Outsourcing and Globalization

If at this point one returns to the question of how big is global production sharing, the
answer clearly is ‘very big’. (Yeats, 2001)

Historically, companies in the United States, Europe and Japan have led globalization, because those countries pushed products and services into developing countries. As the business of offshore sourcing grows, globalization is beginning to become widely accepted elsewhere. With "nearshore" and offshore sourcing, the global equation has changed.

You can't separate outsourcing and globalization anymore - they are directly connected and reinforce each other. Now it is a global job market for many types of work. Cheaper labor, more skilled expertise, freer cash flow, a more flexible working environment and the more effective use of staff has made outsourcing a global phenomenon. Industrial countries like - US, Germany and Japan are top outsourcers. Top insourcers such India, in particular, but also China and Russia are also among top twenty outsourcing countries. This shows that enterprises in developing countries and emerging markets are now reaching into developed economies, offering a talented workforce at a fraction of the price. Developed and developing economies are exploiting each other’s markets, economies and labor forces. Outsourcing is not just one way street from developed to developing countries. A new report “How America Benefits from Economic Engagement with India” shows that India has created through nearly 500 investment and acquisition deals worth $26.5 billion about 60,000 jobs in the United Sates between 2004 and 2009. Many of the countries that are witnessing business process outsourcing wave have experienced rapid growth in exports of business services and information services.

Profitable global companies have good visibility into their operations across the world and with suppliers, implying a tighter, more effective relationship. These companies can determine their true distribution and logistics costs - invariably higher as you globalize - they can calculate profitability by customer and by product and they do planning across different functions and divisions in order to test the true effects of a global strategy across the company. Top companies use more IT on a global basis. They are much more likely to use e-sourcing/e-procurement, CRM, advanced planning and scheduling and product lifecycle management applications. This suggests that IT capabilities indeed matter to unlocking the value of the global corporation.

While globalization and outsourcing are fantastic opportunities for any business, they may not always be welcomed by the employees of an organization who fear change as a loss of job security. It is natural to expect that those disadvantaged by globalization — irrespective of market — will protest and make known their issues. More than trade or international financial flows, outsourcing has become the particular target of critics of globalization and some of the most frenzied defense by defenders of globalization. Likewise, local politicians and political parties may try to protect jobs and obtain votes through legislation such as the ones currently being debated in the US aimed at blocking the outsourcing of work to offshore enterprise. The positive effects of global sourcing are undeniably real and large but depend on an environment where public, business and worker relationships are fostered.

Pentalog has been for many years a driver in the globalization of many IT companies, or IT departments in various enterprises over the world and has become one of the leading players in Europe in the sector known as “offshore and nearshore”. Our Western Europe workforce is now moving forward and we have several software concepts that are being studied in order to “better exploit” and to participate in the globalization which will necessarily be a matter of collaboration. We also continue our expansion strategy with new locations - the most recent one added is in Israel. In addition, there will be not less than 3 other countries in which we are preparing to launch new operations in the near future. Pentalog is now able to generate and multiply very quickly all kinds of opportunities to produce and sell outsourcing services with high added value in the world. And it is by establishing strong partnerships in complementary geographical, economic, technical and cultural environments that will ensure further sustainability of our growth and globalization strategy.

However, the information technology sector offers an explicit example of the real and potential gains of the economy from globalization of both goods and services. This sector is one where the synergies and dynamic interaction between technological and global forces are significant and where firms are rapidly changing products and activities, with both positive and negative effects on the economy.