Cultural Elements That Affect Offshoring - Assignment Example

Name Course Institution Part 1. Introduction With the penetration of information technology in all areas of the lives of people all over the world, the world has become a global village with cultures moving closer together and ideas being exchanged across borders[Eli141]. It is because of this globalization and the emergence of Chinese, Japanese, European, and other third world multinationals that companies face tougher competition. Culture and offshoring are inseparable as discussed in this document, highlighting the various cultural elements that affect offshoring and are crucial to the profitability and survival of a business. Background information about offshoring Offshoring and outsourcing are initiatives taken to reduce the cost of production or business operations. Some of the reasons behind outsourcing and offshoring include the existence of high minimum wages in the countries where the businesses are set up and high operation costs in relation to licences and other legal formalities required of the business. Whereas all countries in the world have requirements for running various business, the specific requirements range from country to country. The requirements range from corporate social responsibility to the rights of the human resources and environmental considerations for industries. The level of strict observance of such requirements also ranges from one place to the other. The minimum wages in India, for example, are much lower as compared t the minimum wages for in European countries. As a result, most manufacturing industries have the tendency to move their companies to India to reduce manufacturing costs by cutting down on labour and other operational costs[Mik11]. Metters (2008) affirm the existence of high-profile blunders and failures as a result of the lack of cultural integration and other cultural barriers in the business. There is a constant increase in the number of companies that operate internationally to increase profitability, expand the brand, and reduce costs. The culture ranges from manners, keeping time, and communicating using a language familiar to the new market. [Ken09] cites communication and cross-border issues as the some of the most important cultural factors affecting offshoring among businesses and large companies. According to Deari, Kimmel and Lopez (2008) besides India, China and the Philippines are other markets that seem lucrative for offshoring for various companies. India, however, is one of the places where offshoring is easy because of the amount of time that the country has interacted with US companies and their improved relationship and nature of interaction with each other [nnn09]. Cultures and Levels of Culture Czinkota (2007) explains the different elements of cultural manifestation as language (both verbal and non-verbal), religion, manners and customs, attitudes and values, aesthetics, material elements, social institutions, and education. The adaptation of the various elements by an international company is dependent on the level of participation of such a company. The level of participation could be measured by the determination of the nature of the investment (direct or indirect) and its licensing. Adsit D. et al. (1997) explain that culture impacts different areas of running the business such as the nature of the interaction between superiors and subordinates and the freedom of speech and pinions. Whereas in Europe exhibits the integrative style of leadership in the workplace, countries such as China and Japan tend to place importance in the opinion of the boss and deep respect is shown to the leadership. As a result, voicing opinions requires strategy and the wrong approach (depending on the cultural description of the correct approach) could cost a company and its employees its reputation and success. Teaching the host community the culture of the host country of such a business is something that should be sold to the community without forcing the ideas onto them. It, therefore, takes time, for the new host community to understand the culture of the country from which the company comes [Bun11]. Pieterse (2009) explains that the global trend is the gradual homogeneity of culture towards a westernized US kind of culture as a result of globalization and the idealization of the American culture. Other factors are such as workplace etiquette and the adherence or lack thereof by the employees of the new business[Hul17]. It is important to recognize the formality that is required of certain situations within a new culture to avoid conflict of the formation of negative perceptions by the other team. This is especially crucial during negotiation and communications with government officials and competitors whose favour is essential. When in Asian countries, the use of the formal terms of reference such as MR. and Miss among others is essential when addressing people in the official setting. This is different from the American culture where addressing people on the first-name basis is common and acceptable in the official setting. This extends into punctuality where some cultures consider a person o time even when they are a few minutes late into the meeting while others find it intolerable[Hul17]. How does culture influence business in foreign markets? Culture manifests its importance in the various processes of business such as advertisement, negotiations, workplace culture, the relationship between leaders and subordinates, pricing, product/service modification, and expansion. Culture determines how a business should be operated to succeed. Besides matters related to negotiation and marketing, culture determines how customers relate to the employees and the nature of interaction determines the likelihood of the retention of such customers. The interactions determine the consumer behaviours and attitudes towards the organization and the final success or failure of the company. That is because the cultural maters trickle down to the financial matters which are the most important when it comes to offshoring. Offshoring is done for a variety of reasons, the need to reduce costs and make more profits being among the reasons at the top of the list[Mel142]. Negotiations are an important and inevitable element of all business transactions. Negotiations occur at different times and for different reasons. Negotiations are affected by other cultural elements such as language, the relationship between leaders and subordinates and other factors such as prioritization and the way of thinking in a negotiation situation. For