Assessment Information Strategic Management - Case Study Example

Assessment Information Strategic Management Name Institution Course Date Assessment Information Strategic Management Introduction Offshoring is a phrase that has become famous in the last century. There is a common belief that offshoring has a negative effects on the economy (Mankiw and Swagel, 2006). Off-shoring is termed as the replacement of domestically sourced labour with imported labour. Many companies prefer to use foreign labour in place of domestic labour as a strategy to save on cost. Companies today prefer to send jobs offshore in order to save on labour cost. The benefits of moving some activities offshore are potentially significant. According to Mankiw and Swagel (2006), offshoring is able to save between 40-70% labour costs. There are additional benefits beyond cost saving. Companies often enjoy the advantages o scale since most offshore workers are large scale. In addition, labour that is offshored from developing countries is productive and value work more (Woodhead, 2006). The loss of jobs in Australia due to offshoring has been an issue for many years now. Many companies in Australia have moved its activities offshores which has affected the economy of the country. This report will analyse the external and internal issues that have affected ANZ and have driven it to move jobs offshore. It will also identify the major stakeholders of ANZ and how the decision to offshore activities will affect them. It will also explain why some jobs will still be based in Australia and its related implications. Overview of ANZ Offshoring Activities The Australia New Zealand bank is the fourth largest bank in Australia and offers its product and services on the basis of commercial and retail banking. The bank offers online banking services to its customers (ANZ, 2007). It uses the B2B and B2C digital commerce models and takes advantage of technological advancement and computer based information system. It established an offshoring centre in India in 1989. In 2005, ANZ Bank decided to off-shore IT work, business processes and software development work to workers in India and Bangalore (ANZ, 2007). In addition, the bank has also offshored other functions such as call centres, account maintenance and financial forecasting work. However, the direct customer contact function was maintained in Australia. The decision of ANZ to move some jobs offshore was a primary goal of doubling profits and reducing labour cost. In addition, the decision was made in order to free up the staff in Australia in order for them to focus more on the customers (ANZ, 2007). India is considered to have lower labour cost compared to Australia. The country has also younger workforce and large employment pool of educated individuals. Currently the Australia New Zealand Bank has employed a total of 4800 IT employees in Australia and New Zealand and more than 2000 in India (ANZ, 2007). The bank is also in the process of offshoring more workers from China. Australia has IT skill shortage which has contributed to the decision of ANZ to offshore IT jobs. Nevertheless although the bank has benefited from offshoring, there are a number of challenges that the bank faced in its quest to offshore jobs. For instance, offshoring jobs in India have exposed ANZ to political, regulatory and legal risks. In addition, cultural and language barriers interfered with the offshoring plan (ANZ, 2006). External Issue Affecting ANZ Political Factors Australia is considered a safe destination for companies. It has a stable political environment which offers confidence and certainty to investors and organisations. The political system of the country is effective in responding to economic problems (Bernard et al., 2007). In addition, the country has low corruption levels with transparency being rated highly. In addition, although there are some tariff walls established to prevent excessive offshoring, the government in Australia has minimal legislation restricting offshoring activities (DiGregorio, Musteen and Thomas, 2009). This has made it easy for ANZ to offshore activities to India. Economic Factors The economic stability of Australia is ranked high in OECD countries. The economy is more favourable compared to those of United Kingdom, France and Germany. Therefore, it has a low degree of risk for investors and companies (Bernard et al., 2007. It is also characterised by stable interest rates, low inflation rate and rising exchange rates. However, compared to other countries, Australia is known for high-cost commercial property. In order to avoid overspending and increase saving, ANZ decided to relocate some of its operating centres in India. Social Factors Australia is made up of the working class, the middle class as well as the upper class. The wealthiest make up about 10 per cent of the overall population (Farrell, Laboisiere and Rosenfel, 2006). The employees in the country earn more than those in other countries as a result of favourable employment regulations. This has affected the profitability of companies in the country. Therefore, to avoid paying more for labour, ANZ was forced to offshore jobs in India which has cheaper labour (Avinash and Grossman, 2005). In addition, annually Australian universities produce about 5500 IT graduates. However, IT companies and banks prefer hiring experienced personnel than IT graduates. The country has fewer qualified and skilled employees which prompted the bank to offshore jobs in India. Technological Factors Technology is one of the major factors that prompted ANZ to offshore IT activities in India. Over the years, there have been new technological developments and many companies have opted to adopt this changing technology with an aim of increasing productivity. Although Australia has adapted technology and is among the world’s leaders when it comes to technological progression, spending in IT is minimal (Bernard et al., 2007. It also has the highest spending directed towards higher learning and pharmaceutical. Research and development investment is still minimal