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Globalisation, Outsourcing And The Importance Of Geographical Coverage

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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?

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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, companies have to take in to account many factors from location costs to the 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 a wider knowledge of 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, the effect that globalisation has on the economy will be discussed as well as some of the pros and cons of globalisation.

Effect on today’s economy

Major changes in the economic environment of any nation are 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 on 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 which 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. Some of the pros and cons of globalisation will now be discussed in depth, you will see that many of the benefits also have some drawbacks.

Free Trade

Free Trade is trade without any restrictions on imports and exports. Free trade agreements were designed and implemented to increase trade between those countries involved. The most well-known trade agreements are: North American Free Trade Agreement, European Free Trade Association, Southern Common Market and the ASEAN free trade area. There are many benefits to free trade and many developing countries have reaped the benefits these include reduced or no barriers such as value-added tax, tariffs, subsidies etc, expanded markets, technology transfer, improved infrastructure and the general free movement of labour and capital. However, there is also a burden on the developing countries as free trade has led to industrialisation and as a result of this they now have high levels of environmental pollution, slowed economic growth due to the capital not remaining within the country and domestic workers may find themselves unemployed due to foreign workers.

Economies of Scale

Economies of Scale is seen as benefits that business gets in terms of cost per unit as the scale of production increases in the long run. As production increases due to globalisation the costs per unit decreases due to the increased total output of a product. The benefit of this is not limited to just the supplier as the higher production efficiency and the lower cost product means lower prices for consumers. Economies of scale also gives producers a competitive advantage over consumers leading to higher profits per unit.

Economic Growth for Developing Nations

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

Cultural Intermingling

Globalisation has helped broaden the variety of cultural experiences that we can now learn about 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 and reduced the amount of cultural diversity in the world as Western thoughts have been transported to the East. For example you can now see branches of McDonalds on the streets of South East Asia, in turn these drive out local cuisines.

Outsourcing Work

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.

Negative Environmental Impact

The increased production and consumption of products has led to a number of pollution problems which can be seen all over the world particularly in developing countries. Gray suggests that developed countries are able to protect their environments by moving production to developing countries. This is apparent as we can see many MNC’s moving their production to locations where environmental regulations are more slack. In conclusion globalisation has been a catalyst for global economic development. Even though this has benefitted much of the developed world and some of the developing world it has come at some cost as highlighted in the drawbacks.

Outsourcing

The importance of Geographical Coverage

When corporations succeed in one location the temptation may be there to expand to another to gain access to a new market and new resources. However, companies realise that what works in one location may potentially not work in another so many companies now take a strategic view into where to open new offices. In this section the factors that companies take into consideration when choosing a new location will be analysed. Timing is critical, an organisation will need to decide whether they can afford to spend the necessary resources to expand, particularly when it will mean losing focus on the existing business whilst the expansion take place. If the timing is right and they can afford the growth, then the target location is the next decision that needs to be made. Many larger companies will have teams dedicated to the move that will research the potential expansion locales and create a number of business models before expanding. For example, Pixar chose to establish itself near the mudflats opposite San Francisco Bay to purposely stay clear of LA where most of the movie industry is established. The reason being that they didn’t want to negatively affect the company’s culture.

Personal Development

During my placement year I believe I had to the chance to improve a number of my personal competencies that were both relevant to my role, my final year of studies and other transferable experiences. I found that the most relevant competency to my role that I was able to develop was attention to detail as most of my placement consisted of cross-checking multiple lines of numerical data before approving it to be inputted into a system. Having improved this competency will help me in final year as when submitting work, particularly work which is related to data, I should have little troubles detecting any errors before submission. An area that I felt I wasn’t that strong at going into placement was my ability to deliver speeches and presentations in front of larger groups of people. Whilst on placement I was given the chance to relay my ideas in team meetings of 6-10 people, as well as speaking in front of larger groups in monthly townhalls and my end of year placement. I found that to any presentation no matter the size of the group I was delivering to preparation definitely helped.

On top of this I have been able to learn how to self-assess myself in preparations for personal review meetings giving me the chance to communicate how I feel I have been performing in comparison to how others feel I have. Learning to distinguish between constructive criticism and criticism was helpful as when receiving feedback from team members. I would say my favourite thing that I learnt whilst on placement was the advanced excel skills which helped me through the year. I felt this expanded on a lot of the skills we learnt in skills for study in our first year. Placement was also an eye opener for me as during my first 2 years I thought a lot that was being taught in lectures wasn’t relevant to my placement of even the career path I wanted to take. However, after working for Morgan Stanley for the year even though a lot of my work was taught on the job, the knowledge from lectures and seminars helped me through the initial training stages. It also helped in the later stages when voicing my opinion in meetings to have added knowledge learnt whilst at university.

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