Global HR Management

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Global HR Management

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Global HR Management

Part A: Offshore Outsourcing

In today’s highly competitive and global economy, companies are continuously looking for ways to remain afloat. Using business strategies that ensure minimal operational costs is one of the main ways by which companies are surviving in today’s competitive and challenging business environment. Outsourcing is an example of a strategy that companies are using to reform their business models and minimize costs. Many companies believe that outsourcing is the most strategic decision that management can make to minimize costs (Mankiw & Swagel, 2006). A majority of companies, especially those in developed countries, are exploring or have explored the option of having fully-owned facilities in offshore locations. Such offshore outsourcing provides companies with the same benefits as traditional outsourcing to a local services provider but a lower cost.

The lower cost advantage that offshore outsourcing promises has resulted in a global conversation on the huge opportunity that companies should take advantage of, which has resulted in many companies considering moving their facilities, such as call centers, to offshore locations such as Ireland, India, or the Philippines (Tate et al., 2009). I am the HR director for a company that deals in upscale gourmet snack foods. The company has a call center that has thirty employees taking calls for orders and payments. My boss has been advised that the company can save up to 70% on labor costs by outsourcing to an offshore company in the Philippines. The benefits and disadvantages of such a move have to be analyzed to make an informed decision on whether to adopt the strategy.

The Pros of Offshore Outsourcing

There are many benefits that the company would accrue from utilizing the offshore outsourcing strategy in the Philippines. First, the company would save costs and time. Outsourcing would allow the company to significantly minimize its labor costs, enabling it to earn more profits (Tate et al., 2009). By relocating to the call center to the Philippines, saving in spending, manpower, infrastructure, and all other related expenses since the third-parties will be responsible for the benefits and salaries of all the agents that will be employed and the related costs at the call center. Second, the company would save on wages. The wage rates in countries such as India and the Philippines are way lesser than those in the United States. In the Philippines, the average wage rate is approximately $1.50 per hour for workers and between $3.50 and $7 per hour for supervisors and managers. These rates are much lower than those in the United States.

Third, the company would benefit from the creativity and problem-solving skills of Filipinos. They are highly effective when providing customer support and back-office support since they are taught and used to thinking of solutions to scenario-based problems. They are brought up and trained to think outside the box and change some rules to resolve problems. They are also humble and are not boastful of their achievements or skills. They are well-educated, which means that they can read, write, and communicate effectively. The creativity and skills of such employees, who will be working at the offshore call center in the Philippines, will be helpful to the company and contribute to increased company efficiency.

The Cons of Offshore Outsourcing

While offshore outsourcing has many benefits for the company, there are also some challenges and problems that the company would face if it adopts the strategy. First, the company would have legal environment challenges since different countries have different laws and regulations (Herath & Kishore, 2009), for instance, in the protection of consumer information. The company will require measures, safeguards, and legal resources to prevent the call center workers from stealing customer information. The company would be exposed to more risk mostly because data protection and privacy laws state that companies cannot share risk compliance, which means that if the company’s outsourced partner exposes client data, the company will be liable for penalties and legal action.

Second, the company will be exposed to geopolitical risks. Risks of war, civil armed conflict, and terrorism have become serious concerns for companies wishing to outsource overseas. Over the last decade, many regions across the world have become prone to violence, which is harmful to businesses. The threat of religious and political violence in the Philippines poses a geopolitical risk for the company and has to be critically evaluated before deciding on the appropriate decision to make. Third, the company will face cultural challenges if it sets up a call center in the Philippines. Social and business cultures overseas are very different from those in the United States. Companies in foreign countries operate under different standards of work ethic, organizational structure and culture, and risk-taking (Herath & Kishore, 2009). Language problems may also be a major problem for the company while communicating with the overseas call center.

Part B: Examples

Amazon.com is a good example of a company that has successfully offshored its customer service department in Cebu, Philippines (Siepmann, 2013). The company opened its first customer service center in the Philippines in May 2018. Amazon.com is currently the world’s largest retailer and one of the fastest-growing e-commerce companies in the world. The company posts annual revenues that show sustained growth since 2016. The company decided to open its first offshore customer service center, which created 300 new jobs and more than 1000 jobs by the end of its first year in operation. To date, the company depends on customer service which is run in the Philippines. Cebu City was selected for the offshore outsourcing because of its low cost of living, English proficiency of locals, talent pool, and government support. The offshore center is an example of a successful strategy that the company used to minimize its costs.

While Amazon boasts of a successful offshore outsourcing center, some companies are facing challenges overseas, forcing them to terminate offshore outsourcing relationships. Most companies that terminate such centers realize that it is not sustainable to sacrifice or compromise call center quality for cost savings, as it results in the loss of customers and revenues in the long run. General Motors is an example of such a company. The company has been insourcing its IT operations to centers in the United States, pulling back huge sections of its previously offshore outsourced IT operations. For GM, deals made overseas failed to meet the expectations of the executives in terms of finances and service delivery. The company realized that services from the overseas centers were more expensive than expected as a result of unforeseen costs and other shortfalls. By bringing the IT services and resources in house, the company targets to minimize operational costs and align the services with the business. The quality of people and resources will be easier to control in house.

References

Herath, T., & Kishore, R. (2009). Offshore outsourcing: risks, challenges, and potential solutions. Information Systems Management, 26(4), 312-326.

Mankiw, N. G., & Swagel, P. (2006). The politics and economics of offshore outsourcing. Journal of Monetary Economics, 53(5), 1027-1056.

Siepmann, F. (2013). Managing risk and security in outsourcing IT services: Onshore, offshore, and the cloud. CRC Press.

Tate, W. L., Ellram, L. M., Bals, L., & Hartmann, E. (2009). Offshore outsourcing of services: An evolutionary perspective. International Journal of Production Economics, 120(2), 512-524.