1 | P a g e
GLOBAL OUTSOURCING AND OFFSHORING: TRENDS AND CHALLENGES
1. Historical Overview
1.1. Early Development
Historically, outsourcing and offshoring can be dated back to the period after the Second World
War where MNCs have started searching for methods which can allow them to improve the
competitiveness and efficiency in operations. In this period, while organizations remained keen
on outsourcing less-central processes, most central operations were independent in-house
processes. The first wave of outsourcing was mainly fueled by labor cost differential which was
primarily the main objective of outsourcing contractors in searching for cheap labor in the
developing world. This trend started growing from the 19807Nd 1990s which was associated
with the improvement of the communication technologies as well as the liberalization of trade
policies, which improved the establishment of international supply systems (Bunyaratavej et al.
2016). Moreover, the rapid growth of information technology in the 20th century, which swept
into the academic world at the turn of the century, only intensified outsourcing practices for the
same reasons (Lewin & Peeters, 2016). It emerged that companies started outsourcing not just
manufacturing processes but also administrative functions and functions like customer support,
IT and other support services, primarily because they realized that there were enormous cost
benefits if they focused on their core competencies and outsourced the rest of the work (Ellram
& Tate, 2015). India, China and Philippines became established outsourcing destinations
adequately capable of offering large pools of skilled talent at a lower cost compared to the west
which was a major milestone in the outsourcing evolution (Gereffi et al. , 2014). The outsourcing
trends evolved from single outsourcing to enhanced outsourcing approaches such as the
multisourcing and strategic partnering outsourcing strategies among firms as they accumulated
2 | P a g e
experience in outsourcing (Kedia & Lahiri, 2020). During the development phase I The early
development phase also saw the rise of Third Party Service Providers who specifically offered
their outsourcing services for a host of outsourced functions which form the basis of the
outsourcing industry today (Oshri, Kotlarsky & Willcocks, 2015). This formed the basis for the
modern outsourcing and off-shoring trends seen in today‘s business environment preparing the
ground for subsequent evolutions marked by availability of technology and advanced innovative
models (Cohen & Kietzmann, 2014).
1.2. Evolutionary Phases
This historical journey of global outsourcing and offshoring is partitioned into various eras, each
of which were distinguished by their key strategies, technologies, and overall economic contexts.
Initially, it was seen during the 1980s and early 1990s, companies practiced what is referred to
by researchers as a ―tactical outsourcing‖ strategy, which aimed at achieving operational cost
effectiveness by utilizing outsourced skilled labor that was often cheaper in other geographical
locations and outsourcing non-strategic processes to third party vendors. This phase was due to
the observation that competition was heating up in more global markets, whereby the ability to
take advantage of lower wage charges and the talented workforce in the Indian and Chinese
markets became appealing to firms. In the realm of outsourcing, organizations mainly outsourced
manufacturing processes as well as small and repetitive administrative jobs with clearly
discernible and extremely attractive cost savings and improved efficiency. The middle to the late
nineties were marked by what was called the ―strategic outsourcing‖ phase and this refers to the
fact that companies started to deem outsourcing as a strategic weapon for improving
organizational performance, value generation and adaptability. This period was characterized by
outsourcing of even more high value and sensitive business processes such as it outsourcing,
3 | P a g e
Research & development outsourcing and outsourcing of customer relations. The use of shiny
communication technologies and the internet enhanced the closeness and the sheer coordination
between outsourcing partners, making it possible to outsource improved value chores (Gereffi et
al. , 2014). There was also a focus on improving the approach towards outsourcing in terms of
risk management and vendors to have a more suitable impact and to correspond to strategic
business objectives (Kedia & Lahiri, 2020). In the year 2000 it became clear that a new sourcing
strategy was emerging which aimed at reshaping organization‘s strategies and corporate
objectives for permanent and sustainable improvement through outsourcing. This phase marked
the integration of outsourcing with other corporate solutions like internationalization and market
development (Cohen, 2020). Outsourcing was the primary process that was used to integrate and
enable business change as well as help in emphasizing innovation and sustaining a competitive
edge in the growing global market. There is one more phase which can be called as the ―digital
outsourcing‖ phase and it begun from 2010‘s.
1.3. Key Milestones
Some of the key events that marked the development of global outsourcing and offshoring are
well highlighted below since they have had a significant influence in charting the course
andExtent of Global Outsourcing and Offshoring: The Global Landscape The global outsourcing
and offshoring trend has several critical milestones that have defined its evolution and its effects
on Economies. One of the first major achievements was the spread of General Agreement on
Tariffs and Trade (GATT) in the middle of the twentieth century, which became the basis for
further reforming international trade policies to become more liberalised. This made it easier to
transport goods and services across the world, thereby allowing business organizations to
contract manufacturing for a country with relatively low wages. These tendencies of stratified
4 | P a g e
trade systems have got reinforced with the formation of WTO in 1995 which offered more
organized and reliable platform for the concerns of trade liberalizations and outsourcing (Gereffi
et al. , 2014). Another significant development occurred in the 1990s with the advent of the
Internet and the improvements in telecommunications systems that facilitated a real-time
transmission of messages or directives across continental or global space (Ellram & Tate, 2015).
It was only possible to pioneer outsourcing not only in manufacturing but also in the services
industry like customer support and IT operations. The ease of monitoring and controlling their
offshore operations ensured that organizations propelled the outsourcing field, ahead (Lewin &
Peeters, 2016). The Y2K factor, which happened in the late human resource management 1990s
and early human resource 2000s, was another factor that was crucial in the push for outsourcing
of IT services. The lucidity of offshore service providers was evident when various organizations
outsourced their IT activities to a number of specialized firms in nations such as India to manage
the Y2K bug situation effectively reducing the overall risk. New cost realities at in the downturn
caused organizations to re-examine their resources costs and productivity. Consequently,
outsourcing and offshoring became more prominent strategies among many firms as they sought
to sustain competitiveness within a thus far tense economic climate (Oshri et al. , 2015). This
period also presented a shift in focus to attain more strategic outsourcing strategies where firms
aimed at attaining cost efficiencies while at the same time also establishing new sources of value
from outsourcing partnerships (Cohen & Kietzmann, 2014). The rapid spread of COVID-19 in
2020 also demonstrated how it is crucial to plan for high levels of outsourcing flexibility.
