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2.5. Factors Influence of Offshore Outsourcing DecisionOffshore outsourcing has a long-established feature of cost effective business practice. The necessity to review what to remain in house and what would be contracted to external vendors has been dramatically increased over time by two factors: the thrust for competitive advantage in the global economy and successful business focus on its16core competencies (Sandra Ward, 2004; Harland et al., 2005).The attraction offered by significant wage differentials has therefore stimulated moves of in-house production facilities to lower wage economies, using both outsourcing and off-shoring approaches. From initial IT and software development, financial services, business process supports, the offshore outsourcing approach was beginning to be seen in research, engineering design or development, production function and many others. The locations for off-shoring were growing especially in the Asian region such as Bangladesh, India, China, Singapore and Malaysia. Although cost savings was still a very important consideration factor (Saunders, Gebelt, & Hu, 1997), companies were offshore outsourcing for other reasons as well not only just due to lower operating cost.According to the Outsourcing Institute executive survey (2006) the top ten reasons why companies would outsource are as follows: reduce and control operating cost, improve company focus, gain access to world class capability, free inter resources for other purposes, resources are not available internally, accelerate re-engineering benefits, non-core function that is too complex to manage, make capital funds available, share risks and cash Infusion.Sood (2006) identifies some of the main reasons for outsourcing as (a) Staffing cost reduction, operating cost reduction, company focus improvement, flexibility, reduced time to market, access to specialist skills, risk mitigation or risk sharing, using world-class resources, quality improvement and effective management.According to Greaver (1999) the main reasons of offshore outsourcing are as follow: Organizationally driven reasons, improvement-driven reasons, financially driven reasons, revenue-driven reasons, cost-driven reasons, and employee-driven reasons.17These are very similar to Smith, Mitra, &Narasimhan (1998) findings that classify the main drivers into some categories such as: cost reduction, focus on core competencies, increase product range, and enhance presence in global market, environmental factors, ability to develop and implement global strategy.According to Islam & Sobhani (2008) due to some reasons a firm’s set up their business operation to other place or country. There are: Capital investment, overhead and fixed cost, space, focus on new product development, explore new market segment, availability of specialist, latest and high efficiency technology, established tools and support infrastructure, limited production capacity and space, lack of technical content experts and support infrastructure.Bocij et al.(2006) summarized the following reasons given by companies as why they use offshore outsourcing: cost savings , improved quality of service , access to specialist expertise , increased flexibility, strategic business decision, free management time, firms capacity to raise capital ,lack of resources and improved financial control.According to Burkholder (2005) the following reasons are considered for outsourcing such as acceleration of reengineering benefits, access to world class capabilities, cash infusion, freeing up resources for other purposes, function difficult to manage or out of control, improved company focus, making capital funds available, reducing operating costs, reducing risk, resources not available internally.Nassimbeni & Sartor (2008) explained, motivation of offshore outsourcing can be classified are four dimensions. There are strategic, operational, organizational and economic. Strategic components are: focus on core business, strategic flexibility and access to local sales markets. Operational factors are: access to technical skill, quality improvement, time to market reduction and access to new technologies. Organizational components are: reduction of inner complexity and management of a definite cost18centre and economic factor is cost saving.Along with these drivers and reasons Welch & Nayak (1992) summaries the following key benefits of offshore outsourcing It allows fixed costs to be converted to variable costs, providing flexibility in case of economic downturn (as we experienced during the 2008/2009 global financial crisis). Offshore outsourcing helps balance work force requirements, reduces capital investment requirements, reduces costs via supplier’s economies of scale, lower wage structures and accelerates new