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With the present changes in the production structure, as well as the development of economic globalization, international outsourcing has had rapid development owing to the fact that it has adapted the importation of intermediate products as its principal feature. This has made it become a new international trade growth point. Even at a time when economic slowdown is having effects on both, the nature and the rate of economic growth; the same has hardly had any threats to the emergence of global outsourcing. The tremendous domestic market for both, goods and service in China has in the recent past been attracting numerous global companies.
In the ever escalating debate on international outsourcing, China has remained to be a key player, especially in the Organization for Economic Co-operation and Development (OECD). Being the largest populated economy outside the OECD, China enjoys a relatively large pool of highly efficient and low-wage labor that cannot at its least move to the OECD as a result of the already instituted restriction in immigration. In the recent past, the country’s exports have grown by 5% to reach the 40% mark (KPMG International, 2009). Worldwide, China’s trade is actually nearing ten percent of the entire global trade, and this situates the country as a principal player in the global economy. Notably, China happens to be the largest recipient of foreign direct investment (FDI) flows to the non-OECD member countries from the OECD member countries (Rehkopf, 2011). Both, the trade and the huge FDI flows in the country are believed to be propelled by the low wages rate prevailing in this Asian country.
China, being one of the fastest economic growing countries, has of late been referred to as the place to outsource. This belief has been facilitated by the earlier mentioned low-cost labor, as well as the country’s high-technology manufacturing. Moreover, the fact that China has an easier access to the World Trade Organization (WTO) makes the conditions more favorable for the country to implement economic reforms, as well as undertake industrial restructuring (Morrison, 2006). In addition, apart from stimulating the development of logistics industry, the above mentioned has also promoted the growth of the demand for outsourcing. Growing outsourcing trends in different organizations are propelled by different drivers. However, there are some principal factors which compel organizations or even states to result in outsourcing decision, which can be termed to be universal. These factors are broadly classified as strategic, economic, and environmental drivers or factors.
One of the driving forces to the growing Chinese outsourcing trend is the designation (by the Chinese government) of logistics as a strategic industry. In addition to this, the government has also heavily invested in making the country’s infrastructural facilities better. This includes things like establishment of countrywide multi-modal transportation networks and large-scale up-to-the-minute logistics and distribution centers (Morrison, 2006). Moreover, the facilitated access of China to the World Trade Organization has unlocked several other logistics and transportation sectors to direct foreign participation. As a result of the transportation opening, more intensive competition between the Chinese companies and the foreign companies both, within and outside China is likely. In the meantime, there has been a shift in the pattern of ownership of the Chinese enterprises from the state to co-existence form of ownership in amalgam forms. With the increased competition, as well as the daily growing awareness of the role that logistics plays, companies are more likely to engage in further exploitations of the potential in outsourcing (Presnell, 2006). Chinese manufacturers are actually in search of logistics solutions, which will move their output (goods) to consumer markets that are considerably expanding at a faster rate. In addition, many of the industries are moving towards consolidation and together with the emergence of national chains; the demand for outsourcing is expected to increase. These initiatives by the government in the form of logistics infrastructural investment have played a very important role in motivating the domestic companies to result in outsourcing the greater percentage of their logistic needs (Lau & Zhang, 2006).
China has also proved to be one of the most paramount domestic economies when it comes to growth. It is not long ago when the world witnessed an economic downturn. However, even such an era when the economy seems to be gloomy, China was still rapidly growing. Following this above mentioned economic downturn, global and domestic multinational corporations (MNCs) and their clients have resulted in refocusing of their business strategies so as to target the global growing economies as principal future growth markets (KPMG International, 2009). In addition to this, there is a necessity for the rationalization of cost structures so that business entities are in a position to be in good terms with the ever increasing profit pressures. This has thus necessitated the MNCs clients to heighten their focus and engage in outsourcing technology service providers so as to be able to leverage economies of scale and at the same time obtain the very best industry solutions. These two trends happen to be present in China and tend to occur in parallel on the Chinese markets and as a result are defining the outsourcing strategies based in the country (Lau & Zhang, 2006).
