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Master Program
IN
European Studies
Master thesis
WHAT COULD BRING OUTSOURCING TO BULGARIA IN ENLARGED EUROPE
Diplomate: Scientific supervisor:
2005
TABLE OF CONTENTS:
CHAPTER 1 GLOBALIZATION – A DECESIVE POWER TODAY p.6
Introduction p.6
1. Definition of Globalization p.7
2. Signs of globalization p.10
2.1 Increased role of the international organizations and treaties p.10
2.2. Reduction of Tariffs p.12
2.3. Increased role of transnational corporations p.12
2.4. Increased trade flows p.13
2.5. Increased capital flows p.15
2.5.1. Foreign direct investment p.15
2.5.2. International financial assistance p.16
2.6. Labor flows and remittances p.16
2.7. Regional blocs and trade agreements p.18
2.8. International tourist flows p.18
2.9. Spread of information and communication p.19
3. Forms of Economic Globalization p.20
3.1. At the company level p.20
3.1.1. Functional forms p.20
3.1.2. Forms according to their scope p.22
3.2 At the country level p.24
4. Driving Forces, History and Major Actors Today p.28
4.1. The first wave – the early empires p.29
4.2. The second wave – the Age of Discoveries p.30
4.3. The third wave – the Industrial Revolution p.31
4.4. The forth wave – the Information Revolution p.33
4.5. The current situation and the main actors p.38
4.5.1. The World Trade Organization p.40
4.5.2. The International Monetary Fund p.47
4.5.3. The World Bank p.49
4.5.4. Regional trade agreements and individual countries p.49
4.5.4.1. The European Union p.50
4.5.4.2. Other trade groupings p.53
4.5.4.3. The United States of America p.54
4.5.4.4. Japan p.57
4.5.5. The transnational corporations p.58
4.5.6. The antiglobalization movement p.60
CHAPTER 2 OUTSOURCING p.64
1. Definition and Distinction from Similar Concepts p.64
2. Development and Forms of Outsourcing p.66
2.1 Some history p.67
2.2. Types of outsourcing p.71
3. The Debate on Outsourcing p.72
3.1. Home country case p.73
3.1.1. The theory… p.73
3.1.2. … and the reality – the example of the USA p.80
a) Cost savings p.80
b) Labor market effects p.81
c) Effects on productivity p.84
d) Effects on consumer welfare p.85
e) Effects on exports p.86
3.2. Host country case p.87
3.2.1. The theory… p.87
a) Direct effects p.87
b) Indirect effects – spillovers p.92
3.2.2. … and the reality – India and its emerging competitors p.94
a) Employment effects p.95
b) Effect on output and exports p.98
c) Effect on wages p.101
d) Government revenues p.103
e) Competitiveness of human resources p.104
f) Effect on infrastructure p.105
g) Effect on country reputation p.107
h) Effect on the stability in the country p.108
4. Necessary Factors for Outsourcing p.109
4.1. Factors in the client country p.109
a) Labor market factors p.109
b) Regulatory framework p.109
c) Nature of the outsourced activities p.110
4.2. Factors in the supplier country p.110
a) Cost advantage p.110
b) Sufficient labor pool p.110
c) Availability of skills p.110
d) Language proficiency p.111
e) Infrastructure p.111
f) Security and protection of intellectual property p.111
g) Cultural compatibility p.111
h) Time zone differences p.111
i) Legal framework and government support p.112
CHAPTER 3 OUTSOURCING AND BULGARIA p.113
1. Bulgaria and Its Future Accession to the EU – Related Economic Problems p.113
1.1. Copenhagen economic criteria p.114
a) Existence of a functioning market economy p.114
b) Capacity to cope with competitive pressure and market forces within the Union p.115
1.2. Maastricht criteria p.117
1.3. The Lisbon targets p.118
2. SWOT and STEP Analysis of Bulgaria p.122
2.1. SWOT analysis p.122
a) Strengths p.123
b) Opportunities p.129
c) Weaknesses p.131
d) Threats p.133
2.2. STEP analysis p.134
a) Social trends p.134
b) Technological trends p.136
c) Economic trends p.137
d) Political trends p.139
3. The Policies of the EU and Their Possible Impact on Bulgaria p.141
3.1. Competition p.141
3.2. Consumer protection p.143
3.3. Monetary policy p.144
3.4. Customs p.145
3.5. Education and training p.145
3.6. Employment and social affairs p.146
3.7. Energy p.147
3.8. Enterprises p.149
3.9. Environment p.150
3.10. External trade p.150
3.11. Information society p.151
3.12. The Internal Market p.152
3.13. Health p.154
3.14. Regional policy p.155
3.15. Technology p.155
3.16. Taxation p.156
3.17. Transport p.156
4. Potential Effects from Developing Offshore Outsourcing Capability p.157
4.1. The case study – the software and related services industry p.158
4.2. The macroeconomic dimension p.158
4.3. Possible microeconomic effects p.162
4.4. Other impact p.163
a) Social p.163
b) Technological p.164
c) Political p.164
CONCLUSION p.165
APPENDIX 1 OUTSOURCING IN EUROPE – MAIN SUPPLIERS AND HOW DID IT HELP THEM IN SOLVIGN THEIR PROBLEMS p.167
APPENDIX 2 TABLES p.175
APPENDIX 3 FIGURES p.185
BIBLIOGRAPHY p.190
CHAPTER 1 GLOBALISATION – A DECESIVE POWER TODAY
Introduction
There are many examples showing the tremendous power of economic globalization today. When people speak of the latter, there are many differing opinions, but what unites them all could be brought together in a single word – “interconnectedness”.