5 | P a g e
2. Current Trends
2.1. Market Expansion
The global sourcing novelties of outsourcing and off shoring have been fueled by several
elements that have revolutionized business across the globe in the past few years. Firstly, it was
realised that cost reduction was one of the key factors behind the market expansion as firms
strove to make use of cheaper manpower in new economies like India, China or the Philippines.
With this move, businesses were able to maintain competitive price for their products, hence
protecting the profit margin of business entities (Bunyaratavej, Hahn & Doh, 2016). And that as
the concept of outsourcing developed, it stretched beyond producing to involve other areas like
the supporting services including the IT, customer relations and back offices, making
outsourcing a large market (Ellram & Tate, 2015). The new millennium communication
revolution through the internet, high-speed communication networks, and cloud computing has
made it possible to share important documentation with companies based in offshore middlemen
irrespective of long distances (Gereffi, Humphrey, & Sturgeon, 2014). This has created the
technology backbone whereby small and medium enterprises (SMEs) have been able to venture
into the outsourcing business which has seen the market expand further. Moreover, the
advancements in management technology and application have ensured strict control of different
outsourced relationships and thought the maximization of returns through the reduction of
outsourcing risks (Lewin & Peeters 2016). Outsourcing in its earlier forms was practiced in
developed countries only, but later, it has shifted to different continents, such as Eastern Europe,
Latin America, and most recently Africa to extend talent-seeking and flexible solutions (Kedia &
Lahiri, 2020). This diversification has not only improved numerous outsourcing options but has
also brought about competitive market pricing and better service delivery, thereby making
outsourcing a good and viable option to many a provider across a number of industries and
6 | P a g e
business functions ((Oshri, Kotlarsky, & Willcocks, 2015). This understanding has also
witnessed the spread of outsourcing not as a merely economical tactic but as a more strategic and
managerial approach across fields such as health, finance, and education (Bunyaratavej, Hahn, &
Doh, 2016). Outsourcing and offshoring have continued to gain market strength and leverage
especially when the COVID-19 pandemic emerged in the year 2020 revealing the significance of
flexible and pompous supply chains.
2.2. Technological Impact
Writing in the 1990s, Gereffi et al attributes the possibilities of outsourcing to the availability of
internet coupled with high-speed communication technologies and instrumental in making
outsourcing possible and efficient. Due to the construction of effective IT systems, deep
communication networks throughout the headquarters and the offshore units were created to
monitor data in real time, and such moves increased productivity drastically without much
hindrance from stagnated operations (Ellram & Tate, 2015). With further evolution of
technology, cloud computing turned as a revolution by offering elastic business-grade IT
solutions that could be reached over the Internet from anywhere. This not only occurred by
decreasing the internal costs having a personal IT infrastructure but also making outsourcing of
various complicated IT jobs possible(Harison & Kasonde, 2012). Advance in technology and
especially the outsourcing industry leveraging on technologies such as automation and artificial
intelligence have also served to bring in change in organizations by cutting down on manpower
that is required in the course of the outsourcing business (Lewin & Peeters, 2016). Specifically,
RPA has proven most effective in automating back-end activities such as transaction processing
and record keeping for accounts receivables, rebilling, and customer support, which have shown
to yield high cost reduction and minimal errors (Bunyaratavej, Hahn, & Doh, 2016). Automated
7 | P a g e
data analytics and big data management solutions have also been beneficial to companies by
providing ways in which AI can be used in gaining strategic insights out of the large sets of data
in order to make more strategic and innovative decisions (Kedia & Lahiri, 2020). The
combination of these technologies have enabled firms to outsource more complex and higher
value operations; thereby widening the breadth and taking the depth of outsourcing arrangements
further. Concerns about data security threats or loss have been drastically reduced due to
investment on better algorithms in cryptography, reliable access controls, and constant
surveillance technologies that have ensured that the sharing of sensitive data with affiliates
located in offshore locations for instance is relatively secure today (Oshri et al. , 2015). Parallel
to providing new possibilities within outsourcing, the same technology brought increased levels
of transparency and trust within outsourcing contracts and transactions, which contributes to
strengthening the technological infrastructure of outsourcing activities in the global environment
(Cohen & Kietzmann, 2014). The pandemic impacted the digital world revealing the necessity
of Digital Resilience as firms hastened their Digital Adaptation.
2.3. Emerging Destinations
The discovery of new locations in the world of outsourcing and offshoring is a clear indication
of a shift in the geographic location of Business Process outsourcing (BPO) and Information
Technology outsourcing (ITO) practices. Some of the factors include; government incentives,
infrastructure development, talent availability etc. have been identified as the main factors that
have led to the emergence of other new destinations that are considered favorable for outsourcing
(Bunyaratavej, Hahn & Doh, 2016, p. 20). Vietnam is one such upcoming outsourcing location
that is being perceived as one of the most enterprising places for outsourcing from the developed
world because of the competition friendly environment, upgraded infrastructure and a young
8 | P a g e
generation of technologically sound but cheap labor force (Gereffi, Humphrey, & Sturgeon,
2014).In the same vein, Poland, Ukraine and Romania from the group of Eastern Europe have
become increasingly relied on destinations for acquiring IT outsourcing services due to the force
of educated populace, technical competence and close association with the western Europe
(Ellram & Tate, 2015). Paid less than per hour, these countries provide cultural similarity and
closeness to vital European markets than outsourcing exports traditional to speak. Apart from
Eastern Europe, some other countries; in the Latin American region such as Mexico, Brazil and
Colombia offer potential outsourcing services. Geographically, the countries in Latin America
have proximity to the United States that makes it easier for them to access the American clients.
Secondly, the cultural assimilation of the organisations is in sync with the western clients.
Thirdly, the multilingual fluent employees are proficient in both Spanish and English. Latin
America is specifically suitable for the near-shore outsourcing business model wherein a firm
opts for outsourcing partners in geographically proximate regions. Africa is rapidly growing in
the outsourcing industry, with countries such as South Africa, Kenya, and Nigeria known to be
developing markets for outsourcing services. Africa has a young and growing population that is
also rapidly forming the workforce, a supportive government particularly to IT, and improving
infrastructure that make it as a favourable destination for IT and BPO services (Oshri, Kotlarsky,
& Willcocks, 2015). Besides, the number of African countries that are undertaking investments
in the training Computer literacy and vocational training, education for the purpose of producing
a workforce that will be capable of meeting outsourcing requirements is also growing.
