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The world’s economy today is more integrated than ever. Globalization means resources can be easily transferred from one place to another for companies to take advantage of price differences and maximize operating efficiency and profit. Different regions in the world offer different natural resources and labour force of different skills, culture and competitive advantages.
The raw materials required for a production line might be extracted and refined in Australia, then shipped to China or Vietnam for assembly while the finished product was designed in the US and then sold onto the rest of the world with a marketing campaign designed by a French firm. The same is true for services oriented companies. The sales team could be based in one country usually the country of the customer while the support team is based in another with lower labour costs and technical team in another with competitive advantage in the required skill set.
I.T. and web services is probably the most outsourced industry, where many web design companies based in North America and Europe rely on developers from countries like India, Russia and Vietnam to produce the websites for their clients. This significantly lowers their cost base and maximizes their profit. This operating model also means that they can tap into a large talent pool available in those countries to produce work for clients that they could not have produced themselves. It is a win-win situation.
As outsourcing becomes more wide spread, it creates two effects – decreasing costs for the clients and increasing wages for the outsourced developers. Efficient market theory dictates that profit will decrease as market becomes more efficient as the result of competition. Once the market has become fully efficient, the profit that can be made by the middleman – web development companies – will be significantly if not completely diminished. In such a scenario the client would be capable of sourcing directly from offshore developers and pay the best price in the marketplace.
Exporting skills has already become a major industry for many developing countries where outsourcing services generate billions of dollars of revenue every year. It is wealth that could not have been created had globalization not occurred. It is a trend that will surely continue given that developing countries are getting better at handling outsourcing services from western companies. Increased competition means western companies must explore every possible to minimize their cost in order to survive.