Globalization and Outsourcing: Effects on IT Management

The process by which people, governments and different companies interact and integrates is referred to as globalization. This process is widely driven by investment and trade and has largely been assisted by the major growth that has been experienced in the information technology industry. Globalization has major impact on the culture, environment, economic growth and development, political systems and the well being of humanity’s well being across all nations in the world. The process of globalization is very old dating several years ago. For many centuries people and corporations have been doing business between continents.

The entrant of the information technology in the recent history has dramatically increased the pace of globalization (Alon, 2001). The link between Outsourcing and Globalization Outsourcing refers to the process of subcontracting. An organization can subcontract manufacturing or product design to a company which is referred to as a third party. Outsourcing is made in the light of reducing the cost of production, saving on the time resource and reducing the cost of energy. It is also aimed at energy conservation, making the use of capital, labor and land as factors of production more efficient.

Globalization and outsourcing in information and technology has witnessed much success. Most companies have been able to cut on cost, focus on their main objectives as well as improving product quality. As a result of outsourcing the capacity of management in several companies has been enhanced, business organizations are also in a position to access talent which is not available from within their boundaries. Various companies as result of outsourcing are now in a position to manage risks more efficiently and reduce the time taken to reach their target markets (All, 2007).

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Through outsourcing, management of a whole function of business is transferred to a service provider who is externally based. Both the client and the service provider enter into a contract. The main segments of business which are frequently outsourced include human resources, information technology, accounting and the management of real estate. Some companies have in the recent past started outsourcing the functions of call centers, customer support functions, research of the market, designing of their products and web development.

This clearly shows that a shift in the initial objectives of outsourcing which mainly focused on cost reduction to operation efficiency and professionalism, thus enhancing value of the business organizations. In the view of globalization which is growing rapidly, the outsourcing destinations have expanded from the Far East counties to other countries in the developing world. The Effects on IT Management Globalization and outsourcing have a resounding impact on IT management. IT management refers to the practices and management tasks involved in running and maintaining IT systems and projects.

Though organizations may have been carrying out these practices in-house two decades ago, the globalization era has brought about several “unthinkable” changes in the past twenty years. With outsourcing becoming a common trend amongst the Western nations, there are considerable issues that need to be considered in the practice of outsourcing of IT management and the effects of globalization. Some of these effects are controllable while others are simply beyond the scope of organizations engaging in the practice of outsourcing.

It is always an important task to evaluate the issues involved in outsourcing before the decision is enacted to outsource operations by organizations to other countries. Some of the major implications on IT management and controlling due to outsourcing are:

• Project managers often tend to outsource projects and IT development tasks to third world countries where the cost of human resource is comparatively very low – in some cases the wages are one-tenth of the normal wages an American worker would be paid for the same work. This may present project managers with the good news of cost savings however poses problems for project managers to estimate the costs accurately. With lesser communication channels readily open between the two parties, there are problems in cost estimation in almost all major projects outsourced from American and British firms to Indian and Chinese firms (Beynon-Davies, 2002). The fluctuations of exchange rates and inflationary pressure son both ends often add considerably to the problems on both ends – for one in allocating the costs and for the other in estimating the revenues.

• The communication gaps in between the outsourcers and outsources weigh down heavily on all aspects of IT management – cost, time, quality and maintenance. However, one of the more serious issues prop up when the outsourcees are unable to provide accurate project schedules. The availability of several project management suites and scheduling software does not ease the responsibilities and tasks of the managers on either ends – particularly due to the time zone differences that exist in between the parties (Chaffey & Wood, 2005).
• Resource management is the next issue that threatens project success. Project managers failing in project schedules face problems in allocating timely budgets and resources. This often results in project halts, inefficiency and breakdowns leading to deadlines being crossed and costs being increased without any value addition (Boddy, Boonstra & Kennedy, 2005).
• As stressed again and gain the problems of communication persist in between. Teleconferencing, email and phone calls may bridge the gap to a certain extent, however the substitute of actual presence and face-to-face communication cannot be substituted. The difference in native languages between the outsourcers and outsourcees presents other IT communication problems which have cost implications in the form of post-design change requests (Chaffey & Wood, 2005). Generally, Indian and Chinese companies are the most preferred firms for outsourcing, with Pakistani firms next in line. Programmers and IT technicians have been known to have a deficiency in the requirements elicitation stages: the problem of understanding the requirements has been a persistent problem leading to waste of time, effort and increase in costs.

