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Risks of Outsourcing Computer Software and Hardware support

January 13th, 2011 No comments

Outsourcing is when a company turns to external resources at other companies to do tasks they once did internally. Outsourcing may be done to draw on external expertise, such as hiring legal specialists or certified auditors. However, outsourcing is frequently done to save money by shifting work to companies that gain efficiencies from large scale by being specialized. This outsourcing creates risks for firms that outsource software and hardware support.

1. Loss of control

Server support is now determined by both the policies of the outsourced firm and by corporate policy. Employees of the outsourcing firm may follow their own policies first and your policies second. Outsourcing firms can dictate service level agreements and penalties if standards are not met, but they cannot control how work is performed. Companies that outsource work must also cede control of contractors to the managers who direct their activities.

2. Added feedback delays

Instead of calling an internal support staffer to resolve a problem, customers must call an outsourcing firm for help. This frequently results in calls being received by a first level technician following a script. If the problem requires advanced skill sets, there is additional delay in transferring the call to a subject matter expert or putting in a ticket for them to call a user back. The need to pass through an intermediary adds delays to customer support. If problem does require the subject matter expert, they may need to travel to the site to resolve the problem. This delay may not occur when in house staff can walk down the hall and solve the problem.

3. Loss of expertise

Employees of an outsourced firm are rarely as knowledgeable as internal staff who have worked with specific hardware or software applications. Even if the internal staff are available, they may be reassigned to other areas or may not be available when outsourcers come to answer calls. If the internal experts are transferred to the outsourcing firm, ether as part of a realignment or a reorganization, the risk that they will seek yet another employment opportunity arises. There is also the risk that experts who are sent to the outsourcing firm may be terminated by the new company once they have trained lower paid technicians to do the most common tasks they performed.

4. Loss of accountability

When an internal employee performs poorly, that individual can face internal corporate consequences. This can include reassignment or firing. When an outsourced technician performs poorly, the outsourcing firm can solve the problem by assigning a different technician as the first solution. Changing account managers may also be offered as a solution. The worst case scenario for the outsourcer is that you take back the IT functions that you outsourced, but for which you may have lost your key personnel or licenses. This causes a loss of accountability when outsourcers do not perform to prior service levels.

5. Loss of intellectual property

When data is processed by an outsourcer, there is an additional risk of data loss due to the extra processing steps or outside hands and eyes that perform the work. Another risk is that outsourcers may take processes learned from interacting with staff and transferring those lessons learned to their other customers or using those best practices themselves; this may not be a direct effort to steal intellectual property but the spread of best practices to the competition does not help the outsourcer. While outsourcing may save money, the cost can be higher than it seems.

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Globalization, Growth, and Poverty (a summary of the 2001 World Bank report)

July 4th, 2008 Comments off

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The following is my summary of a World Bank report published in May 2001 giving us the expected statist rundown of globalization: yeah, it’s good, but the state needs to play an ever-more-important role! Hopefully this summary will be useful to anyone else forced to read this boring and academically cliche journey through college-student moderate politics.

Globalization, Growth, and Poverty: Building an Inclusive World Economy

Reduced transportation costs, lower trade barriers, speedier transmission of ideas, pressure for labor migration, and increasing capital flows have all led to greater integration among economies and societies internationally, a phenomenon that has come to be labeled “globalization. ” While globalization is a major force propelling poverty reduction in the modern world, some concerns have been raised about increasing economic inequality, transfers of power, and cultural uniformity. The policy research report entitled Globalization, Growth, and Poverty: Building an Inclusive World Economy released by the World Bank in 2001 examines the influence of this globalizing force and the anxieties caused by it, serving as a summary of World Bank research into the topic and providing a policy agenda for harnessing globalization to positively augment opportunities for the poor and to offset its potential hazards.

