A Research Study On Outsourcing Activities - 1145 Words

1. INTRODUCTION This chapter introduces brief information about research background and rationale; next, research problems are specified which are then directed down to research objectives. Finally, ethical confirmation is presented, coming up with the research structure. 1.1. Background During last decades, lots of companies in developed countries have moved their production processes from the origin country to other developing countries in the East, Southeast and South Asia (Tate et al 2014), so-called offshoring or outsourcing activities. This practice occurred strongly as a trend in the manufacturing industry due to economic and strategic objectives such as lower overseas labour cost, location advantage cost, related government and†¦show more content†¦The phenomenon of firms transferring their business operations back to its country of origin can be referred as reshoring, insourcing, onshoring, backshoring, homeshoring, and rightshoring (Espana 2013). Even though some explanation have been mentioned, this strategic changes in manufacturing location mainly because of increase in wages, fluctuation in currency values, labour productivity and reduction of energy costs from 2004 to 2014. According to the International Labour Organization, wages in low-cost countries have soared. For instance, real wages in Asia rose by 7.1% to 7.8% a year between 2000 and 2008 while pays in advanced economies just increased 0.5% to 0.9%, even in American manufacturing, the real wages have declined by 2.2% since 20005. Pay for senior management in several emerging markets such as China, Turkey and Brazil, now either matches or exceeds pay in America and Europe (Hay Group report 2014). In addition, pay and benefits in China – the largest offshoring and outsourcing developing country increased by 10% (2000-2005) and 19% (2005-2010) (Boston Consulting Group 2011) (figure 1). Moreover, Chinese Government increased the target minimum wages by 13% until 2015. At this rate, wage differential between the US and China will disappear by 2020 (Sirkin et al.). Figure 1: Wage rate revolution (source: Boston Consulting Group 2011) In