Stakeholders are often the most badly hit in outsourcing cases.

Though globalization has made the world into a smaller place, and communication barriers have been challenged by technological advancements, the risks associated in outsourcing cannot be eliminated completely (Boddy, Boonstra & Kennedy, 2005). Frauds and scams by third-party outsourcees have been occurring time and again, yet, these events have all but deterred Western firms from outsourcing their operations to the third world countries, particularly the Asian nations. The project investors and stakeholders increase their risks when they consent to outsourcing IT practices to third parties.

Amongst the risks are:

• Data theft: Third parties are often in growth stages and often look for shortcuts for money-making. Companies may sell valuable data to other parties/competitors of outsourcing firms. This is perhaps one of the greatest issues in IT management.
• Frauds: Companies have been known to swindle money and disappear overnight. With several logistical problems in tracking such companies and then pursuing revenge, there is nothing much investors can do if they are robbed of their money on the pretext of project advances (Chaffey & Wood, 2005).
• Product designs, business strategies have to be shared outside of the company with the outsourcing vendor. These vendors might work for multiple companies including your competitors, or simply these outsourcing vendors will become one of your competitors in the future. Since they know the business, handle the main aspects of the business themselves and are capable of developing equally competitive strategies due tot eh growth of entrepreneurs (an effect of globalization), the emergence of vendors and outsourcees as potential future competitors cannot be ruled out (Beynon-Davies, 2002).

Conclusion

Outsourcing growth in recent years has changed trends in business expansion in the world. Traditionally companies could acquire other businesses to make them their subsidiaries so that they could diversify their interests in business and also reduce risk. This has since changed as more and more companies prefer the transfer of activities which are not core to their operations to other companies specializing in such activities without necessarily acquiring them. Most companies have ended up with just the management of their core business and the functions which they do not consider core to their operations are outsourced (All, 2007).

The growing influence of technology, globalization and change in demographic are definitely reshaping the globe at a considerably high speed. The world economy is being based on enterprises which are empowered digitally (Roach, 2003). Technology is changing the way businesses and people communicate and it is having the global market position redefined. This is definitely raising major issues of concern such as the extent of capabilities of such facilities, their ownership, how they will be interoperated and issues to do with authorization (Brunelli, 2004).

Information technology has significantly brought numerous changes across the entire globe. Businesses have been able to use technologies originating from different countries and also they have had increased customer base. Outsourcing and globalization are very important in the achievements but however the implications of these practices on IT management have to be considered always so as to realize the net benefits of a project (Brunelli, 2004). The various issues outlined in the previous sections have mass implications in the long-run for major projects outsourced.

It is always a tough decision then, in the light of these threats for companies to outsource. However, at the end of the day it should be remembered that IT management is a science in itself and has to be treated in that manner for the benefits to be viable to a business.

References

1. All, A. (2007): Western Influence Boosts Outsourcing Opportunities in China, Retrieved on 9th April 2009 from, http://www. itbusinessedge. com/cm/community/features/interviews/blog/western-influence-boosts-outsourcing-opportunities-in-china/? cs=22493.
2. Alon, P. (2001). Outsourcing and Political Power: Bureaucrats, Consultants, Vendors and Public..., Retrieved on 9th April 2009 from, http://www. allbusiness. com/human-resources/workforce-management-hiring/835888-1. html.
3. Beynon-Davies, P. (2002). Information Systems: An Introduction to informatics in Organisations. Edinburgh: Palgrave MacMillan.
4. Boddy, D., Boonstra, A., & Kennedy, G. (2005). Managing Information Systems: An Organisational Perspective. 2nd ed. London: Financial Times/Prentice Hall.
5. Chaffey, D., & Wood, S. (2005). Business Information Management, Improving Performance Using Information Systems. London: Financial Times/Prentice Hall.
6. Brunelli, M. (2004): Mitigating risk in outsourcing, Retrieved on 9th April 2009 from, http://searchcio. techtarget. com/news/article/0,289142,sid182_gci969313,00. html#
7. Reed, S. (2003): Managing Risk in Outsourcing: The Strategy: Retrieved on 9th April 2009 from, http://www. sourcingmag. com/content/c051010a. asp
8. Roach, R. (2003): Study to examine influence of globalization on engineers - tech briefs, Retrieved on 9th April 2009 from, http://findarticles. com/p/articles/mi_m0DXK/is_22_20/ai_112166869.

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