The Growing Integration of World Markets - Generating Both Opportunities and Challenges to International Firms

The Growing Integration of World Markets - Generating Both Opportunities and Challenges to International Firms

In the increasingly globalized economy, the growing integration of world markets generated both opportunities and challenges to the international firms. Facing the world wide range competition, multinational firms have to seek for strategic resources in order to enhance global competitiveness. As a result of this, offshore outsourcing is increasing its importance of firms and industries. On one side companies acquire more profits, decrease costs and mitigate risk by outsourcing, furthermore, outsourcing bring fairly large amount of employment opportunities to the contractor country. On the other hand, to some extent, subcontracting also causes some social responsibility problems such like workers endure the bad working condition. Even though some people hold the opinion that society should focus on human rights more than the economic profit, we can not deny that, establishing an international network of subcontracting is a win-win strategy. International companies’ outsourcing is a good model to follow; it facilitates the development both of contractual parties.

Multinational corporations get to decrease the costs, increase the utilization rate of funds and optimize allocation of resources by outsourcing the non-critical parts of the business process. Companies partially delegate the tasks to achieve upgrading the industry and mitigating risk brought by global financial crisis and the fluctuation of international exchange rate. Nike, the company famous for its billion-dollar footwear industry has hundreds of factories and various subcontractors to design and manufacture the products. Outsourcing brings many advantages to the Nike Corporation; the first one is decreasing the cost. Nike could acquire high utilization efficiencies because of low salary expense in the third world countries. This allows Nike to shift their capital to other activities which could boost sales volume like advertising, launching marketing campaigns (Brown and Wilson, 2005). Furthermore, the lower costs of products allow Nike to price the product at a competitive level, and also earn pricing power and more market share. Outsourcing the task to overseas suppliers promotes upgrading industry, “Nike basically is a trademark and a distribution network” (Nagel, 2005, cited in Turner, 2005). Capital saved from the manufacturing section can be used to focus on integrating world wild distribution.

An inevitable risk for an international corporation is that it is impossible or hard to control the process of manufacturing, which is say, getting the output which failed to follow the standard or expectation so the quality is not there. (Aron, cited in Rosenthal, 2009). This might be posed by the independence of contractor companies, the complexity of the task and unfamiliarity of the companies’ corporate culture and strategic objective. The poor quality can lead many problems, for instance, losing of consumer loyalty, brand influence or reputation. Although the relation between contractor and the offshore project owner is contractual, the code may not specific enough (Rosenthal, 2009). Moreover, since some unexpected issues like the fluctuation of the economic situation and international exchange rates exist, the capital which the project owner provides may be insufficient to meet the standards.

Nevertheless, the risk of poor quality can be managed and mitigated by giving the contractor assistance and improving management style. Knowledge transfer for example, partially transferring the noncore knowledge to the supplier can decrease the poor quality problem. When Japanese companies outsource their tasks to a Chinese company they also greatly transfer their knowledge. Making progress in communication and avoid information asymmetry (Forte and Brandao, 2005). One thing that should be kept in mind is the supplier is an independent firm, it is reasonable that the contractors do not know what the parent companies’ expectations are, since they do not know much about the corporate culture and strategic objectives. “Do not over control and under monitor” (Aron, cited in Rosenthal, 2009). Setting a clear objective to make sure the supplier knows what the project owner wants (Mclvor, 2010), creates the system to track if the outputs reach the required standard. Outsourcing means providing more employment opportunities. Unemployment is one of the main reasons of poverty. The data showed, 160 billion dollar global services industry has created more than 1.5 million jobs; the majority of them were concentrated in big cities of China, India and Philippines. However, in some developing regions of Africa and rural regions of Asia, over 170 million skilled workers were unemployed (Janah, 2009). Furthermore, some other social problems will stem from the unemployment. Companies which subcontract their task provide a number of jobs and help local governments to solve the unemployment problem, moreover, improving both the economy and social stability. According to the information, Nike has been subcontracting their task throughout the Asian region for more than 25 years, in these areas, over 5000,000 people working for Nike (Dusen, 1998). During the process of manufacturing, employees learn skills and have opportunities to access advanced concepts, and then improve the staff quality.

Conversely, some professors believe that outsourcing caused some unavoidable problem about social responsibility, which is the issue with regard to bad working condition. A series of suicide happened in Foxconn, the largest electronics components maker in China which belonging to Hon Hai Corporation, aroused world wide concerns. 13 Chinese employees were dead from exhaustion at Foxconn or related plants (BEC, 2010). Hon Hai is a contractor of Apple, Dell and Hewlett-Packard computers; they do the partial task delegated from these international companies. The project owner just focuses on the output but failed to supervise the working condition in the supplier company. To some extent, their ignorance also pushed the deterioration of the problems. The research conducted by students and scholars against corporate misbehavior showed, there are gaps between the reality and promises, related to working time, salary, working condition, working health and safety. (SACOM, 2011, cited in Ferrari, 2011). However, these problems are not only existing in China, but also faced by workers in India, Kenya, Cambodia, Vientiane and Laos.
Companies could mitigate this problem by enforcing code of conduct focused on working conditions and employees’ legal rights, and the significant stage is supervising the execution of a code of conduct. The contactors’ behavior can be restricted by signing the strict and detailed punishment rules. The balance between the revenue and social responsibility can be kept by making the contract and salary standard according to both local laws and the real situation (Peter and Gervais, 2006). Employees’ feedback needs and feeling can be easily acquired by a confidential platform like monitoring system, so parent companies could supervise the contractors’ performance.

Today, with the highly integrating of the world market, the competition become fiercely. In order to achieve competitiveness, transnational companies have to focus their strategies on decreasing cost. Outsourcing, which is as a win-win strategy, became a main force. Although, some inevitable problems has been aroused by subcontracting, companies can mitigate the side-effect by giving contractors more assistance and making codes of conduct to restrict their behavior, furthermore, ensuring the good working condition is provided to the employees. There is no doubt that the advantages of outsourcing are impressive, since both contractors and parent companies get a great number of benefits from outsourcing.

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