The report is divided into five major areas. Chapter 1 explores the economic effects of the new wave of globalization, examining them in light of the effects of earlier periods of globalization and their subsequent reversals. Chapter 2 focuses on global policy agendas for trade, financial infrastructure, and migration. Chapter 3 concerns itself with the agenda of globalizing economies to integrate into world markets, investigating institutional arrangement and policies to facilitate integration. Economic issues aside- poverty, income distribution, and policies- Chapter 4 examines apprehension over issues of power, culture, and the environment. Finally, in accordance with the study’s findings, Chapter 5 proposes the World Bank’s agenda for action aimed at making globalization more beneficial, particularly for the poor and those marginalized by globalization.

Ch. 1: The New Wave of Globalization and Its Economic Effects

Economic integration can be thought of as having three components: trade, measured in the report as relative to world income; migration, using immigration to the United States; and capital flows, represented by the stock of foreign capital in developing countries as a proportion of GDP. From 1870 to 1915, falling costs of transportation propelled these figures to an important level. Mid-19th century changes from sailboats to steamships and reduction in trade barriers facilitated by an Anglo-French agreement triggered the first wave of globalization. Improved transportation and the elimination of political trade barriers resulted in the exchange of land-intensive primary commodities for manufactures and the doubling of exports as a fraction of world income to 8%. Labor became a necessity for these commodities. Sixty million people migrated from Europe to North America and Australia to work on the newly-accessible land, and some scholars speculate that “South-South” migrations (from China and India to southeast Asia, for example) were of the same magnitude, making labor flows during this period a grand total of 10 percent of the world’s population. Capital was also necessary; while in 1870, the foreign capital stock in developing countries was 9%, by 1914 it had grown to 32%. As a result, the rate at which per capita income increased each year had risen from 0. 5% to 1. 3%. Economic forces created an increasing convergence between globalizing countries; wages increased in the emigrant countries (particularly of Europe), while wages decreased in immigrant countries (America, Canada, etc. The overall impact of these changes on equality within individual countries was a function of the distribution of land ownership, as the benefits of primary commodity trading would accrue to land holders.

Despite the fact that transport costs continued to fall from 1915 to the end of the Second World War, globalization froze as trade barriers rose in response to nationalistic demands worsened by the First World War. Following 1945, new international cooperative efforts proceeded to reduce protectionism, reviving trade and producing a second wave of globalization much like the first, particularly among rich countries. The General Agreement on Trades and Tariffs (GATT) was formed to restore trade relations multilaterally. However, many developing countries were specialized only in primary commodity exporting and were left out of newly opened capital flows, albeit because of their own protectionist policies. The poorest industrialized countries grew the fastest, and while growth in developing countries recovered from the period of the two World Wars, they did not grow as quickly, resulting in a widening of the gap between rich and poor countries. As for income distribution patterns, the number of poor people increased (because of increased life expectancy and hence population growth), but the distribution of income among developing countries was only slightly affected.

Since 1980 an unprecedented level of global economic integration has taken place. “New globalizers” – a set of developing countries – have entered world markets for manufactured goods and services. The average composition of exports from developing countries, for example, has changed from 25% manufactured goods in 1980 to over 80% today. Foreign direct investment has vastly increased, particularly among countries like Brazil, Mexico, Hungary, India, and China. The general trend has been that some low-income countries formerly focused on primary commodities have become more competitive with high income countries for all types of goods and services. On the other hand, a group of less developed countries with approximately 2 billion people experienced an overall negative growth rate in the 1990s, becoming increasingly marginalized. Some concerns have also been raised about global integration causing rising inequalities within countries, but the report finds that this is not the case. At the same time, since 1980 the absolute number of poor people has stopped increasing and has decreased by 200 million, falling rapidly in the new globalizers and increasing in the remainder of the developing world. Overall, however, world inequality has stopped falling and has even possibly begun to decrease.