In today’s world it is common for example to live in France; drive a German car, assembled in Mexico or the UK; watch satellite TV from USA; work with PC, made in Taiwan and so on and so on. The world of the late 20th and early 21st century is characterized by numerous such connections in all aspects of our life crossing the frontiers and spreading all over the globe.
Globalization is a fact of our life. It creates many problems, but opens also unlimited opportunities for those ready to expose them to its influence. The aim of this work is to present one of these opportunities – the international outsourcing in the service industry – and to analyze what could be the potential impact of adopting it as a national strategy for development of Bulgaria in the European context. Although it has proved beneficial to some countries, there is still the question whether it will work also for Bulgaria. In this perspective, a thorough analysis of the country will be done, reflecting its characteristics and the probable consequences from the coming EU accession on its potential for becoming a preferred outsourcing location.
As a background for this topic, Chapter 1 focuses on the broader trend of globalization, in which the international outsourcing is flourishing. It presents the nature of globalization, by defining it and reviewing the main indications, showing that it is taking place. Further on, a brief overview of the existing forms of globalization on company and country level is done, giving a basic idea of how it is actually happening. The next subchapter is about the driving forces, presented in their historical context and about the development of the phenomenon. More attention is dedicated to the present-day situation with the main actors, which are influencing the speed and the forms that globalization is taking, and the conflicts that arise from their behavior.
Chapter 2 provides a detailed description of the international outsourcing. First, outsourcing is defined and a distinction from similar terms is made. In the next subchapter it is presented how the international outsourcing appeared (with more details about the outsourcing in services), following major changes in the world environment, created by the globalization. Since outsourcing is a relatively young trend, it is still not very well researched, so there is a considerable debate on its consequences, especially on the home (client) countries. For this purpose and also in order to clarify the possible impact that it can have on Bulgaria, there is a presentation of the current theoretical debate, combined with some facts from the actual situation. In the third chapter are examined the possible consequences and potential benefits for Bulgaria from becoming an outsourcing supplier and also the necessary conditions for this. More specifically, there is an analysis of the future accession of the country to the EU and the associated problems Next an evaluation of the existent and possible future conditions and developments in the context of the country’s accession to the EU is provided by the next subchapter. A detailed outline of the potential impact of the Union’s policies on business conditions in general and the opportunities for outsourcing is given in this respect. The last subchapter deals with the potential consequences from developing outsourcing on a national scale in macro- and microeconomic aspect, as well as in the social, political, and technological ones.