instance, The US culture as it that during steaming negotiations, the parties involved tend to use certain hand gestures to explain themselves and also refer each other by their first names. However, it is different for other cultures where referring a person by their first name is considered rude and unacceptable. In such instances, it is likely for misunderstandings to occur during the negotiation. The same goes for the kind of assumptions made in different situations and the interpretation of different pieces of information by each culture. The end result is mostly a hostile and angry argument and the lack of reaching an agreement[Has08]. It is also smart for a business to advise its negotiators and other employees to take an emotional approach rather than a completely logical one when it comes with dealing with people whose culture they do not fully understand. This applies to the South American culture among other cultures[Rug00]. It is important to realize that pricing is dependent on negotiations and negotiations are heavily dependent on cultural awareness. As a result, the profitability of a business is heavily dependent on the cultural understanding and integration efforts made by a new company on new soil. At the same time, customer preference and brand awareness is dependent on the marketing strategy and the pricing, all of which are dependent on cultural awareness which is required to sell themselves to the customers and gain acceptance over other competing products in the same market. Figure 1: The interaction of cultural factors in international business Conclusion Taking the cultural differences in the above mentioned countries, the public, national, and religious holidays also differ across countries and the importance of such events varies across cultures. Companies that operate abroad face various obstacles that can impact on the entire corporation if not handled correctly. Culture is one such obstacle and ranges from language, pricing methods, and business conduct during operations. Customers expect to be treated in ways that are culturally right to them and it is up to the international company to adapt to such a culture of become unpopular and lose business. Part 2. Introduction The IT sector indicates the highest instances of offshoring, followed by accounting and contact centres and engineering services. India is by far the most popular IT destination with 69% of IT implementations located there. Others include China with 7% of the implementations and another 7% in other Asian countries[nnn09]. The section looks into the best practices of offshoring and the success of specific companies in their operations on foreign soils as a result of adherence to the culture in their innovation strategies. Innovations in Outsourcing Relationships There are various instances of innovation during outsourcing, most of which comes from necessity and is referred to as ad hoc innovation. It helps sustain the business but is not good for the long-term corporate culture of such a business. The innovation could be autonomous or systemic and outsourcing for innovation should match the needs and objectives of a company[nnn09]. The Case of the Commonwealth Bank of Australia This is a case of IT outsourcing and the various advantages and challenges experienced in the process. The bank got into a single joint venture with EDS. It met its outsourcing objectives through 2000. However, by that time, a majority of the staff that started out with the ventuure had left the companythrough retirement or transfer. It was then that the business moved to the core capabilities model.it was noted that there was pressure between the different business units within the company. The additional evolution of the IT also caused tension with the offshore vendors in rrelation to boundary issues and demarcation issues Oshri, et al., (2009 p. 159). It wwas then that the venture addopted the IT capabilities model to manage the issues related to the large scale outsourcing. It was then that the company succeeded in its operations after carrying out various reforms and re-defining various roles. This is a classical example of business process innovation and IT innovation. Types of Cultural Differences The cultural differences that impact the running of businesses in new markets could be related to the political situation, the language, the cultural values and beliefs that direct their behaviour, and the types of demand in such a market. The lack of addressing such cultural differences leads to the cultural situation acting as an obstacle and having a negative impact on the business. The consideration of the destination environment is one of the critical factors to consider because of the cultural and ethical rules that run such a destination. Most companies prefer destinations that are a cultural fit for their business and its culture. It is for that reason that Ellis (2000) names the entry decisions of a business into a new market as the most critical in the determination of its direction and success within the new environment. Work with the Locals The best approach to take to ensure that offshoring is successful is the appointment of an engagement manager onsite. The identification of gaps becomes easier and the need for innovations to fill such gaps arises. Such engagement managers must be from destination site and serve to build a relationship between the business and the locals. Such on-sight managers are those that are familiar with the culture of the people in that area and know the best approach to use in the introduction of a product or service to the community. They also figure how to work with local employees and the international employees to achieve the objectives of the company and satisfy the needs of their customers. It is an approach that Biotech took upon the establishment of their biotechnology firm in India. Although staffing from locals seems expensive because it requires the increment of staff, there is long-term cost-saving [nnn09]. Multiculturalism in the workplace The differences among people in areas such as race, and religion are referred to as diversity. Multiculturalism describes the respect, inclusiveness, and understanding among different members of the society, with regard to the unequal power among different groups of people. Diversity multiculturalism, therefore, describes the respectable, inclusive, and synchronized operations of different kinds of people within the same setting. The operations run with the help of the privileges and advantages that come with the different classifications of the participants[Beg]. When it comes to