In light of these globalization experiences, particularly the most recent one, the study concludes that globalization can strongly reduce poverty. The non-globalizing countries of Africa and the Former Soviet Union (FSU) depend highly on primary commodities and have failed to participate significantly in globalization. Their marginalization is most often attributed to three things: poor policies, infrastructure, institutions, and governance; intrinsic geographic and climate disadvantages; or, as a fusion of the first two, that a temporary phase of poor policies has caused certain countries to be left out of major economic agglomerations. The report suggests the strategy of “opening up with the necessary complementary actions [of policies, institutions, etc. while building the global coalitions needed to address the deep-seated structural problems that face many countries. ”

Ch. 2: Improving the International Architecture of Integration

The international architecture for economic integration- i. e. tariffs and other trade barriers- has experienced change during each of the waves of globalization, but it has particularly done so in the most recent wave. Over the last 20 years, many developing countries have eliminated their restrictions on imports, but they now face protectionism from rich nations. Rich countries have low tariffs, on average, but retain trade barriers in agriculture and labor-intensive manufactures- areas in which developing nations have a trade advantage, whose protection by rich nations costs them over $100 billion.

However, developing countries have barriers three times higher than those in OECD countries. Because developing countries trade with each other far more than they did in the past and 70% of tariff barriers on their exports come from other developing countries, a “development round” of trade liberalization would be significantly gainful by improving access to new markets, both rich and developing. Despite this, protectionist interests in Northern developed countries present opposition to such changes, effectively using institutional trade agenda issues such as intellectual property, health and labor standards, and environmental issues as prerequisites for barrier reduction. The report argues that many of the developing countries in question are in fact improving labor conditions and environmental policies, but that the threat of trade sanctions from the WTO is only destructive to those ends.

Foreign investment relates closely to trade liberalization issues. Private capital flows have vastly increased, especially as developing countries have lowered restrictions on foreign direct investment (FDI), bringing an increased supply of capital and better access to technology, management, and markets. While the new globalizers have experienced these gains, the least globalized countries have experienced capital flight. Poor locations that have not improved much from globalization have created a demand for more well-managed aid from rich countries.

The third main global flow, migration, is also subject to structural improvement. Economic pressures for migration are resisted by legal restrictions on migration. Compared to a century ago, labor flows are not as globalized: only 2 percent of the world’s population is composed of non-citizen residents. Meanwhile, OECD labor forces are aging and retiring, putting strain on social security systems, while developing countries’ labor forces are growing rapidly because of high birthrates. There exists a potentially great mutual economic benefit achievable by combining capital and technology of developed countries with the labor resources of developing countries. Nonetheless, geographic limitations prevent (or will at least delay) capital flows and trade from eliminating migration. Wide divergences in quality of institutions and infrastructure keep production opportunities where their quality is high, and make production less attractive when their quality is low.

Migration can be a net positive factor for two nations, as evidenced by the experiences of the United States and Mexico. Individual migrants from Mexico to the U. S. for example, made $31 per week in Mexico on average, and could move to the U. S. and immediately begin earning $278 per week. Their migration to the U. S. has also taken pressure off of the Mexican labor market, raising wages there, as well as increasing money remittances. The U. S. has also benefited from this arrangement; the labor inflow was partly responsible for sustained growth and low inflation in the 1990s. Overall, OECD countries like the U. S. tend to have discriminatory policies toward immigrants, particularly biased in favor of educated workers, resulting in “brain drain” from developing countries. The report suggests that migration would reduce poverty more effectively if immigration policies were less discriminatory and permitted more unskilled labor flows.

Ch. 3: Strengthening Domestic Institutions and Policies

While trade policies are important to integration, other institutions and policies play a key role (even if they are not specifically catered to international commerce).

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Globalization, Growth, and Poverty (a summary of the 2001 World Bank report)   [Part 2]

July 4th, 2008 Comments off

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Globalizing countries face many common issues, but can approach them with different policies and institutional arrangements for coping with them. For example, China, India, and Mexico have employed different strategies. Two of the most important issues requiring attention are the globalizing nation’s investment climate and its social protections for workers.

