Back in the 1990s., the world of business was completely different than it is now, in 2020. The tools and technologies for communication weren’t as advanced – and the flow of information was slower and more formal both regionally and globally.
Throughout the last few decades, the world of business has undergone some major changes, mainly because of the digital revolution. All businesses, even local ones have to be open to global communication, and cooperation; this all leads to the process of externalization.
How does this influence the global economy, and what exactly is it?
What is Externalization?
Externalization was primarily used as a psychological term, especially referring to Freudian psychology. In this context, ‘to externalize’ means to project one’s feelings, emotions, problems, or desires on other people. In other words, externalization is putting the thoughts outside, sharing them with others, and with the world.
You may ask how this is linked to global business. The meaning of the word
‘externalization’ was somehow broadened to the context of the linking, connecting, and outreaching process in the world of business. It also means sharing data, resources, supplies, customers, markets, and even profits between businesses and companies.
It can also involve conference organizing, IT, or even telephone answering service. To check out how it works in more detail, visit Ivy Answer.
The term ‘outsourcing’ can actually be used interchangeably with externalization.
How does Externalization Impact the Economy?
Let’s imagine an average company of medium size. It has its own structure, employees, departments, managers, services, but… in fact, it has been estimated that on average, dealing with internal issues is only about 20-30% of their tasks, while external services such as buying supplies or services are about 70-80%.
What does it mean for the economy? Well, if the majority of business is based on sharing ideas and services, then specific service-oriented companies are in high demand. Let’s take, for example, IT outsourcing. Some time ago, every business needed to have its own IT specialist, who was responsible for managing the network and ensuring security.
Now it has changed completely and IT managing services are the most popular and convenient option – one company, that is specialized strictly in IT, provides full-time service to multiple clients, who don’t need to bother employing their own specialists. To read more about this kind of management, have a look here.
This kind of solution is highly profitable for both global and local economies. Businesses that work in certain fields can fully dedicate themselves to particular goals and areas, without getting distracted by any unnecessary tasks that can be delegated to the external workforce. This makes the whole business world work better and more effectively. What is more, externalization facilitates the development of the local economy, as smaller businesses have a chance to grow if they offer high-quality service that can be used by other local business partners.
Lastly, thanks to the process of externalization, the global economy can develop fast and it gives a chance to smaller entrepreneurs and start-ups. Oftentimes, buying IT or accounting services is much cheaper than organizing them on one’s own, which would be impossible for small companies at the beginning.
What are the Pros of Externalization in Business?
As with every phenomenon, externalization has both advantages and disadvantages.
As far as the pros are concerned, outsourcing allows us to get everything done fast and professionally. If you have a lot of deadlines to meet on a daily basis, it’s an excellent idea to delegate some of the chores to external companies.
What’s more, externalizing business means more time and motivation to do other chores – the fewer responsibilities the employees have, the better management skills they have.
Finally, outsourcing responsibilities and services helps balance the global economy, as there are more diverse areas of business interest.
What are the Cons of Externalization in Business?
Some people point out also the disadvantages of business outsourcing. They include, for example, less control over the processes that the company is involved in, or taking possible risks of failure, and missing the deadline.
Also, there may be some hidden costs of outsourcing – like taxes, productivity lags, scope creep, or even the costs of developing new processes for working with a new external team.
Lastly, even though the quality of external services may be perfect, it may not be ideally adjusted to a particular company’s needs. Before starting cooperation of this kind, it is necessary to discuss the terms and conditions in advance, in order to avoid potential misunderstandings and loss.
To read more about the upsides and downsides of outsourcing, have a look here.
Externalisation is a ubiquitous process in today’s global business. No company exists on its own, without using any external services or products. That is why it’s extremely important to consider switching to the outsourcing model, as it is the future of business and economy.