9 | P a g e
3. Economic Impacts
3.1. Cost Savings
A major motivation has been the desire to cut on costs and this line was the major motivator for
outsourcing and offshoring in companies across the world based on industries. Sourcing out
nonstrategic activities from the main business refers to the contracting out of business activities
to independent suppliers with the view of cutting costs, adding efficiency, and increasing
profitability (Bunyaratavej, Hahn, & Doh, 2016). One of the most important benefits of
outsourcing is the advantage that corporations gain by getting access to low-cost countries to
source labor (Gereffi & Sturgeon, 2004; Gereffi, Humphrey, & Sturgeon, 2014). India, China,
Philippines have been more preferred outsourcing destinations around the globe due to their
sizeable strong and educated labor force and comparatively lower cost of labor. It helps in
leveraging this labour arbitrage to acquire the best skills and talents at a considerably lower cost
than developing nations‘ expenses. Also, outsourcing lowers overhead costs that may be incurred
if the business has independent internal teams including payroll on personnel‘s to be hired and
infrastructure costs (Ellram & Tate, 2015). Third party providers can gain from scale and scope,
the latter end is they are capable of delivering services more cheaply than the internal teams, as
noted by Lewin & Peeters (2016). The prime reason is that these tasks when outsourced to such
speciality vendors are done at low costs which the outsourcing company may not be able to in-
house and, at the same time the companies are able to get the best equipments and skills that
is/are available in the market. Also, outsourcing makes fixed costs variable which increases
business versatility because it can separately manage cost structures of the dependent resources
and activities (Oshri, Kotlarsky, & Willcocks, 2015). This means that outsourcing relations can
be flexible, or varied depending on the demand applied on the services/operations outsourcing;
this way, the firms prevent over utilization of resources when the demand is low or when the
10 | P a g e
markets are slow, the firms do not have to opt for layoffs or open downsizing as a measure of
cutting costs. Out sourcing leads to flexible access to the talents in the world market, this helps
organisations to be able to utilize people who have skills sets different from that available in the
organisational locality (Cohen & Kietzmann, 2014). This exposure to larger talent pool helps to
unlock innovation, creativity and hence ability to solve new problems that act as catalysts in
business growth and competitiveness. Also, outsourcing providers provide reliable services and
technical support for 24/7 service and shorter time span which will increase the companies
competitiveness in terms of services offered to customers (Bunyaratavej et al. , 2016, p141).
3.2. Job Market Effects
The effects of global outsourcing and offshoring, in terms of the job market have continued to
elicit a lot of controversy and discussion from everyone, the proponents as well as the critics. On
the one hand, the processes of outsourcing and offshoring have provided work for newcomers
and preserved job places in both the domestic and foreign economies, mainly for sectors that
have proved most breathtaking because of decreased costs and process optimization
(Bunyaratavej, Hahn, & Doh, 2016). Non-core activity outsourcing means that instead of
reinventing the wheel or trying to build something when one is not an expert in that area, one can
outsource it to the party that does it best while the company can direct resources to where it is a
competitive advantage. Further, outsourcing allows the company to leverage specialized skills
and expertise not available locally, whereby outsourcing encourages Tech knowledge creation
and dissemination not only in the outsourcing destinations but also in the firms‘ home locations
(Gereffi et al. , 2014). Moreover, outsourcing has also opened other opportunities in the world
trade and wealth creation due to capital investment and technology development. It is crucial for
business organizations to source out services and products to remain competitive in the
11 | P a g e
international market through cutting the cost of production, improving the quality of products,
increasing satisfaction of customers so as to maintain some existing occupation, and potentially
creating other employment opportunities (Lewin & Peeters, 2016 Critics of outsourcing and
offshoring aver that they reduce the availability of occupations in nationally based markets
particularly in industries dependent on manual labor or automation ( The outsourcing or off-
shoring of manufacturing and services jobs creates short-term detrimental impacts for the
workers, such as loss of jobs, low wages and higher levels of unemployment for workers with
low skill levels or literacy. Moreover, outsourcing affects the income inequality and polarizes the
income by placing more value on capital owners and skilled employees and leaving the weak
positions for the low-skilled workers who often face insecurity in terms of getting a job or their
wages being cut down when the outsourcing company decides to reduce its overall costs (Cohen
& Kietzmann, 2014). Offshoring of services has become a burgeoning issue in the case of the
BPO services and customer support center and back office services and many critics pointed out
that it has led to the depletion of the domestic service industries and the hollowing out of middle-
wage occupations (Bunyaratavej, Hahn, & Doh, 2016). In their desire to do away with the
expenses associated with these activities most firms are outsourcing them to offshore suppliers,
this puts a negative effect on the development of effective and quality service industries and
workforce in the country, thus lowering the standard of living of the affected persons.
3.3. Economic Growth
Outsourcing/Offshoring has generated complex and diverse effects on growth aspects of national
and international economies. On the macro level, outsourcing and offshoring result in economic
benefits, such as increased productivity and efficiency as well as improved competitiveness in
the economy (Bunyaratavej, Hahn, & Doh, 2016). Further, outsourcing tends to stimulate trade
12 | P a g e
and investment in goods and services across countries, thus boost economic globalization as also
transfer of technology and knowledge across borders to an extent (Gereffi, Humphrey, &
Sturgeon, 2014). Third, outsourcing and offshoring activity generates employment and income
generation within domestic and overseas markets thus propelling total consumption and
investment and overall economic activity (Ellram & Tate, 2015). In addition, outsourcing and
offshoring also create innovative externalities and other important externalities such as boost to
entrepreneurship and industry dynamism which in turn fosters the structural change and
technological progress in both the outsourcing destinations as well as the outsourcing home
countries (Oshri et al. , 2015). Outsourcing these less value-added and more administrative
functions allows a firm to concentrate on high value-added activities, where it can deploy
resources for enhanced product research, better technologies, and critical business activities that
enable growth through competitive innovation. Furthermore, outsourcing creates competition
and specialization, and through such pressures, firms are forced to enhance their productivity,
provide high-quality products, processes, and services in order to gain a competitive edge
(Cohen & Kietzmann, 2014). And it should be noted that, as often the case with globalization,
one must not assume that outsourcing and offshoring are going to have uniformly positive effects
across all levels of the economy; in all probability, some players will be net gainers while others
may well be net losers. Although outsourcing may positively contribute to the general increased
economic value, offshoring can negatively impact job creation, stagnant wages, and income
distribution within a shorter period, especially to those workers from industries under
outsourcing jurisdiction according to Bunyaratavej, Hahn and Doh, (2016). However, as Hutun
and Power (2007) posit, a significant challenge in sustaining outsourcing-induced growth
13 | P a g e
dynamics lies in skill development, infrastructure investment and institutional quality which
affects the capacity of countries to unlocked value from GVCs and engage in KIA.
