The Process of Reducing Cost - InterStates - Essay Example

Task Formal Report Writing Introduction The cost of doing business in the USA is becoming unbearable for Inter Inc, and there is an urgent need to minimize the cost of doing business. This requires an approach in which all the processes in the organization are analyzed to identify the type of activities which can be carried more cheaply by the company staff in another location or carried but another company on behalf of Interstate more cheaply. These approaches may be appropriate in securing cheaper call centre services. The process of reducing cost requires identifying all the functions within the firm to identify the core activities which are to be carried out by the senior staff, while the secondary functions are assigned another organization that may provide such functions to the company at affordable. Background Interstate, Inc is a New York based company, which specializes in providing domestic insurance for private individuals and corporations. It is considering moving all or part of its 150 person call centre to an oversee location in order to reduce its operating cost. The call centre currently handles calls of operating agents and enquiries from members of the public from USA. Management groups are researching about different countries in order to evaluate their potential to host a pilot project which should be operational within six months. If successful the centre will take over the full accountability for all call centre operations within 12 months. The management team will be meeting later to present their recommendations. 1. Outsourcing versus off shoring Outsourcing is a management practice of taking a function of an organization to be managed by another organization on behalf of the company. InterState Inc, may hand over the secondary functions that can be handled by other specialized organizations on its behalf so that the core staff of InterState may concentrate on the most important functions (Lacity & Joseph, 12). The outsourced services are offered within the country or state and employees of the company whose services are outsourced performs the function and are paid for the services rendered. Through outsourcing InterState might be able to avoid many costs like payment of retirement benefits to employees, payments to employees who are on leave, or when the employees are less productive. Outsourcing has therefore become cheaper in the end because the company avoids certain costs (Haugen, Susan & Kacy, 24). Off shoring on the other hand is a business management practice in which a company like InterState may take moves its activities to another location in another country, in which the function may be managed by employees of InterState or by employees of another company. Off shoring has become a common practice in reducing the cost of operation when a company relocates its operations to another location offshore in a foreign land to benefit from technological advancement or cheaper labor. In off shoring the activity that has been relocated to another country is still managed wholly by the company and therefore giving it complete control over all operations (Oshri & Julia, 5). 2. Managing risks Outsourcing and off shoring are generally undertaken to manage the risks that may lead to unprofitability while the company operates in the USA. Outsourcing may be combined with off shoring if InterState decides to have its call centre services managed by another company in a foreign country which does everything for the company. These approaches may be considered due to the advantages and disadvantages that Interstate may benefit. A number of business risks may be avoided when specialists are given certain functions to perform at a cheaper cost on behalf of the company. 3. Choice of location The choice of the location will be determined by the potential for savings on the cost of operation. The company must also consider the quality of human resources, the cost of operation, and government regulations in the host country. A good location should be one with qualified staff, with low cost of operation and a potential future market for the services offered by the company. 3.1 Issues affecting Choice There exist a lot of issues that may influence the choice whether InterState may seek outsourcing or off shoring opportunities in the countries at hand. These issues should be the major factors that determine business processes and effectiveness. Each of the choice factors must be evaluated by considering the nature of service which Interstates is seeking as a way of reducing the cost of operation. 3.2 China Has the highest population size among all the countries in question, and has a potential of a growing population and market. The level of tertiary education is low compared to all the countries and therefore the quality of labor will be low too. The cost of effort and labor is the second lowest and is comparable only to India. The cost of living is highest and it is very competitive against other countries in the equation. Operating cost is the second lowest only comparable to India, making it to have mixed benefits and disadvantages. The nature of service being outsourced should determine whether China is the suitable. However, for a company that intends to go offshore, the potential competition in China should be considered as a way of ensuring that the drive to save of the cost does not drive the company into a tough competition zone. 3.3 India The population size is huge too making it second only to China with a potential market for off shoring and outsourcing. It has the largest number of youth population which is a guarantee for the future growth. The level of tertiary education is somehow low and only higher to China, meaning that the quality of human resources will be low and this may lead to customer annoyance to the American customers. The cost of labor is the lowest as well as the cost of living compared to all the other countries in question. It ranks high on the world competitiveness and its operating cost is the lowest. Outsourcing decisions should therefore determined by the quality of human resources versus the cost of operation 3.4 Philippines The populations of phillipns in double that of Canada, and it has the highest number of youths which means the future supply of labor is still guaranteed. The tertiary level of education is very high and only next to that of Canada. The cost of labor is also moderately high and its competitiveness is very high making it second only after India. The operating cost is not a very clear factor. The decision to move operations into Philippines should be based on the desire to have good human resource skills art moderate cost. 3.5 Canada The population size is the lowest which may be a disadvantage for a company that wants to relocate to the country. The percentage of the youth population is moderate and does not signify a bigger market in the future. The level f tertiary education is the highest compared to all the countries, meaning the quality of human resources. The country also has the highest cost of labor as well as the cost of living being the second highest when compared to other countries in question. However its world competitiveness in low despite its operating cost being the highest beyond all other countries. 3.6 Alternative US Location The operation costs may also be managed by relocation within the USA because the costs of doing business vary from one City and locality to another. New York may be more expensive as compared to other smaller cities or locations from which a call centre may still operate effectively. Alternative US Location should be explored before moving off shore so that the accent of those operating in call centre does not cause communication barriers. 4. Conclusion and Recommendations Conclusion InterStates should consider outsourcing call centre services from a country, which can offer reliable call services due to the modern technologies even without the company having to relocate to another country. The company should consider looking for all local company that can offer calling services at a cheaper cost in case it still wants to retain good relations with the American public, so that the available in the local economy are not affected. InterState should consider the accent of the country incase the target customers are to remain American so that miscommunication does not occur in the process, which may cause customer annoyance. Off shoring should only be considered in case the company wants to gain a foothold in serving a foreign market which has been perceived as having the potential to expand. Recommendations Considerable cost will be reduced if InterState outsources call centre services to another specialized company so that cost effectiveness is achieved. The company should retain some core functions like management positions of all the outsourced functions so that some degree of control is retained by InterState as a way of maintaining quality. Interstate should evaluate all government regulations in all offshore market in which it may intend to relocate to so that no restrictions in foreign countries may be ignored The company should consider all advantages and disadvantages associated with every country in question, so that the best one is adopted. The hidden costs that are associated with off shoring should be considered such as unstable currency that may make the operations to be affected negatively in a way that make the cost- saving efforts appear unwise. InterState should consider off shoring to India when cost reduction is the main motive despite accent challenges or to Philippines if provision of high quality to a higher market segment is the business objective of reducing the current cost. References Haugen, David M., Susan Musser, and Kacy Lovelace. Outsourcing. Detroit: Greenhaven Press, 2009. Lacity, Mary Cecelia, and Joseph Rottman. Offshore outsourcing of IT work: client and supplier perspectives. Basingstoke: Palgrave Macmillan, 2008. Oshri, Ilan, and Julia Kotlarsky. The handbook of global outsourcing and offshoring. Basingstoke: Palgrave Macmillan, 2009. Read More