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BIBLIOGRAPHY
List of Publications:
1. Administration of the Bulgarian President (2005), Bulgaria 2010: The Economic Challenges, A Report for the President of the Republic of Bulgaria
2. ADP Dossiers, Outsourcing in Europe, www.adp.com
3. A&L Goodbody Consulting (2002), Ireland’s Infrastructure Deficit
4. A. T. Kearney Globalization Index data, 2004
5. Bhattacharya, A. et al. (2004), Capturing Global Advantage, Boston Consultancy Group
6. Blanke, J. and Lopez-Claros, A.; World Economic Forum (2004), The Lisbon Review 2004: An Assessment of Policies and Reforms in Europe
7. Colin Hines, Localization. A Global Manifesto, 2000
8. Eliminating Poverty: Making Globalization Work for the Poor, Cm 5006, December 2000
9. Globalization, Select Committee on Economic Affairs at the House of Lords, Session 2002 – 03, 1st report
10. Federal Reserve Bank – Dallas (2003), A Better Way: Productivity and Reorganization in the American Economy, Annual Report
11. Griswold, D. and Buss, D. (2004), Outsourcing Benefits Michigan Economy and Taxpayers, Mackinac Center for Public Policy
12. Horst Koehler (2001), The Challenges of Globalization and the Role of the IMF, In meeting with the members of the Deutsche Bundestag
13. Jo-Ann Crawford and Roberto Fiorentino, The Changing Landscape of Regional Trade Agreements, WTO, Discussion Paper No.8
14. Kumar, N. and Joseph, K. J (2005)., Export of Software and Business Process Outsourcing from Developing Countries: Lessons from the Indian Experience
15. Little, J. (2004), Outsourcing Jobs Overseas: Perspective, Regional Review Q2/Q3, Federal Reserve Bank publications
16. Lauchlan, S (2005). Chinese Puzzle, Boston Consultancy Group
17. McKinsey Global Institute (June, 2005), The Emerging Global Labor Market – Part I: The Demand for Talent in Offshore Services
18. McKinsey Global Institute (June, 2005), How Offshoring Can Benefit France
19. McKinsey Global Institute (2003), Offshoring: Is It a Win-Win Game?
20. NASSCOM and Evalueserve (2003), Impact of Global Sourcing on the UK Economy 2003-2010
21. NeoIT (2004), Mapping Offshore Markets Update, Offshore Insights White Paper, vol.2, issue 6
22. Porter, M. and Stern, S. , National Innovative Capacity
23. Raghbendra, J. and Rath, D. (2000), On the Endogenity of the Money Multiplier in India
24. 2004 Regular Report on Bulgaria’s Progress Towards Accession of the European Commission, http://europa.eu.int
25. Report to the World Health Organization by the Commission on Macroeconomics and Health, Macroeconomics and Health: Investing in Health for Economic Development, December 2001
26. Roshan, N., Satpathy, S., Panda, S. K. (2005); Mapping the Offshore Markets: Update 2005
27. Siems, T. and Ratner, A. (2003); Do What You Do Best, Outsource the Rest, South West Economy, November/December, 2003, Federal Reserve Bank – Dallas
28. Stanchev, K. et al. (2003), Factors and Impacts in the Information Society: A Prospective 29. Analysis on the Candidate Countries - A Report on Bulgaria
30. The Boston Consulting Group (2003), China: The Pursuit of Competitive Advantage and Profitable Growth
31. The Economist, November 13th 2004, A Survey of Outsourcing
32. 2005 Trade Policy Agenda and 2004 Annual Report of the President of the United States on the Trade Agreements Program
33. Trade Policy Review: European Union 2002, www.wto.org
34. Trouiller, P. et al (2002), Drug Development for Neglected Diseases: A Deficient Market and a Public Health Policy Failure, The Lancet, vol 359
35. UNCTAD, Development and Globalization: Facts and Figures, 2004
36. Waddel, K. (2005), The Central and Eastern European Opportunity, The Boston Consulting Group
List of Internet Resources:
1. www.atkearney.com
2. www.businessweek.com
3. www.cso.ie
4. www.datastream.com/pmktfin
5. www.dbresearch.com
6. www.economist.com
7. www.entreprise-ireland.com
8. http://www.europa.eu.int
9. http://europa.eu.int/comm/eurostat/structuralindicators
10. http://europa.eu.int/growthandjobs/areas/fiche10_en.htm
11. www.government.bg
12. www.iia.ie
13. www.ilo.org
14. www.imf.org
15. www.interfax.ru
16. www.mckinsey.com
17. www.nasscom.org
18. www.neoit.com
19. http://www.nsi.bg
20. www.oecd.org/home
21. www.pwcglobal.com
22. www.russoft.org
23. www.sofica-group.com
24. www.stats.bls.gov
25. www.unctad.org
26. www.worldbank.org
27. www.wto.org
Òåìàòà å ðàçðàáîòåíà 2005 ã.
Ñúäúðæà ìíîæåñòâî òàáëèöè è ãðàôèêè.
Íàé – íîâàòà èíôîðìàöèÿ å îò 2005 ã.
Êëþ÷îâè äóìè:
outsourcing, role of transnational corporations, trade and capital flows, SWOT and STEP analysis of Bulgaria, forms of economic globalization, antiglobalization movement, development and forms of outsourcing, policies of the EU, Existence of a functioning market economy, Offshore Outsourcing Capability
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