How Can Outsourcing to Emerging Markets Be Used to Gain Competitive Advantage?

Résumé du document

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?

Extraits

[...] The level of quality is becoming, in India and also in other emerging countries, as good as in developed countries. The quality of the labor force in emerging markets is also due to new factors such as the significant number of graduates who speak different languages. In Egypt of the graduates speak a foreign language. Obviously, most of them speak English, French, German and Spanish. This ability to speak different languages allows the country to obtain outsourcing contracts easily (Willcocks, L., Griffiths, C. [...]

[...] 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). Indeed, the strong point of emerging countries is their ability to offer a large labor force at a low cost. The graphic of the website sourcing line (2009) shows expressly the difference of wages between developed countries and developing countries. [...]

[...] The low cost price and the massive labor force allows a company to gain competitive advantage by economies of scale. In 2002, the IBM Company which sells computer software and tools and other relating services, has exactly understood the important role that outsourcing plays to gain competitive advantage. This is the reason why IBM has chosen to outsource some of its activities to India to produce more efficiently, improve shareholders' revenues and reduces its IT costs (IBM website). However, emerging countries offer much more than the simple opportunity to lower businesses' costs. [...]

[...] Indeed, emerging countries benefit from this cultural adaptation to attract companies because they are often old colonies. The United States gives priority to the Philippines for two reasons. First, the Philippines are one of the cheapest countries to outsource to. The average entry level wage per year in the BPO sector is of $ whereas it is $3,911 for India, and $ 19.764 for South Africa which is the most expensive of emerging countries (Bonoan, E., Causon, P., Ocampo, J., 2009). [...]

[...] 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. Once again the decision of American companies to outsource their analysis is rapidly made. In India, Indian radiologists are paid less than half of the American radiologists, who are paid about $300,000 per year (Clik, R. [...]