Because open economies confront greater competition, the year-to-year levels of entry and exit of firms (“churning”) are much higher than in more closed economies. Data on Chile, Morocco, and Colombia shortly following liberalization have shown that one-fourth to one-third of manufacturing firms experienced turnover in a four-year period. Some evidence has shown that it is unlikely for manufacturers to shift from domestic production to exporting, thus requiring the creation of new firms and the destruction of old firms for entry into world markets.

Case studies have demonstrated that firms in developing countries are capable of being competitive, but are frequently hindered by a weak investment climate caused by inefficient regulation, poor infrastructure, and deficient financial services. States calculated to have a good investment climates receive both more domestic and foreign investment. Coastal China and northern Mexico are two examples in which a good investment climate has been achieved (also resulting in major poverty reduction). Many of the nations left out of the global economy in the 1990s tended to have property rights and other general investment climate issues.

Because of the “churning” caused by increased competition, labor market turnover – one of the most disruptive characteristics of a global economic integration has also grown. While workers gain in the long run, as evidenced by wages growing twice as fast in the more globalized group of developing countries than in those less so, short-run effects are often different. An economy that liberalizes trade could experience a drop in formal sector wages, due to either a bad investment climate or because of lagged investment response.

Globalization inevitably creates winners and losers, and some of the most important losers in the present are former workers of now-churned protected industries. The report suggests that social protection and labor market policies are essential for not only the immediate welfare of these workers and others, but for the long-term welfare of all workers. Unemployment insurance and severance pay can help with high turnover. These protections can help the poor engage in the risk-taking of entrepreneurship. Additionally, a well-educated labor force produces general improvements in welfare.

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Ch. 4: Power, culture, and the Environment

Though the economic factors above play a large role in attitudes toward globalization, much of the anxiety about it is caused by issues of power, culture, and the environment. According to a poll of 20,000 people in 20 countries (including Braizl, China, India, and Nigeria), two in three people reported that they thought that globalization would “materially benefit their families,” but over half of the same sample reported that globalization threatens their nation’s culture, and a significant portion of them expressed a belief in a need for greater international control over worker rights, human rights, and environmental issues.

While the United States is the largest (in output) economy and often regarded to be the most successful in the world, it is not the only successful model. Some economies are near or exceed the U. S. ’s income per capita, but have different policies and income distributions. These economies include Austria, Belgium, Japan, Norway, and Denmark. In light of that, the report argues that there is no ultimate model of or fixed formula for success.

Successful globalization, the report states, usually makes the state larger, though it renders some policy tools ineffective. Globalization has a tendency to weaken monopolies, since national monopolies are faced with competition from foreign firms. However, there are some cases in which firms can attain a temporary global monopoly or oligopoly, posing a difficulty for national anti-trust laws. Globally, trade has also begun to conform to a legal framework, which may potentially benefit weaker countries, but there are concerns that the rules may benefit the stronger nations instead. One example are the vastly different interests regarding intellectual property in rich and poor countries: while the former favors keeping it a private good in order to reward innovation, the latter desires to keep it as a public good.

It has been speculated that globalization could result in a “race to the bottom” of environmental standards, but this phenomenon has not made itself evident. A study of the new globalizers showed that air quality had increased in major industrial centers. Through transfers of knowledge communities are able to share methods of combating pollution. On the other hand, poorer nations typically have problems enforcing environmental standards because of strong vested interests.

Some groups in rich nations have suggested that environmental regulations be enforced through WTO sanctions, but risk of the sanctions being captured by protectionist lobbies could potentially be used to the detriment of poor nations’ opportunities. Still, some environmental issues, like global warming, will require global policing. Seven economies account for 70 percent of the world’s carbon dioxide emissions. Because each of these countries is hesitant to proceed with reduction because of the potential for others to free-ride on the benefits, collective action such as in the Kyoto protocol are important steps in addressing global warming.

Ch. 5: Agenda for Action

Globalization has been a strong force of poverty reduction, narrowing the gap between many rich and poor countries.