4. Technological Innovations
4.1. Automation and AI
Trends such as automation and artificial intelligence have greatly impacted outsourcing and
offshoring giving the world record levels of productivity, efficiency, and provoking cost
reduction. These technologies help to reduce costs, optimize time, and improve processes in
organizations, thus preserving the basic A, B and C+ A Your Answer: Changes by those
technologies improve the ways how companies function in a highly competitive and digital
environment; These technologies allow to eliminate the routine and repetitive processes and free
up time for key executive activities ( B «Bunyaratavej, Hahn and Doh, 2016 «). Robotic process
automation has been very effective and the firms utilize the following: data entry, invoice
processing, and payroll management among others, with a view of eliminating repetition, errors,
and costs from the employees‘ work, thus enabling them to perform strategic tasks like
innovation. Use of natural language processing, artificial intelligence in chatbots and digital
assistants increase, and they offer round the clock, real time customer support, thereby boosting
up the levels of customer satisfaction; at the same time it reduces the need of employing a large
number of customer support executives which in turn reduces the overall cost of operation
(Ellram & Tate, 2015). Lastly, AI systems can process massive big data and gain insights into
them to draw patterns and trends in a bid to assist in decision-making for the business, thereby
strengthening a firm‘s business acumen and its edge over rivals (Lewin & Peeters, 2016).
outsourcing market has also witnessed the generation of specialized service providing products
by incorporating AI and automation technologies. Now, companies can effectively rely on
14 | P a g e
outsourcing options since they can acquire new, sophisticated forms of AI along with skills and
experience necessary for the proper usage of these technologies but without the need for
establishing special in-house capabilities (Oshri, Kotlarsky, & Willcocks, 2015). These services
can include constructing the initial state of AI models, upgrading them, fine-tuning, and other
responsibilities that assure businesses get the most out of applying AI for innovation (Cohen &
Kietzmann, 2014). AI and automations lead to more cooperation with other teams from different
countries as they allow the sharing of valuable insights and solutions through artificial
intelligence tools, which help to speed up the rate of innovation and enhance the performance of
projects (Bunyaratavej, Hahn, & Doh, 2016).
4.2. Cloud Computing
Though, cloud computing has impacted largely on outsourcing and off-shoring by making the
computing resources rather easily accessible to the businesses on an as-needed basis. This
technology allows corporations to address the issues by utilizing remote servers located on the
internet to stores, process, and control data rather than investing in physical resources on-site
(Aubry & Lavoie-Tremblay, 2020). One of the major benefits of using cloud computing is that it
is cheap since organizations only pay for the amount of resources required and all costs that are
related to utilization of physical servers which include costs of data centers are avoided (Baglieri
& Consoli, 2021). In addition, flexibility and scalability are the other advantages where cloud
platforms are more effective than the traditional ones since businesses can easily upgrade or
downsizes according to the varying demands of their markets (Bettis et al. , 2018). The
partnership with cloud services provider allows business to outsource not only the IT
infrastructure but also customer applications as well as platforms, it helps to manage the
complicated IT infrastructures and supports companies to focus their attention on their main
15 | P a g e
business operations (Chen & Liang, 2016). It also promotes efficiency in projects that involve
cross-border operations through allowing for easy access to information from any location
(Bertels & Niehoff, 2020). Moreover, cloud environments are generally bundled with advanced
security and compliance features, as well as assuring that cloud vendors are up-to-date with data
breaches and compliancy requirements (Cordeiro-Nilsson & Gelbard, 2017). The shift to the use
of cloud technology fosters innovation as it offers organizations a host of technologies like the
big data, artificial intelligence, and other tools and solutions that are stored in the cloud, which
enables organizations to gain valuable insights and make informed decisions because, in most
cases, they do not need to invest heavily in procuring these technologies (Lewin & Peeters,
2016). Therefore, cloud computing not only enhances operational efficiency and cost
effectiveness but also enshrines innovation and adaptability for companies to tackle the emerging
aggressive competition internationally (Manning, Williams, and Cherot, 2018).
4.3. Cyber security Concerns
The expanding market globalisation coupled with an increased integration of third-party service
providers to corporations automatically mean that the threats from cyber attackers are on the rise
(Bennett & Gabriel, 2019). Outsourcing or outsourcing involves the distributing of work and,
thus, sensitive data across many locations, so this may leave gaps in the system that hackers can
exploit (Cavusgil, Knight, & Riesenberger, 2017). Hence, to avoid these risks, companies need
to establish strong cyber security management programs with the following provisions: Data
encryption protocols such as extended and enhanced encryption mechanisms, multi-factor
authentication feature, and constant surveillance of firms‘ IT facilities (Feenstra & Hanson,
2016). Moreover, the legal affairs, which include the protection of personal data according to the
General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA)
16 | P a g e
are mandatory for the credibility of an organization as well as for legal reasons (Gereffi,
Humphrey, & Sturgeon, 2014). Outsourcing firms are now required to explain the kind of
security measures that they are taking and to offer security reviews frequently to calm the clients
who are panicking over their data security (Ellram & Tate, 2015). On the same note, the
incorporation of artificial intelligence and machine learning in cyber security will prove very
useful in identifying early signs of threats and other security threats hence improving overall
security (Beck, Gregory, & Prifling, 2016). Concerns with cyber security are similarly relevant
to safeguarding intellectual property and ensuring that sensitive data that is disseminated to third-
party suppliers and customers are secure from hacking attempts (Grappi & Romani, 2014). It is
crucial to identify both strategic partnerships and integrative behaviors between outsourcing
providers and client companies in the following ways; Clear security policies and incident
response plans must be set. In addition, it is crucial to invest in training for the organizations‘
employees on how to fend off these threats since human activities continue to contribute
immensely to the threats (Hitt, Ireland, & Hoskisson, 2016). Consequently, is very needful to
address all these important cyber security concerns in order to secure the efficiency of
outsourcing and offshoring activities, safety of business interests and sustain market
competitiveness (Lewin & Peeters, 2016).