establishments in new environments, multiculturalism is an essential element of adapting to the environment to avoid instances of the accusation of favouring some groups and discriminating against others. The administration and leadership must be aware as not to exhibit any characteristics of discrimination or oppression upon the staff from the destination country to ensure that such a company fosters a positive relationship with the locals. Sheen Software’s Outsourcing into China An example is given of the Sheen Software Systems which Mr. Frank Xin decided to take overseas in search for greener pastures[nnn09].Besides taking the financial considerations such as the selection of a different city than Shanghai to set up the business for cheaper running costs, Xin also looks into the working culture of the Chinese and formulates the best cultural integration approach for the best interest of his business. For instance, his realization that most Chinese specialize in….that pushes their interest towards working with the clients to solve their problems. That is different from the Indian market where the production of software follows the factory approach. Xin acknowledges that most people in China prefer to be their own boss. The use of agile methods is a strength in that it allows the people to explore their potential and bring forth innovations/ Some of the pre-existing advantages of Xin include his knowledge of Mandarin which is the most widely spoken language in China, his open-mindedness to different methods of operations, and his agility (213). Before the start up, Xin had to make a decision between making a partnership of going solo [nnn09]. It was then that he decided to attend the Global IT Outsourcing Summit in Shanghai to gain more insight. Xin gained insight and learned about the nature of IT outsourcing in China and Shanghai in particular. He settled n the use of agile methodologies which included extreme programming to suit the independent-minded Chinese human resources. That way, Xin figured a way to maximize the innovation of the people and satisfy their inherent need for achievement and progression (212).He focused on the local market with consideration to opportunities in the international market. His is a perfect example of business process and strategic innovation Form Joint Ventures in countries with big cultural differences There are instances when the differences between the home market of the company that intends to extend into another are extreme and difficult to integrate within a short duration. Depending on the type of the company, joint ventures are a viable option. Joint ventures have various advantages for the new company such as the speedy integration into the new culture and more effective learning of the new culture by the employees that establish the company. This is different from the employment of local staff which is more expensive and time-consuming. Joint ventures ensure that the business runs while the employees adapt to the new culture[Eli17]. Oshri (2007) describes theh advancement of ICT as an asset in the transmission of knowledge across boundaries. However, before the formation of joint ventures, it is essential for a company to look at each of the parties and the best way forward in relation to the responsibilities and expectations of both parties. Such are things that prevent instances of misunderstandings and cases of defamation. The formation of joint ventures should not be an excuse to relax and ignore the need to learn and understand the culture of the new market among its employees. It should serve to enhance the learning process by making it in-house and readily available for its employees[Has08]. The corporate culture of the venture with which a company intends to join is in part determined by the regional culture and is one of the factors to take into consideration before getting into a partnership. The same should be observed of potential stakeholders for the determination of the most beneficial relationships to form in the business world. Some of the elements that matter in such situations are the consideration of the partners and their value of value over result or vice versa. The other is the nature of their values and the likelihood of flexibility. Some forms have rigid values that they do not change despite the financial implications of upholding them in dire situations[Osh07]. Understanding the culture of the new Market Depending on the location of the offshore business, it is essential for a company to invest in region-specific cultural awareness. It is best done after research on the culture and the nature of the culture in relation to the acceptance of foreign businesses. For instance, it is common for people in some cultures to stereotype international or foreign companies as unaffordable and designed for a certain class of people. That was the case with Apple upon its launch in China. Apple is considered a luxury brand in China and despite the existence of other brands with products that are sometimes more expensive that Apple products, the perception remains in the minds of most Chinese people [Kar06]. The training on culture and the ode of operations should be customized to suit your company. It is for that reason that a SWOT analysis is essential in the determination of the cultural position of the employees and the company and the determination of the best way forward. The SWOT analysis should take all the key stakeholders from both sides into consideration and consider integration as a way forward[Kar06]. Conclusion The case of Xin explains the various things that he did to get acquainted with the way to operate an IT business in China and where China is at in that particular business. It is through the conferences and meetings that Xin attends that he understands the various elements of culture in the new market in which he hopes to establish his business. They are the reasons behind his successful integration into the culture and the subsequent success in business. References Eli141: , (Filippouli, 2014), Mik11: , (Crone, 2011), Ken09: , (Kenney, 2009), nnn09: , (Oshri, et al., 2009, p. 17), Bun11: , (Bunyaratavej, 2011, p. 79), Hul17: , (Hult News, 2017), Mel142: , (Guilbault, 2014), Has08: , (Deari, et al., 2008), Rug00: , (Rugman, 2000), nnn09: , (Oshri, et al., 2009, p. 6), nnn09: , (Oshri, et al., 2009, p. 151), nnn09: , (Oshri, et al., 2009, p. 119), Beg: , (Dias, 2012), nnn09: , (Oshri, et al., 2009, p. 209), nnn09: , (Oshri, et al., 2009, p. 210), Eli17: , (DeZeeuw, 2017 ), Osh07: , (Oshri, 2007), Kar06: , (Schomer, 2006), Kar06: , (Schomer, 2006), Read More