Introduction to Business Offshoring

Offshoring: Obstruction or Opporunity?

There has been much controversy over offshoring. What is offshoring? Offshoring is “the outsourcing of manufacturing and services from domestic businesses to primarily low-wage markets” according to Nickels et al (2008, p. 81). The reason many companies engage in offshore outsourcing is to simply save money. Obviously a worker from China working at $56 a month is preferable to an American worker being paid twice as much for a day's work. Yet, offshoring is seen by trade protectionists as “disruptive to the US job market” and even “unethical” and “anti-American” to a few (Nickels, 2008, p. 81; Democratic Underground, 2005). Ultimately, for business leaders of today and tomorrow, offshoring is going be discussed inevitably and whether it to be an obstruction or an opportunity will depend on how it is implemented.
The primary reasons for offshoring is labor arbitrage, improved service and globalization. Labor arbitrage is a term for “taking advantage of wages that are cheaper elsewhere”(Ashley, 2008, p. 31). In India today, IT (information technology) professionals can easily be found and for a cheaper rate than those located in the United States. An A.T. Kearney Global Services report shows that in 2007, India ranked number one of “most attractive offshore service locations” (Harris, 2008). On a scale of one to ten, India ranked 7 for business environment, 5.5 for people and skills and most importantly 3 for costs, making it a close competitor to China's rating of 2.8 (Harris, 2008). Based on these statistics, Chris Harris, the author of the article “Offshore outsourcing statistics for services in 2007” concluded that “the smart money seems to be on the countries with abundant talent supply” (Harris, 2008). Both India and China are affordable alternatives and contain an adequate supply of educated people.
The second reason of offshore outsourcing is improved service. This can happen in two ways. The first way is that offshoring delegates less important functions to an offshore company which allows domestic employees to focus on customer service. According to callcentres.net, St. George Bank found that “outsourcing some of its IT functions to India allows more staff to focus on customer service” (Callcentres, 2008). Increased customer service results in more satisfied customers and thus, a greater retention of market share and profit. The second way is related to the first reason to offshore: cost savings. Manufacturing jobs can be done in China and India for a fraction of the cost in America. By saving money, companies can focus on providing the best quality service and reduce costs for consumers. Such tactics give companies a competitive advantage over those that do not realize the benefits of offshore outsourcing and is related the last but more important reason for offshoring.
As the world becomes increasingly interconnected by new information technology and greater production offshoring may become inevitable in the globalized economy. Global competition is stiff because the world is essentially a “6 billion customers” market (Nickels et al., 2008, p. 80). As barriers to entry continue to be broken down through agreements such as NAFTA, the North American Free Trade Agreement, companies will need to find a competitive advantage by all means possible. One of such means includes lowering costs and is achievable by offshoring to countries where wages are considerably lower than those in the United States. Companies that fail to respond to those who seek offshoring will eventually seek bankruptcy such as Levi Strauss & Co in 2004. Levi's had “produced more than 3.5 billion pairs of jeans in the more than one hundred and fifty years of existence” yet was forced into bankruptcy by “2.3 billion in debt” (Versluis, 2004). This amount of debt was only achievable because of it continued to let Walmart's outsourced but cheap products take over Levi's traditional market share. If companies intend to compete in the new global market, they must be prepared to differentiate and justify high costs or resort to offshoring to prevent being displaced by other more willing competitors.
Still, despite these benefits, many opponents of offshoring argue that offshored services lack cultural fit, end up costly due to public backlash or that cost reduction is actually not enough. At one time, Dell's call centers exemplified the first argument. Call centers were focused in India and many operators had heavy stereotypical Indian accents. Of course, customers became irritated at this especially when they expected clear advice and Dell lost the faith of many customers. Its actions gave Dell bad publicity and continued to add to the debate about offshoring. However, Dell is now starting to train its operators to “speak like Americans” and hopefully avoid alienating any more customers, present or future (Nickels et al, 2008, p. 82).
Dell's problems are part of larger issue that includes communication. International companies deal with many different cultures and languages. Communication may be hindered by the lack of adequate translation services and can serve to prevent efficiency. Culture is another a concern. What is acceptable in one culture may be illegal in another. Take for example the fact that “in Saudi Arabia, the consumption of alcohol is viewed as a violation of social norms and is punishable by imprisonment” (Jones, 2008, p. 236). Also, for Saudi Arabians, “Friday is the Islamic Sabbath. Thus, it would be impolite and inappropriate for a US manager to schedule a busy day of activities on a Friday.” (Jones et al, 2008, p. 240). Global companies should realize these potential hurdles and address them early.
An important consideration is the public backlash. Some people are opposed to offshoring because the idea of shifting jobs to America is unsavory. Furthermore, they do not appreciate the fact that “jobs are lost permanently and wages fall due to low-cost competition offshore” especially when “services make up more than half of American economy” (Nickels et al, 2008, p. 81 & 21). Sometimes in manufacturing situations, product quality may fall due to offshoring. One of the first words people think of when they see “Made in China” may be “cheap” and possibly “crappy” depending on the experiences with Chinese goods.
If incorrectly implemented, offshoring may not be appropriate for a company and could potentially end up costing rather than saving. Communication is a major concern in the global market and if it is not addressed early, it will make the entire system inefficient. At the same time, the customers should be considered. Companies must decide whether risking a public backlash is worth it. Further, they must also develop methods to maintain quality in their products and services to keep customer satisfaction up. Without much planning and too much speculation about assumed “cost savings” of offshoring, global companies will fail. Still, they must also not follow the fate of Levi-Strauss which got straddled with over $2 billion in debt for failing to adapt to competitors who were investing in offshoring. In an increasingly global environment, offshoring may help to keep a competitive edge. Though the decision to offshore or not should not be taken lightly, one should always remember that “There is no security on this earth. Only opportunity.” - Douglas MacArthur

