Worldwide impacts of digitally services


Offshoring is said to be a subset of outsourcing where the services of a company in one country is relocated to same or some other company in different country. Though the concept behind offshoring services is lowering costs and gaining profits which make way for globalization, it has created both negative and positive feeling in society as a whole. (Ashokan, 2006). Information Technology tops the list of services that are outsourced which in turn impacts the various other sectors like accounting, financial services, market research, legal services, modeling and engineering designs (Society, 2004).The other services like business services(IT and IT-enabled), computer services, Proffesional services also comes in the list of outsourced services. (Lewin & Couto, 2006) survey results says that offshoring is entering a new era by not only having a vision of reducing the labor costs but also focusing on globalizing the product and process innovation activities and applications which involves hunt for highly skilled professionals worldwide and relocating the core business activities like product design and R&D which is now setting the new global trend. This paper gives a fair examination on the impacts of outsourcing software developments and other IT services on various global sectors and shows the understanding of pros and cons of offshoring which is now closely and inherently tied to globalization.

Global connectivity offshore service providers and clients

As there is overwhelming demand for talent all across the globe the offshore locations have driven to equip and display themselves with competitive innovative knowledge. (Lewin & Couto, 2006) report clearly briefs the offshoring destinations filling up the space. Though India remains the most preferable location to many American and European companys, countries like China, Phillippines, Canada and Eastern European nations have remarkably improved their competition in occupying the offshore space. China is emerging as the most preffered location for product development projects because of its strong base in domestic and foreign manufacturing division. America and Werstern Europen countries prefer nearshoring to Canada and Eastern Europen countries respectively despite relatively high wages compared to India and Chine due to close proximity in cultural aspects. By comparison, US companies offshore to India, Latin America and Phillipines because these locations provide large pool of english and spanish speaking ability by addition to minimum wages. By observing the above strategies involved in offshoring, we can think of positive and negative effects building in the global societies and it reminds of the fluctuations happening in the employment division, business processes, innovative talent and diminishing talent and knowledge at the client locations, same time reminding of the growing talent, improved economic conditions and increasing employability statistics at the offshore locations.

Employment impact of offshoring

The general perceived problem of outsourcing is that it destroys jobs.Schumpeter(1942) describes this as creative destruction.It becomes necessary to shift from the less productive uses to more productive uses in order to have a dynamic economy and that is what outsourcing does resulting in job losses.But what is often more difficult to see is that this process of shifting resources infact creates more jobs than that are destroyed( (Baumanis & McGee, 2008). (Commander, Heitmueller, & Tyson, 2006) says that a widely quoted study according to one of the consultancies came with a suggestion that the number of jobs offshored from the US will climb from 400,000 in 2004 to 3.3 million in 2015 which can be translated that 2% American job losses every year in this time frame and 2% of jobs in EU15, with UK having the highest share because of the language advantage are also endangered during this period. About 4% of job losses in France between 2002 and 2004 and few job losses in Germany can be attributed to offshoring. This has created considerable unease among workers and politicians in US and Europe. In contrary (Auer, Besse, & Meda, 2005) claims that 80% of the announced job losses were due to the company restructuring and their need to adapt to new technologies by reorganizing the work culture depending on the consumer demands. They say that many previously secured jobs are now under great threat due to offshoring and organizational change will surely have an impact on skill requirements creating an fear of exclusion among who lack in upto date skills. Being on the optimistic side (Auer, Besse, & Meda, 2005) claims that globalization has helped to improve the economically backward countries in increasing the employment oppurtunities to a great extent reducing poverty. They figure out that the 40 percent of world's population who lived with less than a dollar a day in 1981, against less than 20 percent today.Through a thorough and extant review on the theoretical literatures on outsourcing (Hansen, Schaumburg-Muller, & Pottenger, 2008) says that 25 percent of traditional IT related services will be outsourced to developing countries by 2010 and major shares of these will be outsourced to India. As a result of this, around 250,000 people in India were employed in software industries in 2003 and has displayed annual growth in revenues and employment of 30 -40 percent over the last ten years. Other developing nations like China and Brazil also have seen huge gains in employment within IT. The partial analysis and study of impact of offshoring by (Jensen, Kirkegaard, & Laugesen, 2008) shows that there were more jobs created during 2002-2005 period in Denmark due to inshoring of activities into Eastern Denmark from the firms outside Denmark and overall highly skilled workers are retained in the firms and reap the benefit of offshoring whereas the position of the low skilled workers are challenged. So although the overall employment impacts of offshoring seems positive, it can be seen by above cases that offshoring poses a challenge for the low skilled workers, the group most negatively affected at the same time pressurizing the high skilled workers to constantly upgrading their skills. According to (Baumanis & McGee, 2008) the evidence that outsourcing is like a positive sum game is overwhelming which creates more jobs than it destroys and various studies have found that getting rid of trade barriers between countries creates two or more jobs for every job loss and that avoiding free trade destroys many jobs than the jobs created.

