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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 todays 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 countrys accession to the EU is provided by the next subchapter. A detailed outline of the potential impact of the Unions 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.

 

 

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), Irelands 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 Bulgarias 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

 

 

2005 .

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2005 .

 

:

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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