Management Practices Lecture-30 1

Recap Managing in a Global Environment Four key questions I.Global Perspectives II.Different Types of International Organizations III.How organizations go global (Important) IV.Managing in a global environment 2

Today’s Lecture Global outsourcing Exporting and importing Licensing and Franchising Foreign subsidiary Managing in A Global Environment 3

4–4 Purchasing materials or labor from around the world wherever it is cheapest Global outsourcing

4–5 Examples of Global outsourcing labor-intensive manufactured products produced using low-cost Chinese labor Call centers staffed with low-cost English speaking workers in the Philippines and India IT work performed by low-cost programmers in India and Eastern Europe

Benefits of Global Outsourcing There are many benefits of outsourcing your business processes to destinations around the world. Some of them are: Cost advantages The most obvious and visible benefit relates to the cost savings that outsourcing brings about. You can get your job done at a lower cost and at better quality as well. Due to the difference in wages between western countries and Asia, the same kind of work that is done over there can be done in India at a fraction of the cost. There is a cost savings of around 60% by outsourcing your work to India. Plus, the quality of the services provided is high thereby ensuring that low-cost does not mean low-quality. Increased efficiency When you outsource your business needs to an outsourcing partner, they bring years of experience in business practices and expertise in delivering complex outsourcing projects. Thus, they can do the job better with their knowledge and understanding of the domain. This leads to an increase in productivity and efficiency in the process thereby contributing to the bottom-line of your company. 6

Benefits of Global Outsourcing Concentration on core business areas Back office operations of a company require high maintenance and specialized attention. Yet most of them are critical for the company's everyday activities. By outsourcing their back office operations businesses can concentrate on their core competencies while their back office operations are being managed smoothly by a specialized third party company. World-class technology at lower rates Investing in new technology is very costly and often risky. As the technology market develops rapidly, it is difficult to keep up with latest innovations and solutions. Thus outsourcing to companies that have the resources, expertise and desire to continuously update their technological solutions, offers a true advantage of outsourcing. Skilled manpower at affordable prices Outsourcing gives a company the ability to get access to skilled and trained man power at extremely low rates. This in turn leads to an increase in productivity as well as cost savings. By outsourcing a company saves on recruitment, training and other human resource costs it would otherwise have to maintain internally. Also an advantage of outsourcing is that a company is able to utilize the kind of expertise it could not internally provide. 7

Benefits of Global Outsourcing Time zone advantage Apart from the cost advantage, the other much touted benefit has to do with the time zone differential between your country and the location you are outsourcing to. Increased productivity By employing skilled manpower in larger numbers at lower costs companies can really increase their productivity. This in turn would result in better customer satisfaction and increased profitability. Beat Competition In today’s fast paced global economy a company needs to provide high-quality services to its customers in order to retain them, as well as provide the services for cheap prices. Outsourcing in this case can help the company maintain lower rates with better service solutions, thereby giving them a better market position or even a competitive advantage. Tax benefits By selecting the right BPO destination companies can save up on taxes in turn saving on costs. 8

Disadvantage of Global Outsourcing Loss of managerial control, because it is more difficult to manage outside service providers than managing one’s own employees working possibly in the same building. Often the hidden costs are difficult to calculate or prepare for. These include legal costs related to putting together a contract between two companies and the time spent to coordinating the contract. Another disadvantage of outsourcing can be a threat to security and confidentiality. If your company is outsourcing processes like payroll, medical transcriptions or other confidential information, a company must be very careful in choosing which process it wants to outsource and to which provider. A possible loss of flexibility in reacting to changing business conditions, lack of internal and external customer focus and sharing cost savings may also be a disadvantage of outsourcing. Other disadvantages of outsourcing may include unfavorable contract lengths, loss of competitive edge, problems in contract renewal, and contractual misunderstandings. 9

4–10 But what exactly does global sourcing entail? Global sourcing entails identifying, evaluating, negotiating and configuring supply across multiple geographies to reduce costs, maximize performance and mitigate risks.

4–11 Exporting and importing Exporting: making products domestically and selling them abroad. Importing: acquiring products made abroad and selling them domestically. Examples: Galanz

4–12 Licensing and Franchising practicing and using another person's business philosophy Franchisor, franchisee The franchisor grants the independent operator the right to distribute its products, techniques, and trademarks for a percentage of gross monthly sales and a royalty fee Example: 7 Eleven

4–13 Strategic alliances and joint venture Strategic Alliances – Partnerships between and organization and a foreign company in which both share resources and knowledge in developing new products or building new production facilities. Joint Venture – A specific type of strategic alliance in which the partners agree to form a separate, independent organization for some business purpose.

4–14 Foreign subsidiary Foreign Subsidiary – Directly investing in a foreign country by setting up a separate and independent production facility or office.

4–15 How to Manage in A Global Environment?

4–16 Managing in A Global Environment The Legal Environment – Stability or instability of legal and political systems Legal procedures are established and followed Fair and honest elections held on a regular basis – Differences in the laws of various nations Effects on business activities Effects on delivery of products and services

4–17 The Economic Environment Economic Systems – Market economy An economy in which resources are primarily owned and controlled by the private sector. – Command economy An economy in which all economic decisions are planned by a central government. Monetary and Financial Factors – Currency exchange rates – Inflation rates – Diverse tax policies

4–18 The Cultural Environment National Culture – Is the values and attitudes shared by individuals from a specific country that shape their behavior and their beliefs about what is important. – May have more influence on an organization than the organization culture.

4–19 Hofstede’s Framework for Assessing Cultures Culture Individualism versus Collectivism Power Distance Uncertainty Avoidance Achievement versus Nurturing Long-Term versus Short-Term Orientation

4–20 How countries compare on Hofstede’s dimensions of national culture. Schermerhorn/Management, 7e Chapter 5, Figure 05-04

4–21 Global Management in Today’s World Challenges – Openness associated with globalization – Significant cultural differences (e.g., Americanization) – Adjusting leadership styles and management approaches Risks – Loss of investments in unstable countries – Increased terrorism – Economic interdependence

Summary Global outsourcing Exporting and importing Licensing and Franchising Foreign subsidiary Managing in A Global Environment 22

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