5. Geopolitical Factors
5.1. Trade Policies
This has greatly raised awareness on security threats in outsourcing and offshoring scenarios,
much as shaping organizations data management and protection outlooks. As businesses
interconnect with the global networks and outsource the service providers, the exposure to cyber-
attacks and data breaches also grows, which further requires security measures (Bennett &
17 | P a g e
Gabriel, 2019). The outsourcing process often implies the distribution of data that undergo
changes through transmission and storage across various locations, and this aspect makes such
data vulnerable to exploitation by diabolical actors (Cavusgil et al. , 2017). To avoid such risks,
corporations need to strengthen their cyber security policies that include using encryption
methodologies, macro OVERRIDE and multi-factor authentications, scanning the network and
computer systems (Feenstra & Hanson, 2016). The global data protection standards like GDPR
of European Union and CCPA of California need to be adhered to create confidence among users
and to avoid violation of laws laid by governments (Gereffi, Humphrey, & Sturgeon, 2014).
Currently, outsourcing firms are under pressure to offer clear measures of security that can
actually be seen, and common security reviews to prove their dedication to the protection of data
(Ellram & Tate, 2015). Furthermore, through artificial intelligence and machine learning in cyber
security, there is better analysis of risks and quick provision of responses when anomalies are
identified in an organization or system (Beck, Gregory, & Prifling, 2016). Security risks and
violation also impact on safeguarding of information that belongs to the organization or
information that is sourced from the third party vendors (Grappi & Romani, 2014). Both
outsourcing providers and more numerous client firms have mutually significant roles to play in
the creation of consistently observed security policies and methods for addressing breaches
(Hahn & Doh, 2016). In addition, spending on company‘s programs that improve their
employees knowledge to regulate cyber threats is essential since human factor is a leading cause
of a cyber attack (Hitt, Ireland, & Hoskisson, 2016). In conclusion, mitigating threats posed by
cyber security is an important aspect due to its impact on the safe and sound implementation of
outsourcing and offshoring strategies that would minimize risks to business and maintain
competitive advantage as proposed by Lewin and Peeters (2016).
18 | P a g e
5.2. Political Stability
Political stability entails governments stability and reliability of frameworks for business
operations decrease the probability of abrupt changes in the legislations and policies,
nationalizations, or social instability that could jeopardize business operations (Bennett &
Gabriel, 2019). In the examination of the political environment, it is established that the political
risk affects FDI inflows due to the desire of the firms to operate in environments that offer stable
governments that refrain from making drastic policy changes hence enhancing the stability of
firms operations and profits (Cavusgil et al. , 2017). On the other hand, volatility and political
chaos can cause serious disruptions in companies depending on the supply chain, higher
expenses, or at worst, tainted business image (Feenstra & Hanson, 2016). Those geographic
locations that are vulnerable to input or output political instability, unstable governments, or
societal crises can be very risky to organizations and thus can discourage businesses from
outsourcing or offshoring to them. In accounting for such environments legal and regulatory
regimes can be often uncertain and this causes the issue of compliance and also additional costs
because of facilitated safeguards and contingencies (Baglieri & Consoli, 2021). In addition, the
instability in the political environment may result in dramatic fluctuations in the supply and
quality of human capital where talented employees may seek opportunities in other stable
countries, thus increasing the problems of the labour force and organizational challenges in
ensuring stability among their employees (Hitt, Ireland, & Hoskisson, 2016. Some of the factors
that enhance business in politically stable countries include; Businesses in politically stable
countries can anticipate to be treated equally within the law because the authorities will not seize
their property arbitrary, this creates confidence among most investors and they are willing to
invest in the long run as noted by Manning et al (2018).
19 | P a g e
5.3. Regulatory Environment
Political factors that relate to particular countries such as labour laws, taxation, environmental
measures and data protection standards affect the cost and viability of outsourcing arrangements
(Gereffi, Humphrey & Sturgeon, 2014). For example, restrictive legislation regarding employee
relations in some countries may lead to high average labor costs and demanded capacities hence
firms lock for environments that are more friendly to them (Hitt, Ireland, & Hoskisson, p 226,
2016). Policies over taxation also have a central position; where a country offers tax holidays or
has lower tax rates, it experiences increased outsourcing interest from firms, while high taxes
reduce them. Furthermore, the grounds of environmental regulation influence industries with
signifying environmental impacts due to the fact that heightened environmental laws can escalate
the expenses of compliance, hence making firms to consider areas with constituted
environmental standards. Protection of personal information and individual rights is critical
especially to digital laws since they involve dealing with vulnerable information. Another
instance is the legal restrictions like the GDPR in the European Union, which has laid down
provisions as to how data is collected, processed and transferred internationally, which shapes
the destination for outsourcing (Lewin & Peeters, 2016). Companies must guarantee that their
outsourcing partners obey these regulations to escape significant fines in addition to the probable
negative impacts towards their reputation (Cavusgil, Knight, & Riesenberger, 2017, p. 334).
Another important consideration is Intellectual property—which is significant to technology and
innovation-based organizations. This means that preferably the host countries have to have
strong legal backing and protection for intellectual property to assure companies that their vital
technologies and processes would not be copied. Fluctuations in policies cause unpredicted
changes in business requirements, which is detrimental to businesses because it raises the risks
associated with investing in such areas, and organizations cannot dedicate ample resources
20 | P a g e
towards those areas (Jiang & Qureshi, 2019). This is because those that provide understandable,
stable, and foreseeable environments to regulate business lower the risks involved in outsourcing
or offshoring operations (Bennett & Gabriel, 2019). The efficiency of business environment
simplification, determined by regulation foundations and deminishment of bureaucrats‘ barriers,
can improve commercial appeal of particular destination (Manning et al. , 2018).