Economics, Social - Ethical and Cultural Issues of Offshoring:

Comparative advantage theory states that when each country specializes in production of particular goods that has a relative advantage, both the countries can benefit larger total consumption and well-being by trading with each other, thus, offshoring enables lower cost and save scarce resources in host countries which they have a relative advantage (example offshoring countries like US), while offshoring has helped employment oppurtunites and high wages in turn increasing the profits and revenues of the businesses of the offshored countries like India. This makes us understand that there is low returns to the suppliers of the input, low costs of products resulting in low prices for consumers. At the other end there is a considerable increase in the returns to the service suppliers in turn increasing in the wages of the employees due to high demand (Aspray, Mayadas, & Vardi).The onset of offshoring led to dramatical effect on local economy and loss of thousands of jobs especially in IT industries. The advantages of offshoring was discoved after the Y2K issue where most the programmers were brought from offshore locations likeIndia for low cost .This pattern was recognized lot of economical advantages and continued hiring till the dotcom burst. Since all the businesses involved IT and IT enabled services offshoring strategy remained worth for the companies in managing costs (Ashokan, 2006).Though this became a boon to developing nations, severely affected the citizen's mind set of the developed nations. When it comes to cultures (S.Krishna, Sahay, & Walsham, 2004) have researched that working across different cultures when outsourcing any software production is always not hassle free. Cultures across countries and societies are different and may become the barrier when collaborating with the other culture counterparts. The research also gives an example of how Indian software companies have to deal with when they have to interact with US and Japan in different ways. US client companies extensively work with more documentations, written agreements,informal telephone calls and e-mail conversations. In contrast, Japanese prefer more formal way of making use of electronic media and prefer verbal conversation. The same research gives another scenario where the challenges not only concern the need to adopt to new ways of working but also cultural norms of social behavior language and attitude issues. For example few Norwegian outsources prefer Russia to Asian countries due to close proximity physically, close proximity in European mind set, work culture and fast tendency of Russians learning Norwegian language. Talking from a ethical point of view (Baumanis & McGee, 2008) argues that if the rights are not violated it does not mean that the act is ethical instead the act may be ethical. So relating this to outsourcing it shows that people or companies who engage in outsourcing have rights to trade what they have for what they want and rights are violated only if the outsourcing was prohibited and not permitted. As India is the major offshore destination for many countries (Baumanis & McGee, 2008) talks about the cultural impacts due to outsourcing on young Indians. The call center industry accountable to much of the education of India's students and the ability to speak American English means to be the venue through which one can easily obtain jobs in the city. Addition to this employers teach its young employees about the American lifestyle so that they can enhance their service quality while dealing with the customers. This has spread across the society and today American style malls, attachment to materialistic values has intermixed into Indian culture encouraging social transformation of these young generation. As a result today, young Indians are more materialistic, brand conscious, own Vespas, cell phones and like to have pizza for lunch. The older generation argue that world has become a market and human beings are reduced to consumers and parents argue that the western culture is eroding the traditions and family values and they are worried that these sudden changes are compromising the family traditions and rituals that keep the culture intact.

Risks involved in offshoring

There are several risks involved due to offshoring and the highest ones are the sustainability of the service quality provided and security issues concerned with the offshore location. The other issues can be loss of managerial control over the offshore location which has eventually increased in the last few years which as given room for companies to collaborate with professional third party consultants and making them taking over the organizational structuring of the offshore activities. This has again creating a new managerial challenges like data security issues etc (Lewin & Couto, 2006). (Gonzalez, Gasco, & Llopis, 2009) Study justifies that most of the time clients gradually lose their understanding towards the service over time. Even if the service provider transfers all possible knowledge required to the clients, the large portion knowledge required remains in the hands of service providers thus giving rise to lack of technical knowledge about the service amongst the clients.Thus there is a need for the clients to properly equip themselves with proper and specific technical as well as managerial knowledge in order to handle the outsourcing relationship much better way. Supporting this (Aspray, Mayadas, & Vardi) gives the possible risks involved due to offshoring as "Offshoring risks include data communications vulnerabilities, loss of control of business processes, loss of control over network perimeters, increased network complexity, clashing security policies and procedures, gaps in personnel security, and drastically diminished ability to know about and respond to security breaches" .This gives us an idea of possible precautions to be taken to reduce the amount of risks involved in offshoring. They have also come up with the suggestion to considerably lower these risks. According to (Lewin & Couto, 2006) problems cannot be solved until they have been properly defined and accepted by a nation and its citizens. Topics needing national attention might include international agreements, policing, proper tax structure for companies investing, internet policies, infrastructure and several others relating to these.When it comes to quality of work, Client company may be jointly or severally liable for provider's mistake either in legal terms or in maintaining statutory records so, (Chan & Pollard) says that TQM(Total Quality management) should be applied in conducting outsourcing. Now framework called CMM(Capability Maturity Model) which applies TQM principles to software developments improves the quality of software and productivity of the developer has been widely accepted in the industries.

