Outsourcing and Global Sourcing

Outsourcing and Global Sourcing

Key Concept

Global sourcing/outsourcing strategy has been one of the most hotly debated management trends in the last 20 years. In its early years, global sourcing was examined mostly from “in-house” development and procurement perspectives; and in the last several years, research focus has shifted to “outsourcing” activities (Antràs & Helpman, 2004). Along with this shift from internal to external focus on global sourcing, many researchers and business practitioners have applied a core competency argument to justify increased levels of outsourcing activities on a global basis. Although the beneficial aspects of outsourcing are assumed in most cases, no consensus exists in reality as to the effect of outsourcing. Furthermore, the increased instability of the exchange rate environment in the last several years has also led to increased difficulties in managing globally scattered operations that were once fashionable in the 1980s-90s under the rubric of global strategy. I am interested in this study because there are negative consequences of outsourcing strategy on a global scale.

More specifically, a manufacturer can either locally source (by using suppliers in the same region or country), source internationally (from suppliers located outside of the region), or source globally (by having the same supplier supplying each manufacturing facility, for example, regardless where it is located). Thus, if the manufacturer decides to offshore its operations, this would mean to locate the manufacturing facilities abroad, and to re-import its goods. If the manufacturer establishes plants abroad to satisfy local demand in the respective market however this would be part of a global manufacturing strategy, whereby a local presence in a foreign market is the key rationale.

Comparison

Global outsourcing is a management strategy by which an organization delegates major, non-core functions to specialized and efficient service providers. Global outsourcing represents a significant shift in the way organizations manage and staff their business support activities. While global outsourcing has received considerable attention from practitioners and consultants, there has been little empirical research published on global outsourcing. This study explores why and how organizations are using global outsourcing and identify problems that effect global outsourcing success. The results showed that organizations generally considered themselves successful at global outsourcing. However, while they achieved significant improvement in organizational effectiveness, they were not achieving the order of magnitude improvements ascribed to global outsourcing (Bozarth & Handfield, 1998).

Information Systems and Outsourcing covers nearly 20 years of leading theoretical and practical research on IT outsourcing by the two authors and their global network of 11 distinguished contributing authors. The book is organized chronologically to clearly show the evolution of theory and practice over time. The author's comments on which findings remain critically relevant versus to the findings have considerably progressed. The book explores how good IT outsourcing theories shape practice and how effective IT outsourcing practices inform theory (Bronfenbrenner & Luce, 2004). The author's stress, through their own empirical work, the importance of critically examining theories borrowed from economics, strategy, and sociology to study IT ...