6. Social and Cultural Issues
6.1. Cultural Differences
The focus is shifted to the extent to which cultural differences influence the success and the
venturing of outsourcing and offshoring. Such differences touch on a myriad of aspects that may
postpone or hinder the running of efficient international business such as linguistic differences,
dissimilarities in manners of communicating, working cultures, and approaches to management
all of which are influential factors in reducing productivity of communication and interaction
between international players (Cavusgil, Knight, & Riesenberger, 2017). For instance, the
understanding and communication within and between entities may be hampered by language
differences, thereby resulting to time delay an execution of projects. Some organisations would
avoid these practices by training their workforce in other languages or hiring people who
understand both languages, but these processes are not without their problems (Mehta & Mehta,
2021).At the cross-cultural level, they found differences in communication approach such as in
the feedback provided, decision making process, as well as in managing conflicts. Some cultures
believe in being as expressive as possible while others are more indirect and slight innuendos are
interpreted in a different manner. These differences can cause misunderstanding and lead to
disagreements, and ultimately, result in low teamwork efficiency (Chang & Cheng, 2019).
During my study, I have learnt it is imperative, to ensure that one has a grip of the said
21 | P a g e
communication styles at the workplace to avoid disruptions of the working relationships. Other
values include personnel working relationships, perceptions towards power, and authority as well
as organized structures that are also culture bound. The organization‘s employees may never
have worked for a virtual organization before; therefore, it will take sometime for employees to
adapt to this new organizational structure which in most cases is non-hierarchical and where
decisions are made bottom-up. On the other hand , it is possible that in other cultures employees
take active interest in the way organizational decisions are made and at times demand to be part
of the entire decision-making process (Kedia & Lahiri, 2020). Organizational cultures that fall
under the monochronic type include those for the western countries that recommend extremely
formal and organized working and business environment where time is well accounted for.
Existential cultures or polychronic approach to time which is typical for such regions as Asia and
Latin America put an emphasis not the mere punctuality, meeting deadlines but on relations and
the process of accomplishing the task (Hitt, Ireland, & Hoskisson, 2016). These attitudes may
differ significantly in project requiring project coordination and delivery, and every mean can
become a source of conflict. Cultural intelligence management is a process that should involve
practical steps of constant improvement, such as the following: Cultural orientation introduction
to cultural realities, making communications protocol, and embracing cultural diversity in the
organizational culture. Firms that manage to master these disparities effectively can fully exploit
the benefits of varied perspectives to stimulate creativity and improve the problem-solving motor
while achieving a competitive
6.2. Communication Barriers
The language and cultural differences result to communication breakdown that is a major
impediment in outsourcing and offshoring, influences the success of the global partnerships.
22 | P a g e
These barriers may include; cultural differences in language, different communication patterns,
cross-sectional differences in phase times, and constraints in the use of technological tools in
communication (Cavusgil et al. , 2017). Language as one of the broad categories could feature
major potential barriers given that one or both parties maybe have different language skills or
come from different countries and hence may have different first languages. This would result in
mistakes, time wastage, and enhanced stress levels among individuals within the team (Mehta &
Mehta, 2021). Not only text content transfers differ across cultures, but also the ways people
communicate include tonality and nonverbally. This can lead to so-called ‗Mismatches of
manager and subordinate expectations‘ where one party presumes the message as clear while the
other may find it vague or insulting (Chang & Cheng, 2019). It is therefore important to seek an
understanding and follow boundary conditions when addressing persons in other races in order to
overcome misunderstanding and conflict. Another factor: while some of Stanford‘s faculty
members work in the Pacific Time zone, others reside in the Eastern Time zone, and time zone
differences always add an extra level of complexity, especially when dealing with real-time
communication. Coordinating meetings and collaborations can be a problem, as source must log
in during working hours, while a target is possible only outside working hours. It may cause
fatigue, less efficiency, and reduced reaction times in operation and thus a slowdown in the
different projects completion rates (Kedia and Lahiri, 2020). Another factor that warrants careful
consideration is interactions with individuals or organizations in other time zones: what is done
to ensure work does not stop – perhaps by working different shifts, or applying the use of
asynchronous technologies. Another cause of barriers to communication is the technological
ones, though they might have evolved to a certain extend, they are still present. While using
video or face-to-face communication, it is crucial to note that despite these advancements in
23 | P a g e
technology, internet and communication infrastructures may not always be cheap and easily
accessible in all countries or organizations, therefore, can disrupt the flow of communication and
collaboration (Hitt, Ireland, & Hoskisson, 2016). Measures such as technical problems, low
connectivity, and incompatibility of such support systems can so much hinder meetings, result in
loss of information thus limiting the overall effectiveness of such support systems in
communication. Hence, investing in strong communication technologies and make sure that
there are equipments compatible with all the regions interested is the only way to prevent such
disruptions. There are some difficulties when people communicate online, especially when they
are not able to see each other directly. Text and video-conference, in particular, fail to convey
facial and body language, vocal intonation, and other para verbal signals that hinder
understanding and limit human interest between teammates (Bunyaratavej et al. , 2016).
6.3. Workforce Integration
Integration thereby means the coordination and synchronization of various teams within the
workforce across different geographic regions. This process isthus characterised by eradicating
barriers to do with different culture and communication and work practices so that all members
are aligned to a well-coordinated and aimed team approach (Bertels & Niehoff, 2020). People
across the globe have different cultural practices, beliefs, and practices in relation to working
culture, codes of conducts, and customer relations hence acting as the cause of conflict in
multicultural organizations. Isolates can help this through implementing cross-cultural training
awareness programs that will ensure that these employees have adequate knowledge on cultural
differences and improve ways on how to work with other employees of different cultures (Kedia
& Lahiri, 2020). The integration of employees is enhanced by communication as a key
determinant of the process. Due to this, it is important that various forms of communication are
24 | P a g e
as clear and unambiguous as possible so that they may overcome the barriers or handicap of
distance. It is therefore imperative to maintain sound open communications and reporting
systems so as to facilitate disseminations of information at all organisation levels. This entails
working with tools and solutions based on which people with the jointly used communication
agendas can openly and in real-time share information and work even if the personnel is located
in different time zones, thereby reducing the effects of asynchronous work (Cavusgil, Knight, &
Riesenberger, 2017). Daily checkups, everyday meetings, and weekly feedback sessions can also
save time and ensure that the remote workers do not feel that they are detached from the main
group. . This entails setting up standard practices as well as measures and standards that will
enable a consistent eradication of barriers to effective organizational performance in line with the
goals and objectives of the organization where the OD specialist practices. In this way,
organisations could benefit from putting standardising rules across these elements which will
help to deliver uniform quality and productivity no matter the work location (Hitt, Ireland, &
Hoskisson, 2016). Introducing integrated forms of project management where the strengths of
one site can complement that of the other can also promote accountability by allowing tracking
of the progress of the work being done.
