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The first issues to address are the core issues with respect to offshoring that apply to all companies. The company must identify the strategic objective that it hopes to meet through offshoring. At this point, that has taken place. The decision to look at offshoring has been undertaken on the basis of a television show. This is not a good way to decide corporate strategy. The decision to pursue offshoring should be made on the basis of fulfilling a broader corporate strategy. In the case of this company, there is little reason to believe that there is another benefit to the company to offshoring other than cost reduction. Therefore, cost cutting must be congruent with the company's broader strategy.
In terms of difficulties, one difficulty is that of finding the right cultural fit. Most company do not adequately address this as they tend towards the lowest bidder, a function of using cost reduction as the primary motivation for engaging in the offshoring in the first place. It is recommended that the CEO pursue offshoring on the basis not only cost but cultural fit as well. This is critical because the offshoring needs to be effective. The company has few resources to dedicate to managing this new resource, and the distance and time zone differences will make direct management of offshored employees much more difficult than employees in the same office as the CEO.
It is recommended that to address this problem, a study be done of cultural dimensions. Hofstede's cultural dimensions will provide insight as to which foreign cultures have the best fit with our culture. With this knowledge, a firm can be identified that may be able to provide workers with such a cultural fit. In addition, however, it is important that the company also draw up specific guidelines for hiring workers/companies/contractors offshore. These guidelines will guide the hirers to employees with the best cultural fit. There will still be difficulties, however, so it will be necessary to provide our management team with material on the type of culture with whom they will be dealing. For anybody in the offshore unit that is going to deal with our management directly they should receive training about our culture as well, to ensure that miscommunication and cultural misunderstanding is minimized.
The second problem that was identified is that the remaining employees at home are likely to go through a range of emotions. They are likely to feel fear, anxiety, stress and all of these factors could lead to declines in productivity, increased turnover and other negative outcomes. It will be necessary for management to address these issues as well. The first step towards addressing these issues will be to communicate to the remaining members of the company the rationale for the offshoring and the benefits that it will convey to the company. They need to understand that there is not going to be a second round of offshoring, so their jobs are safe. This will remove the apprehension and fear, and understanding how important the offshoring is to the company will help them to accept and hopefully approve of the plan.
There will also be a second step because this is a small company. The employees likely all know one another. This means that if any offshoring takes place, the remaining staff will have had friends that lost their jobs as a result of the restructuring. This can be expected to cause bitterness and resentment among some employees. Management can alleviate this by communicating the necessity of offshoring -- that it promotes growth, that it will help the company to survive, that it was necessary in the face of stiff competition. The remaining employees must be convinced that the offshoring was absolutely necessary, so that they are less likely to harbor bitterness and resentment on behalf of their former co-workers.
The third problem that needs to be addressed is that of the legal and ethic issues. Offshoring is cheaper for a number of reasons, among them the lack of labor laws in many countries overseas. Moving overseas raises some ethical issues for the company, as many other firms that have gone overseas have noticed -- Nike for example was the subject of sweatshop scandals in its Asian shoe factories.
It is recommended that to address this problem the company create a code of ethics and responsibilities for dealing with overseas suppliers of goods and services. The company most likely does not have such a code. By developing one, the company will not only be able to govern the standards by which it wants its overseas suppliers to adhere, but the code can also be applied domestically.
In addition to an ethics and responsibility code, the company will need to acquaint itself, at least loosely, with the laws of the country in which the offshoring is to be done. If the employees are working for a third party contractor, then this need only be done in a cursory manner, to get the basic idea of the potential legal exposure. If the employees are going to work for our company directly, then we will need to know the law in detail as we are going to have to work within it. The legal ramifications of offshoring can have a significant impact on the cost structure and if we are to hire people directly we should employ the services of an employment consultant in the overseas country to ensure that we are in full compliance with the local laws, thus reducing our legal exposure.
Another issue is the question of offshoring multiple units. The CEO is curious about offshoring multiple different functions. This will most likely require different companies -- maybe even countries -- for each function. This will increase the complexity of the offshoring significantly. There are cross-communication issues at play, multiple legal jurisdictions and multiple cultural elements. Each problem listed above would be compounded if we offshored multiple functions.
In order to address this problem, the best choice for our small company would be to offshore only one or two units, depending on need. If we must offshore all four units, then the best advice is to set up communication links, including cross communication links, and to enact tighter controls. This will allow management to maintain these four offshore units without losing productivity as a result of communication issues or other management problems. Additional help in the human resources would be required as well, to meet the additional challenges presented by adding four offshore operations or contractors.
The fifth issue to be addressed is that of skills reduction. In offshoring work, we our offshoring some capabilities upon which we may depend. This increases our dependency on offshoring and reduces the supply of domestic skilled labor from which to draw, as the result of aggregate offshoring.
The recommendation for dealing with this issue is to only offshoring aspects of our operations that are not a source of core competitive advantage for the company. Line functions can likely be offshored because they are not critical to the company's success, but any aspect of the firm's operations that we depend on for our profit or competitive advantage should remain in house. By doing this, the company will be able to maintain these competencies, while costs can be reduced in line functions and other non-essential departments.
Offshoring is not something to be taken lightly, in particular not on the basis of a television show. That this is a small company only complicates the matter further. There are a number of factors that must be taken into consideration that, if not managed correctly, could negate any cost advantages gained as a result of the offshoring. Ultimately, it all begins with knowing the firm's strategy and how offshoring will fit into that strategy.
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