References
Ashley, Ed. Outsourcing for Dummies. New York, New York: Wiley Publishing, 2008.
“Asian Contact Centre Industry Benchmarking Report Launch Events.” Contact News. 21 Dec. 2006. etalk. 13 July 2009 <http://www.callcentres.net/CALLCENTRES/LIVE/me.get?site.sectionshow&CALL2231>.
Harris, Chris. “Offshore outsourcing statistics for services in 2007.” Inventure Global. 22 Feb. 2008. 12 July 2009 <http://www.inventureglobal.com/blog/2008/02/outsourcing/offshore-outsourcing-statistics-for-services-in-2007/>.
Jones, Gareth R, and Jennifer M. George. Contemporary Management Fifth Edition. Boston, MA: McGraw Hill , 2008.
Nickels, William G., James M. McHugh, and Susan M. McHugh. Understanding Business . Singapore: McGraw Hill, 2008.
“Offshoring. Why it is not just immoral and unethical. But utterly illegal.” Democratic Underground. 13 July 2009 <http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=104x3689570>.
Versluis, Arthur. “What Happened to Levi Strauss & Co.? .” Traditional Conservative. 13 July 2009 <http://www.traditionalconservative.com/Levis.htm>.

Introduction to Business The Importance of Promotion

Promotion: The Most Important “P”