7. Future Prospects
7.1. Sustainability Efforts
The incorporation of sustainable outsourcing techniques is being practiced by organizations to
promote changes that would lead to the accomplishment of environmental objectives and
improved CSR images (Grappi & Romani, 2014). The following is some of the how to achieve
sustainability Firms have taken the following measures to achieve sustainability, by choosing
partners and locations that embrace environmentally sustainable power sources, efficient
25 | P a g e
resource utilization, and energy-efficient processes (Gereffi, Humphrey, & Sturgeon, 2014). This
not only means that the carbon footprint is kept to minimum levels but also caters to the ever
increasing focus of the consumers towards the sustainability initiatives of the businesses. Also,
organizations have shift their supply chain management methods to circular economy wherein
companies aim for recycling and use of spare parts to decrease the consumption of materials
through reuse (Bettis et al. , 2018). The organizations that try to outsource such practices are able
to reduce average expenditures on materials and expenses connected with waste management,
which in its turn grants various bonuses from ecological and economical points of view. Further,
sustainability working implies undertaking extensive checking and testing to determine a firm‘s
legal compliances on environmentalism, something that may vary from country to country
(Kedia & Lahiri, 2020). There are also other technological improvements like artificial
intelligence and blockchain have the enormous contribution to increasing the sustainability in
outsourcing. These technologies help in effective resource planning, enhance supply chain
visibility, and also contribute to better planning of the logistics chain in order to minimize
emissions (Eriksson & Håkansson, 2017). Also, companies see more and more the need to
practice sustainability reporting, in which they communicate to their stakeholders their negative
impact on the environment and what measures they are taking to be more sustainable, which in
turn creates a positive image and increases the level of trust with the consumers and investors
(Grappi & Romani, 2014). Another benefit is that adoption of sound sustainability practices is
also a market advantage since customers are slowly but surely beginning to care where these
companies are sourcing their supplies from and what they are doing to protect the
environment. Sustainable outsourcing and offshoring initiatives entail the proper identification
and evaluation of the partners to work with, engagement in green processes, understanding and
26 | P a g e
fulfilling environmental standards, and applying technology advancements to resource
efficiency.
7.2. Innovation Trends
It has also been observed that the trends in innovation are changing the dynamics of outsourcing
and offshoring in global business, and the companies are being forced to adopt new technologies
and strategies to survive and succeed in the new market environment (Lewin & Peeters, 2016).
The trends that emerged in outsourcing processes include the implementation of advanced
technologies like artificial intelligence (AI), machine learning (ML), and robotic process
automation (RPA) (Bunyaratavej, Hahn, & Doh, 2016). They include ways in which day-to-day
jobs can be done , how data can be processed, and decisions made with equal efficiency,
effectiveness and less cost. For example, RPA is used for data entry, invoice processing, as well
as payroll management, making it possible to declutter some routine processes from employees
and allow them to focus on essential activities (Bunyaratavej, Hahn, & Doh, 2016). Furthermore,
intelligent applications such as chatbots and digital assistants are improving customer service by
offering round the clock support, thus creating efficient, effective, and cost-friendly customer
service experiences (Ellram & Tate, 2015). In addition, it is argued that data analytics and the
application of big data technologies allow by provides practical procedures to make good use of
massive data for further analytical and innovative purposes (Lewin & Peeters, 2016). In addition
to cognitive outsourcing, another emerging innovation trend is the availability of specialty
providers who can provide sophisticated AI and automation services, so that a firm can have
access to the state of the art technologies and skills it would not be able to develop internally
(Oshri et al. , 2016). Furthermore, there is senior management support, communication and
knowledge sharing needed to foster more innovation in outsourcing partnerships (Bunyaratavej,
27 | P a g e
Hahn, Doh, 2016). In general, the described types of innovations are transforming the
outsourcing and offshoring industry by enhancing the performance, flexibility, and
competitiveness of firms in the global environment (Lewin & Peeters, 2016).
7.3. Strategic Direction
The strategy in outsourcing and offshoring is not a permanent set path due to market factors,
changes in technology and the company‘s business values (Hitt et al. , 2016). Consumers and
businesses have recently emphasized on developing reliable and adaptable supply chain
management systems in the face of various setbacks like political rivalries, climate harshness and
diseases contrary to the Covid 19 disease (Baldwin & Evenett, 2015). This has resulted in the
changes of outsourcing strategies with increased focus on reducing risks associated with
outsourcing, diversification of supply sources and the increasing localization of manufacturing in
order to limit susceptibility to supply interruptions from single sources (Hitt, Ireland, &
Hoskisson, 2016). In addition, increased emphasis is placed on the requirement for organization
development strategy and strategic partnerships and alliances to spur innovation and increase
competitiveness (Bettis et al. , 2018). Firms are engaging in strategic partnerships with other
suppliers, service providers, and other technology partners with a view of tapping into new
market, knowledge, and funds (Bertels & Niehoff, 2020). Another consideration relating to
strategic direction in outsourcing is the increasing trend towards sustainable development and
CSR (Grappi & Romani, 2014). Outsourcing decisions involve company sustainability strategies
where firms choose outsourcing partners and locations that meet their respective ESG criteria
(Gereffi, Humphrey and Sturgeon, 2014 ). Further, there is a move to operational analytics and
evidence-based decisions in favor of outsourcing or enhancement of operational efficiency
(Lewin & Peeters, 2016). Using analytics, AI and ML, companies are trying to gain better
28 | P a g e
insights, and predict likely demand patterns to optimize procurement opportunities as well as to
look for areas of cost reduction (Bunyaratavej, Hahn, & Doh, 2016). In addition, strategic
direction in outsourcing is highly dependent on the geopolitical aspect and trade policies for the
fact that companies have become strategic about their locations and supply chain configuration
in response to shifts in trading regimes and policies (Baldwin & Evenett 2015). In conclusion,
the strategic directions of outsourcing and offshoring management are flexibility, risk
management and innovation since outsourcing and offshoring entail numerous risks and since a
firm‘s environment is complex and competitive (Hitt, Ireland & Hoskisson 2016).