Impact on Information System discipline and IT:

The most sought after graduation studies were those completing their degree requirements in information related fields during the1999-2000 and as most of the graduates showed interest in demonstrating what they had had been significantly taught in computer knowledge and value of information systems. Soon after four years many computer professionals became unemployed and many were fearful of losing their positions due to outsourcing initiatives and very distressing fact is that outsourcing initiatives are offshore( (Pollack, 2004).(Hirschheim, Loebbecke, Newman, & Valor) in their paper offered an explanation as to how offshoring has affected the enrollment of students to IS related courses. The current generation parents and their kids In US and UK(less number of people compared to US) have this perception that there are no jobs for IS graduates since most of the IS related tasks are offshored and thus students joining IS related discipline has drastically decreased in number(by 50 to 85% from 2000 to 2005 with an average drop of 66%) resulting in major universities across US eliminating the IS discipline from their MBA courses offered. They have also argued strongly that offshoring IS jobs has not led to the complete demise of the discipline and with few evidences highlighted that there are more IS jobs now than ever before in the developed countries. They have clearly shown that its just a public perception and there are various solutions to get rid of this perception and see the reality about the opportunities in IS field. Taking an hypothetical interview case, in his paper (M.Felder, 2006) have come up with the actual scenario what is happening with US IS students during their campus recruitment process. As most of the US's manufacturing and design work is outsourced to China and Romania and most of the development jobs are outsourced to India, the industry interviewers are looking for skills in students beyond those that used to be sufficient. Author has mentioned that since 1960s, US educational system has concentrated almost exclusively on analytical skills. But in todays scenario most of the jobs calling for those skills can be done better and/or cheaper by computer applications and skilled foreign workers. Thus he suggests that there has to be modification on the current educational pattern by just not concentrating on the analytical skills but with additional skills- skills that involving creative thinking, skills to think innovatively, entreprenuerly, communicate persuasively, bridge cultural gaps and periodically equip themselves according to market changes which would help American workers continue find jobs in the new economy. (Pollack, 2004) suggests that higher order skills are necessary and manadate for the future and according to executives survey skills required include ablility to align IT projects with business goals, strategic planning, process analysis, web application, datawarehousing and mining and project planning and these skills shoule be imbibed in the students through examination and revision of the current content in the universities to prepare them for the better and challenging future. This seems to have a profound impact on the whole engineering courses not only in US but in all the developed and developing countries. (Hirschheim, Loebbecke, Newman, & Valor) claims that dearth of IS students in developed nations is irony and just the public conception, suggests four major stakeholder groups in the IS field namely IS faculty, academic IS associations and schools and government and government authorities to actively study the crisis and respond to it making IS a vibrant community.

Research by IBM scientists( (services) have clearly showed the positive developments and profits gained by the IT organizations due to outsourcing. Scientists at IMB T. J. Research center investigated on a statistical analysis, the long term effects of outsourcing on the IT companies and concluded that IT companies engaged in outsourcing out performed their peers on a long term basis in various metrics like selling,general and administrative expenses, return on assets and earnings before interest and taxes. But the investigation no not imply that outsourcing was the only reason and sole driver behind this improvement.


In the recent years, globalization, competitiveness, security of supply and increasingly discerning consumers have forced all the top organizations to accumulate more suppliers they work with and increase regions globally from where they source products. This trend in global outsourcing would continue to grow with this demand for low cost products and it is said to be predicted that outsourcing is core for competitive advantage and differentiation in our increasingly cost conscious markets (Roberts, 2006,2007). ''Outsourcing IT is a strategic business decision that is likely to boost a firm's performance'' (services).Despite offshoring, the careers in the IT field will remain strong in the outsourcing companies and expected to grow more in the developing countries which are the targets of offshoring. In this contemporary world, though globalization does not imply homogeneity, extra efforts have to be put in to solve the cross cultural and social- ethical issues which is necessary not to improve effective business processes of the companies but also for world of increased cross cultural understanding (S.Krishna, Sahay, & Walsham, 2004). (Pollack, 2004) encourage students to become versatilists who can apply their skills to progess and experiences, building relationships, gaining new competencies and assuming new roles and they should be cross functional with other disciplines such as accounting, marketing and supply chain management. Outsourcing is a powerful tool and if the company keeps outsourcing major activities without managing on the outsourced jobs in a right way, it will lose its unique value( (Beebe & Meyers, 1999).


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