product development. By offshore outsourcing, organizations gain access to invention and innovation from suppliers and allow firm’s to focus resources on high value-added activities.Deloitte Consulting Group (1998) made a survey among global Chief information executives that seems to suggest that reasons why Industries are outsourcing to other place are as follows Cost reduction, transition to new technology, improved quality ,focus on core competencies ,supplier expertise.Table 2.2.Findings and key Factors Mentioned from Previous ResearchersPrevious Researchers/InstituteFindings and key factorsOutsourcing Institute executive survey (2006)1. Reduce and control operating cost, 2.Improve company focus, 3. Gain access to world class capability, 4.Free inter resources for other purposes,5.Resources are not available internally,6.Accelerate re-engineering benefits, 7.Non-core function that is too complex to manage, 8.Make capital funds available, 9.Share risks and 10. Cash Infusion.19Sood (2006)1. Cost savings, 2.Improved quality of service, 3.Access to specialist expertise, 4.Increased flexibility, 5.Strategic business decision, 6.Free management time, 7.Firms capacity to raise capital, 8.Lack of resources and 9.Improved financial control.Greaver (1999)1. Organizationally driven reasons, 2.Improvement-driven reasons, 3. Financially driven reasons, 4. Revenue-driven reasons, 5.Cost-driven reasons, and 6.Employee-driven reasons.Smith, Mitra, (1998)1. Cost reduction, 2.Focus on core competencies, 3.Increase product range, 4. Enhance presence in global market, 5.Environmental factors,6.Ability to develop and implement global strategy.Islam & Sobhani (2008)1. Capital investment, 2.Overhead and fixed cost, 3.Space, focus on new product development, 4.Explore new market segment, 5. Availability of specialist,6. Latest and high efficiency technology, 7.Established tools and support infrastructure, 8.Limited production capacity and space, 9.Lack of technical content experts and 10.Support infrastructure.20Bocij et al.(2006)1. Cost savings, 2. Improved quality of service ,3.Access to specialist expertise , 4.Increased flexibility, 5.Strategic business decision, 6.Free management time,7.Firms capacity to raise capital ,8.Lack of resources and 9.Improved financial controlBurkholder (2005)1. Acceleration of reengineering benefits, 2.Access to world class capabilities, 3.Cash infusion, 4.Freeing up resources for other purposes, 5.Function difficult to manage or out of control, 6. Improved company focus, 7.Making capital funds available, 8.Reducing operating costs, 9.Reducing risk, 10. Resources not available internallyNassimbeni & Sartor (2008)Strategic components are: 1.Focus on core business, 2.Strategic flexibility and 3.Access to local sales markets. Operational factors are: 1.Access to technical skill, 2.Quality improvement, 3.Time to market reduction and 4.Access to new technologies.Organizational components are: 1. Reduction of inner complexity and2. Management of a definite cost Centre Economic factor is 1.costs saving.Welch & Nayak (1992)1. Work force requirements, 2.Reduces capital investment requirements, 3.Reduces costs via supplier’s economies of scale, 4.Lower wage structures and5. Accelerates new product development. 6. Access to invention and innovation from21suppliers and 7. Focus resources on high value-added activities.Deloitte Consulting Group (1998)1. Cost reduction, 2.Transition to new technology, 3. Improved quality ,4.Focus on core competencies and 5.supplier expertise2.6. Selected FactorsIn previous research, different researchers mentioned different factors those influence a manufacturing firm’s offshore outsourcing decision to another country. However, I selected those factors which are mostly common in previous research and have greater influence on offshore outsourcing decision. In my opinion, these are more important factors which generally influence a firm decision to relocate their business or operation to other place. These factors are mentioned below Table 2.3:Table 2.3.Selected Factors Factors Source/ReferenceCapital InvestmentIslam and Sobhani,2008Overhead and fixed costIslam and Sobhani,2008SpaceIslam and Sobhani,2008Focus on new product developmentWelch & Nayak,1992Explore new Market segmentIslam and Sobhani,2008Quality improvementSood, 2006Increase flexibilityBocij et al., 2006Increase product rangeSmith ,Mitra ,& Narasimhan,1998Focus resources on high value-added activitiesWelch & Nayak,1992Firm’s capacity to raise capitalBocij et al., 200622Access to invention and innovationWelch & Nayak,1992Availability of specialistIslam and Sobhani,2008Latest and high efficiency technologyIslam and Sobhani,2008Established tools and support infrastructureIslam and Sobhani,20082.7. Research Hypotheses

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