which has affected the availability of expertise in the country (Luce and Merchant, 2004). Compared to Australia, India has invested more on technology which has resulted to large number of expertise. This has contributed to ANZ decision to offshore IT works. Internal Issues Affecting ANZ Porter’s Five Forces Threat of New Entrants The threats of new entrants are at its minimum since ANZ is well-established in the market. In addition, starting a bank will require large capital which makes it hard for new entrance (Bato, 2003). Nevertheless, traditional banking services can enter this market and impact profitability of ANZ. This partly contributed to ANZ decision o offshore. Power of Buyers Bargaining power from the buyers is low due to high switching cost. When an individual has a loan, mortgage or credit from ANZ, it will be very difficult to switch to another bank (Chou, Chiwei and Jianru, 2004). To lure new customers, many banks try to reduce switching cost but customers still prefer stick to their banker. Due to this, the decision to offshore has not had a huge impact on ANZ due to reputation damage. Threat of Substitutes Threat of substitutes is very high since there are a number of alternative services in the market. Non-banking financial organisations also offer similar services and products as banking organisations (Nicholson, Jones and Espenlaub, 2006). This has intensified competition and has put pressure on ANZ to be more innovative and creative in order to stand out from the competitors. Threat from Suppliers The power of suppliers is moderately low. The suppliers of capital do not pose huge threat since the viability of ANZ is guaranteed by the government during challenging times. In addition, on the labour side, threat is also low (Nicholson, Jones and Espenlaub, 2006). ANZ among others has been moving jobs offshore to ensure labour is cheap and sustained. Competitive Rivalry The major rivalries in this industry are ANZ, Westpac, NAB and Commonwealth. The rivalry in this industry is high (Bato, 2003). The competitors offer similar products and services. Therefore, to be competitive, banks are looking for ways to attract consumers across the globe and reduce operational cost. ANZ is doing this by moving some jobs offshore. Effects of Offshoring on Stakeholders Agreement among the shareholders is required in order for an organisation to move some jobs offshore. Therefore, the resistance from the shareholders may be a problem as the cost of funding such initiatives requires their approval (Chena, Ishikawab and Yuc, 2004). The main stakeholders of ANZ includes: shareholders, government, suppliers, customers, employees and business partners. The stakeholders are considered either internal or external or even both. These stakeholders are significant to the company since they bring very substantial impact to the performance of the company and decision making process (Bhagwati et al., 2004). The decision of ANZ to move some activities offshore has affected shareholders. Offshoring decision can receive public backlash as a reaction to job losses in Australia. The decision of ANZ to move some jobs offshore has led to layoffs and contributed to unemployment which has attracted negative reputation from the public (Hirschheim, Heinzl and Dibbern, 2009). Negative reputation can affect the buying behaviour of customers in the long run. Employees are also hurt from offshoring through layoffs and the government and communities lose tax revenue which may have a multiplier effect on the economy in the future. In addition, Samuelson (2004) has reported that since 2005, most suppliers of ANZ have gone out of business as a result of offshoring. Also, since offshoring places stress on the resources and infrastructure of an organisation, the decision to take this road may impact business partners and shareholders. ANZ has minimized its offshoring activities due to the effects they have on the shareholders and partners (Autor, Levy and Murnane, 2003). Reasons for Inability to Fully Offshore Not all jobs for ANZ could be offshored in India. Some jobs are susceptible to offshoring while others are not. For instance, “knowledge work” such as IT and information processing services were able to be offshored since they can be performed through the internet or email. In addition, the expertise to do them was inefficient in Australia (Kehal and Singh, 2006). However, some activities could not be offshored and remained in Australia. In addition, some jobs needed to remain in Australia due to the high tariff wall that has been established by the government to increase employment opportunity in the country (Hirschheim, Heinzl and Dibbern, 2009). Due to the growing incidences of offshoring, the government established a legislation that governed offshoring activities. This has prevented “over-offshoring” of activities to foreign markets. Conclusion In conclusion, many companies in Australia have decided to offshore activities to locations with cheaper and sustained labour. ANZ has been involved in offshoring from 2005. It has offshored IT works to India due to low labour cost. The external and internal factors in the banking industry have impacted the offshoring decision of ANZ. For instance, due to high labour cost and inefficient IT expertise in Australia, ANZ decided to offshore workers in India. This has led to enhanced competitive advantage. Nevertheless, the decision to offshore has some impacts on stakeholders such as the government, customers, employees and shareholders. References Australian and New Zealand Bank 2006, Corporate Responsibility Report. available at http://www.anz.com/aus/CorporateResponsibility2006 [Accessed Jan. 10th 2017] Australian and New Zealand Bank 2007, Information of ANZ in Bangalore, India. available at http://www.anz.com/aus/aboutanz/facts/anzblore.asp [Accessed Jan. 10th 2017] Autor D. H., F. Levy, and R.J. Murnane, 2003, The Skill Content of Recent Technological Change: An Empirical Exploration. Quarterly Journal of Economics, Vol. 118, No. 4, pp. 1279-1333. 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