“Without promotion something terrible happens... Nothing!” - P.T. Barnum
The marketing field has evolved in the last hundred years from the Production Era which believed that “a good product will sell itself” to the relatively new Customer Relationship Era that focuses on “enhancing customer satisfaction and stimulat[ing] long-term loyalty” (12Manage; Nickels & McHugh & McHugh, 2008, p. 351). However, just as important as it is to maintain customers, so is it to first attract them. Indeed, P.T. Barnum, arguably “the most influential American showman of the nineteenth century,” realized that of the 4P's in the marketing mix, promotion is the most important (Seaburg). If little is known about a product, no matter how great it is or how cheap or readily available it is, if the consumer is unaware of such a product, then nothing happens. No sale, no profit. Promotion is the most important of the 4 P's and new technology will continue to underscore the increasing value of good promotion.
Today, promotion has become the most important for a number reasons. Product is a given since consumers expect much more than something that simply passes government standards. Even companies that offer competent but sloppy products will lose business and possibly discourage future business as customers engage in negative word-of-mouth campaigns via Internet against them. Meanwhile, competing on price is not a useful long-term approach as “the consumer is often still sensitive for price discounts and special offers,” techniques that fall under the category of promotion (12manage). Finally, place is no longer an issue as businesses turn increasingly towards the Web. Coupled with the delivery services of companies such as UPS, DHL, Fedex, etc., they can reach customers who are literally on the other side of the world. Thus, promotion remains the most important of the marketing mix and is key to success as emphasis on product, price, and place diminish.
The techniques that encompass promotion can be summed by the Promotion Mix: Advertising, Personal Selling, Public Relations and Sales Promotion. Advertising in the United States alone costs “$245 billion yearly” and companies spend so much on it simply to increase awareness about “products, prices, features, and more” (Nickels et al., 2008, p. 433). Without this essential form of promotion, few would know that there exists certain products that seek to satisfy consumers' different wants and needs. Ways businesses are accomplishing awareness are through product placement in TV shows and movies, infomercials, direct mail, newspaper ads, and most importantly, the Internet. Internet ad spending accounts for only one-eighth of that for television, but there is significant growth in Internet advertising (Nickels et al., 2008, p. 434). Internet advertising may become as important as TV ads in the future since it “allows companies to provide their customers much more information about the value of their products [which] often allows them to attract more customers and thus generate higher sales revenue (Jones and George, 2008, p. 726).
In a world of increasing transparency enabled by technology such as the Internet, public relations is particularly important. Successful public relations “listen to the public,” “develop policies and procedures in the public interest” and “inform people that [the company is] being responsive to their needs” (Nickels et al., 2008, p. 442). Companies that are unresponsive or perceived as such can suffer greatly from negative word-of-mouth and bad publicity. And this is where public relations comes in. The public relations aspect of promotion is key in managing conflicts and trying to get good publicity. Public relation's “talking arm” is publicity, “any information … that's distributed to the public through the media and that's not paid for, or controlled, by the seller” (Nickels et al., 2008, p. 443). Getting publicity is very important since not only is it cost effective (free), it's also “more believable than advertising” (Ibid). Public relations and good publicity will continue to be important as businesses continue through the Customer Relationship Era.
Another popular form of promotion is Sales Promotion. Examples of sales promotion include “trade shows, discounts, catalogs and conventions” and consumer sales promotion techniques such as “coupons, sampling, sweepstakes, bonuses, in-store displays” and more (Nickels et al., 2008, p. 443-4). These tools help stimulate interest in products and are important in increasing awareness of different products. For business-to-business (B2B) sales, trade shows are quite important as “they allow marketing intermediaries to see products from many different sellers and make comparisons among them” (Ibid). With help of the Internet, there are now “virtual trade shows” that “enable buyers to see products without leaving the office” (Nickels et al., 2008, p. 445). With the advent of new technologies, promotion will become “much more interactive than ever before” (Nickels et al., p. 447).
Technology will change the marketplace as consumers become increasingly empowered by access to tools such as Amazon, and eBay on the Internet. The effect is even being felt in B2B transactions such as in the form of virtual trade shows. This new development signals that price, product, and place, though important, will not be as significant as promotion. Before a potential customer even compares products and prices, he or she must first know that the said products exist. The promotion mix can thus be used for accomplishing this needed awareness. Most likely, advertising will shift towards Internet based ads because of their relatively low costs and many benefits including interactivity and convenience. Though P.T. Barnum died in an age well before computers (in 1891), his words continue to ring true today. Thus, successful businesses will always be on the lookout for ways to increase awareness and promote their product. After all, “two-thirds of promotion is motion.”




References

George, J. M., & Jones, G. R. (2007). Contemporary Management. New York: McGraw-Hill/Irwin.

McHugh, J. M., McHugh, S. M., & Nickels, W. G. (2008). Understanding Business 8th Edition 2008. New York: Mcgraw Hill.

Promotion Quotes | Quotes Daddy. (n.d.). Retrieved August 7, 2009, from http://www.quotesdaddy.com/tag/Promotion

Seaburg, A. (n.d.). P. T. Barnum. Retrieved August 7, 2009, from www25.uua.org/uuhs/duub/ar

ticles/ptbarnum.html

Executive Fast Track. (n.d.). Marketing Mix (4P's). Retrieved August 7, 2009, from http://www.12manage.com/methods_marketing_mix.html

Unknown, Source quote - Two-thirds of promotion is motion.... (n.d.). Retrieved August 8, 2009, from http://quotationsbook.com/quote/795/

Introduction to Business Federal Reserve

The Fed or Federal Reserve has three primary ways of regulating money supply:
Reserve requirements, Open-Market Operations, and managing the Discount rate.

Reserve requirements are certain percentage amounts that banks are supposed to have on hand against its deposits. When the Fed raises the reserve requirement, the bank would have to put more money on reserve and thus be limited in the amount it can loan. A high reserve requirement correlates with a reduced money supply. A low reserve requirement on the other hand, does the opposite: it allows banks to lend more money, increasing the money supply. However, though this is a means of achieving growth the economy, it can result in inflation.

Open-market operations refer to the sale or buying of bonds. The government sells bonds to take money out of the economy and decrease money supply. When the government buys back bonds, it puts money back into the economy and thus increases money supply. Open-market operations are the most common tool used by the Federal Reserve.

Finally, there is the discount rate. The "discount rate" is the Fed's interest rate on loans for other banks. A high discount rate discourages borrowing and reduces the bank's lending ability while a low discount rate encourages borrowing, increases a banks' ability to loan and thus increases the money supply

The Fed uses all of these methods to regulate the money supply. The ultimate purpose of doing so is to keep the economy in check and preventing inflation or deflation.