Economic environment analysis and business implications

Economic Environment Analysis

For a variety of companies, the global financial crisis and recession, would force a number of organizations to reexamine their underlying business strategy. Where, managers and executives would look at different ways they can stream line operations, to increase profits. In the financial services industry, the effects of the recession have been more severe. As some of the largest and most well respected financial institutions; has fallen into reorganization or outright liquidation through bankruptcy. This is because these organizations were not aggressively trying to reduce costs as much as possible. To adapt to the current recession and to be prepared for future growth opportunities requires: that all corporations strategically place their various resources, in locations that will help them to maximize their profits. As a result, our organization must be able to reduce costs as much as possible, by placing various call centers in locations that are business friendly and economically viable. In the case of serving customers in Europe a number of locations are being considered. One of the possible locations, the Czech Republic, has a number of distinct advantages such as: it has been delivering positive growth for the first two quarters of 2010. Where, the GDP rate would grow at: 1.5% in the first quarter and 2.3% in the second quarter. (GDP Growth Exceeds 2%, 2010)2 This is significant, because it follows a period of economic decline that the country would experience, as the GDP rate would fall by 4.3% in 2009. (OECD 2010)3 This follows several years of having consistent growth rates of 6% annually. For our organization, the recession is presenting the opportunity to set up a possible call center in the Czech Republic. However, to determine if it is financially and economic prudent, requires conducting an assessment of the country itself. To achieve this objective we will examine: the different opportunities and risks of establishing call center operations in the Czech Republic. Together, these different elements will provide the greatest insights, as to if placing call center in this location will help to reduce costs and increase profit margins.

Opportunities

The Czech Republic has been able to have a successful transition from a planned to a market economy. Where, the country is currently a member of the EU and it is at the cross roads between Russia and Europe. The geographic location of the Czech Republic makes it an ideal spot for exporting a variety of goods and services. As far as the financial sector is concerned, the country's banks have been protected from the financial crisis because of the conservative lending standards that the government has in place. An example of this can be seen by looking at a report on the state of the banking sectors during the middle of the recession from Price Waterhouse Cooper. Where, they said, "The banking sector in the Czech Republic is a performing and profitable business, playing a key role in the development of the Czech economy. During the global financial and economic crisis in 2008-2009, it showed a high degree of stability along with significant levels of innovation and development of banking services, while maintaining business profitability." (S, Zorbrazit 2010) 5 The reason why this is occurring, is because the country intelligently applied EU banking standards to its financial system independently. This increased the overall amounts of trenchancy, while limiting the ability of bankers to take above average financial risks. When you look beyond the banking sector, it is clear that labor costs in the Czech Republic are below the average for the EU. Evidence of this can be seen by looking at the PPP, with the Czech Republic ranked 53 (as they have a PPP of $24,900.00). This is below the EU, where they have a rating of 42 or a PPP of $32,500.00. (Czech Republic 2010) 1 When you compare the two numbers, the purchasing power is lower in the Czech Republic in comparison with the EU. This means, that labor costs are much lower in relation to the rest of Europe. When you put this together with the increases in the GDP over the last two quarters and the fact that the banking sector, was undamaged from the financial crisis; means the Czech Republic has outstanding opportunities for addressing the needs of the company. As the country's costs, the business friendly atmosphere and prudent practices of government policies are creating the ideal environment for a European call center to flourish.

Risks

Despite the obvious advantages, there are risks of relocating to the Czech Republic the most notable would include: the underlying cost structure. While labor costs are lower in comparison with other EU countries, the Czech Republic is in the middle of the range in comparison with other EU member such as: Latvia or Georgia. Where, Latvia ranks 78 (with a PPP of $15,500.00), while Georgia ranks 151 (with a PPP of $4,400.00). (Czech Republic 2010) 1 This is problematic, because the lower labor costs in other EU countries could be more advantageous than Czech Republic. Then, when you consider the fact that 7% of the domestic manufacturers have relocated to other countries because of this reason, highlights how the overall cost structure must be continually monitored. That being said, the total number of business continuing to relocate to the Czech Republic, far outweighs the domestic manufacturers seeking lower labor costs in other countries. (One if Five Companies Consider Moving 2010) 4

Conclusion