Another factor which has played a pivotal role in the integration of China into the global economy, especially in international outsourcing, is its recent entry to the WTO. This nomination was actually a decisive step in the transformation of the Chinese economy, which is known to be highly dynamic. This move opened the Chinese market to multinational corporations, which in turn would see through the expansion and growth of the Chinese market. In addition, competition will be motivated by these corporations, and as thus quality output will be at the disposal of the consumers. China has also been a market leader in international outsourcing as a result of stability in its external economic relationships. Having become a member of the WTO, China’s access to foreign markets has become more stable. This is because there have been considerable reductions in the barriers of foreign trade that were earlier present as a result of the potential unpredictability in policy shifts (Rehkopf, 2011). Owing to this fact, therefore, the country has now become better positioned for the attraction of more foreign investors who make use of the country as an export platform. Apart from this, entry into the WTO by China has strengthened the foreign investor’s wish to invest more in the country since they now feel more secure engaging in the development of the Chinese domestic market. Irrespective of whether it is drawn by the huge domestic market or it is export-oriented, the earlier mentioned FDI also brings additional capital to the country thus continuing to make it a market leader. In addition, this same FDI comes with its market information, management technology, worldwide production, and distribution networks that connect the country (China) more tightly to other world economies. Despite the fact that WTO membership does not do away with the existent trade and investment frictions between China and other economies of the world, the WTO’s trade rules and mechanisms for settling organizational disputes help in the management of these frictions (Presnell, 2006). This promotes the relationships between these trading economies.
Notably, a great percentage of the countries of the world are undergoing economic reformations. On the other hand, both, external pressure and obligation have certainly become useful in helping counter the opposition emanating from domestic interest groups, whose power is measurable. The case in China is however seemingly different; its economic reform is considerably speedier and firmer. As a matter of fact, the state-owned enterprises in the country are actually a powerful force against the match of the country towards a market economy (Lau & Zhang, 2006). This, therefore, supports the move by the country to join the WTO in pursuit of this economic reform. On considerations of the WTO membership prerequisites, competition will be greater in China, both, in the country’s domestic and foreign markets. This has as thus resulted in a restructuring of the industries on a large-scale basis. It is, therefore, very clear that the economic reform and development in China, partly as a result of the country’s membership with WTO, has been very pivotal in the enlargement of the consumer market. This has consequently increased the demand for international outsourcing and especially for logistics solutions (Presnell, 2006).
There are also other benefits which the country derives form WTO membership, as well as from expanse in international outsourcing. This increased competition borne of the WTO entry has led to the rewarding of the innovative and efficient firms, irrespective of whether they are public, private, foreign, or domestic. This will as a result amount to the protection of intellectual property rights, which will further play a pivotal role in the construction of an economic growth engine based on technological advancement. In this way, China has been able to make further exploitations in global outsourcing since the intellectual property rights of the indigenous Chinese firms, as well as those of multinational corporations are full safeguarded. There are also likelihoods of industries engaging into consolidations, as well as the emergence of the earlier mentioned national chains. In this way, larger and more complex players are created in the economy, thus increasing the need for outsourcing (Lau & Zhang, 2006).
On the other hand, there are a number of challenges that China comes across in her pursuit for international sourcing. These include loss of control, resulting from loss of core competences and the risks associated with alienation of customers, loss of critical skills, inadequacies of service providers’ capabilities (such as loss of market share and competitive advantage), hardships in obtaining organizational support, fear of retrenchments, increased chances of failure, and inadequate systems to analyze cost and benefits (Rehkopf, 2011).
From the above discussion, it is undeniable that global companies have been flocking the Chinese market as a result of the country’s domestic market growth. This growth has played a central part in the area of international outsourcing. With the relatively low-waged pool of skilled labor, strong government support through various forms of incentives and first class infrastructure, China had come out to be a key player in the global economy, especially in the technology services industry. Besides, the country’s domestic market (for the outsource technology services and solutions) has been on the rapid growth, and this is seen through the maturity of the outsourcing industry at a relatively high speed.