have the potential of resulting to international conflicts.

For example, East Asia economies are growing at such a rapid rate due to economic globalization while the economies of developing nations in Africa and Latin America remain stagnated. This will result to polarization of incomes on a global scale as the middle-income economies become richer, and the developing economies become poorer. Additionally, the issue of equity in distribution of the gains of globalization is often a challenge.

Another problem resulting from economic globalization is regional instability resulting from economic interdependencies regionally and globally. Evidence from recent financial crises indicates that, fluctuations in a given country’s economy, in terms of exchange rates or domestic liquidity, affect regional and global economies.

The 2007 US financial crisis is an outstanding example as it resulted to a worldwide recession of financial markets. This implies that, interconnected economies are more vulnerable to a financial crisis from a single economy (Eleonore, & Youngs, 1996, p. 161). The recession attracted protectionism economic measures that have the potential of creating conflicts and economic warfare.

Another problem associated with globalization is the tendency of the control of national economies to shift from governments to international entities such as multinational organizations. This has the potential of undermining national sovereignty, which result to extreme protectionism policies, fundamentalism, and xenophobic activism.

Reference List

Baek, H.Y. (2004). Corporation Diversification and Performance: Evidence on Production Efficiency. Journal of Multinational Financial Management, 14, 135-142.

Cohen, W., & Levinthal, D. (1990). Absorptive Capacity: A New Perspective on Learning and Innovation. Administrative Science Quarterly, 35, 128-132.

Eleonore, K., & Youngs, G. (1996). Globalization: Theory and Practice, New York: Pinter.

Giddens, A. (2000). Runaway World: How Globalization Is Reshaping Our Lives, London: Routledge.

Kotler, P., & Keller, K. (2009). Marketing Management. New York: Prentice Hall.

Meredith, J. R., & Shafer, M., S. (2010). Operations Management for MBA. London: John Wiley & Sons.

Rowe, W. G. (2001). Creating Wealth in Organizations: The Role of Strategic Leadership. Academy Of Management Executive, 15(1), 81–89.

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