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Globalization, Growth, and Poverty (a summary of the 2001 World Bank report)   [Part 3]

July 4th, 2008 Comments off

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Despite this, globalization remains to be more effective for poor people and have its adverse effects mitigated. Global policy has failed to keep up with the opportunities and dangers of globalization. Attempting to avoid “nationalism, protectionism, and anti-industrial romanticism,” the report proposes an agenda for making globalization more effective and universal, emphasizing seven in particular aimed toward benefiting the poor.

The first area of action should be in a “development round” of trade negotiations, primarily centered on market access. Rich countries continue to maintain protectionist policies in markets in which developing countries have comparative advantages. Developing countries also have high barriers between themselves, higher on average than those of developed nations. Subsumed under this is that labor and environmental standards should not be imposed on poor countries, as without the proper resources, such measures can actually lower standards of living and have an overall adverse effect on welfare. Generally, trade agreements should allow for different institutional goals and solutions to environmental standards, social protections, cultural preservation, etc. Economic integration need not interfere with institutional and cultural diversity.

Next, improving the investment climate in developing countries is an important goal. Open trade and investment policies do not yield many benefits in context of bad policies, reflected by the fact that the most prosperous developing countries during the recent wave of globalization have been those that have established good investment climates for firms to be established and expanded. Improving the investment climate is not to be mistaken for tax breaks and subsidies for firms, but rather general economic governance, including control of corruption, efficient bureaucracy and regulation, contract enforcement, and respect and protection for property rights. Also, maintenance of local and global market access via transportation and communications infrastructure is key.

The report’s third prescription is the delivery of health services and education. Global integration raises returns on education, but with poor social services, inequality and extreme poverty can be exacerbated. Education, health, and a good investment climate are critical for giving the poor the chance to participate in an expanding economy. Closely related is the solution to the problem of “churning” in labor markets, which create temporary losses for many groups of people. Hence, the fourth area of action lies in the provision of social protections geared toward a more dynamic labor market, helping individual short-run losers to globalization and giving a solid foundation for poor households to engage in the risk-taking activities of entrepreneurship.

A new approach to foreign aid constitutes the report’s fifth recommendation. When reforms and social services alter the investment climate, private investment usually has a delayed response. Large-scale aid programs work in this context. Financial support can assist societies making troublesome changes, or for addressing geographic and demographic challenges that can not be met by policy changes. Also, debt relief constitutes a considerable part of aid, but is different in some ways from other forms of aid, making it the report’s sixth recommendation. Many of the aforementioned countries who have been marginalized by the process of globalization are saddled by high debts, particularly in Africa. Especially when combined with policy reform, lowering the debt burdens of these countries can make a significant difference in poverty reduction.

Lastly, the report argues for the importance of dealing with the problems of greenhouse gases and global warming. The report contends that though there is a broad scientific agreement over the issue, there is a lack of effective global cooperation to solve it. The environmental effects of global warming are also expected to be especially borne by poor countries and poor people if they remain unaddressed.

The report is also a piece of shit, but go figure. If you’re in school, you might have to deal with it.

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Scholarship Essay on Globalization

July 4th, 2008 No comments

“Arguing against globalization is like arguing against the laws of gravity.” – Former UN Secretary General Kofi Annan

When globalization is looked at as a force that creates a tide of incentives against the artificial levies of national borders, it indeed becomes very much like gravity. Trade, capital flows, and most notably labor flows constantly shift to meet new opportunities and press against old-world barriers. Goods are smuggled to avoid taxes, quotas, or prohibition; money is cleverly managed and maneuvered to also avoid taxes, as well as investment restrictions; millions of illegal immigrants pour across borders each year, eluding patrols and immigration bureaucrats, to work for what seem like pittances. The fact of the matter is that the gains to be realized from international trade, investment, and migration are so great that people pay the costs of overcoming massive edifices of coercive economic protection (on both sides of a border).

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