8. References
Aubry, M., & Lavoie-Tremblay, M. (2020). The impact of outsourcing on project
management. International Journal of Project Management, 38(4), 238-249.
Baglieri, D., & Consoli, R. (2021). Outsourcing in the global economy: Trends and implications.
Journal of Global Business and Economics, 12(2), 151-164.
Baldwin, R., & Evenett, S. J. (2015). Value creation and value capture in global production
networks. Journal of Economic Geography, 15(1), 1-34.
Beck, R., Gregory, R., & Prifling, M. (2016). Technology sourcing decisions in the financial
services industry. MIS Quarterly Executive, 15(2), 83-97.
Bennett, R., & Gabriel, H. (2019). Economic and social impacts of offshoring on host countries.
Economic Policy, 34(2), 245-271.
Bertels, T., & Niehoff, B. (2020). Managing global teams in the age of digitalization. Journal of
International Business Studies, 51(5), 621-644.
29 | P a g e
Bettis, R. A., Gambardella, A., Helfat, C. E., & Mitchell, W. (2018). Qualitative empirical
research in strategic management. Strategic Management Journal, 39(3), 655-672.
Bunyaratavej, K., Hahn, E. D., & Doh, J. P. (2016). International outsourcing and firm
performance. Journal of International Business Studies, 47(5), 694-715.
Cavusgil, S. T., Knight, G., & Riesenberger, J. R. (2017). International Business: The New
Realities. Pearson.
Chang, Y. C., & Cheng, H. L. (2019). Cultural distance and offshore outsourcing. Journal of
Business Research, 96, 156-166.
Chen, C., & Liang, W. (2016). Strategic sourcing and innovation in the supply chain. Journal of
Operations Management, 47(3), 74-88.
Cohen, L., & Kietzmann, J. (2014). The pros and cons of outsourcing. Business Horizons, 57(2),
223-232.
Cordeiro-Nilsson, M., & Gelbard, R. (2017). Outsourcing decision-making frameworks and the
role of information. Journal of Business Research, 78, 206-217.
Criscuolo, P., & Verspagen, B. (2019). The contribution of multinational enterprises to labor
productivity. Research Policy, 48(2), 623-635.
Datta, P. P., & Roy, R. (2011). Operations strategy and competitiveness in manufacturing
services. International Journal of Operations & Production Management, 31(4), 386-
416.
30 | P a g e
Doh, J. P., Bunyaratavej, K., & Hahn, E. D. (2019). Seizing the potential of offshoring. Global
Strategy Journal, 9(4), 593-616.
Ellram, L. M., & Tate, W. L. (2015). Redefining supply chain strategy: The role of third-party
logistics providers. Journal of Business Logistics, 36(1), 34-46.
Eriksson, K., & Håkansson, H. (2017). Technology development and the globalization of R&D.
Research Policy, 46(2), 442-452.
Feenstra, R. C., & Hanson, G. H. (2016). Global production sharing and rising inequality: A
survey of trade and wages. Annual Review of Economics, 8(1), 231-264.
Gereffi, G., Humphrey, J., & Sturgeon, T. (2014). The governance of global value chains.
Review of International Political Economy, 21(1), 9-37.
Gorg, H., & Hanley, A. (2015). Services outsourcing and innovation: An empirical investigation.
Economic Inquiry, 53(4), 1877-1890.
Grappi, S., & Romani, S. (2014). Corporate social responsibility initiatives. Journal of Business
Research, 67(4), 572-579.
Hahn, E. D., & Doh, J. P. (2016). Business process outsourcing and firm performance: An
empirical study. Management International Review, 56(2), 249-275.
Hahn, E. D., Doh, J. P., & Bunyaratavej, K. (2017). International outsourcing and offshoring.
Journal of Management, 43(5), 1517-1543.
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2016). Strategic Management: Competitiveness
and Globalization. Cengage Learning.
31 | P a g e
Jiang, B., & Qureshi, A. (2019). Outsourcing, competitive advantage, and firm performance.
Decision Sciences, 50(3), 445-481.
Jiang, B., & Qureshi, A. (2015). Outsourcing and offshoring decision making. Journal of
Business Research, 68(5), 877-886.
Kedia, B. L., & Lahiri, S. (2020). International outsourcing of services: Problems and solutions.
Journal of World Business, 55(2), 101-118.
Kohler, P., & Smolka, M. (2014). Global sourcing and firm innovation. Journal of International
Economics, 92(1), 77-95.
Kotlarsky, J., & Oshri, I. (2018). Knowledge sharing and innovation in outsourcing. Journal of
Strategic Information Systems, 27(3), 1-9.
Lacity, M. C., & Willcocks, L. P. (2014). Nine practices for delivering value from outsourcing.
MIS Quarterly Executive, 13(3), 153-167.
Levy, D. L. (2017). Political contestation in global production networks. Global Networks,
17(1), 1-23.
Lewin, A. Y., & Peeters, C. (2016). Why are companies offshoring innovation? Journal of
International Business Studies, 47(5), 674-692.
Manning, S., Larsen, M. M., & Kannothra, C. G. (2018). Global sourcing dynamics. Journal of
International Business Studies, 49(1), 69-96.
Mehta, A., & Mehta, N. (2021). The role of culture in outsourcing decisions. Journal of Business
Research, 131, 49-59.
32 | P a g e
Miozzo, M., & Grimshaw, D. (2018). Capability building in global production networks. Human
Resource Management Journal, 28(1), 97-112.
Oshri, I., Kotlarsky, J., & Willcocks, L. P. (2015). The Handbook of Global Outsourcing and
Offshoring. Palgrave Macmillan.
Pisani, N., & Ricart, J. E. (2019). Offshoring of services: A review of the literature. Journal of
International Management, 25(2), 205-219.
Schniederjans, M. J., Schniederjans, A. M., & Schniederjans, D. G. (2015). Outsourcing and
Insourcing in an International Context. Routledge.
Willcocks, L. P., Hindle, J., Feeny, D., & Lacity, M. C. (2014). IT and Business Process
Outsourcing. Palgrave Macmillan.
Wrona, T., & Hutzschenreuter, T. (2017). European business services offshoring. Journal of
International Business Studies, 48(5), 757-779.
