Introduction to Management - Case Study Example

Introduction to Management Introduction Outsourcing business to other locations has emerged as a popular competitive strategy for large and small companies in order to meet the ever increasing demands from customers for high quality products in large numbers at minimum costs. In addition, emerging technologies Emerging technologies have opened up a lot of avenues to improve business and cater to the changing market demands in lesser time and lower cost. This has also given a new meaning to globalization, bringing people closer by time, space and culture. Many different reasons are associated with a business opting for operating from another location; more often these include low cost, higher quality, lower risk, lower employee turnover, higher profits, to bring about a change in the way business is done, etc. The parent company’s goals can be varied, and accordingly the goals and objectives of outsourced company are laid (Bangeman, 2005). Exactly for these reasons, Gail Lee, the managing director of Melbourne’s fashion retailer, Leethal Fashion Accessories, offshored some of its business to India; this included creation of ready-to-wear garments based on Australian designs that were sent by Leethal Fashion Accessories and also imported jewelry to be sold in local departmental stores. Besides the reasons for this business offshoring, LFA had to face some issues with respect to receiving the completed products on time due to delay in transport. Other issues were caused due to language and cultural barriers, which sometimes lead to misinterpretations and misunderstanding in the business dealing. These issues lower the confidence of Australian entrepreneurs in Indian business systems; yet, the huge difference in labour costs tends to outweigh losses caused by other issues (Hatch, 2006). Discussion: 1. Indentify the external environment factors that would have impacted on a business like Leethal Fashion Accessories when attempting to access the Indian manufacturing scene for its production. Indian economy is diverse, and ranges from traditional village farming to modern manufacturing and services. The contribution of services sector is said to be the maximum to the growth of India’s economy, which indicates availability of surplus labour. Statistics indicate that major portion of the services is provided by the English-speaking educated people in the field of Information Technology in the form of software services export (Rushton & Walker, 2007). Another major contributor to the economy is the small-scale industry segment which plays a pivotal role in employment generation with low capital investment. Estimates indicate that over 18 million people are employed in this industrial segment (John, M.S, 2002). Cottage industries are mostly run by artisans and skilled craftsmen, and are involved in activities such as agriculture, handloom, handicrafts etc; mostly, these operate from rural and semi-urban areas through locally available labour. In this setting, delivering business to Leethal Fashion Accessories, like any other business management, entails operations, logistics, and human resource management processes. Hence, challenges can be expected in all the three perspectives. For example, from an operations perspective, Indian services may not be able to afford technologically advanced systems of manufacturing due to high investment required in machinery, training, and maintenance. Hence, if Leethal Fashion Accessories is to compete with its rivals in the market who already use advanced systems, Indian units may not be able to cater to this requirement. From a logistics perspective, location of textile manufacturing follows a pattern of sourcing cheap labour which can be obtained only from the rural and semi-urban areas. Another factor that impacts logistics, to an extent, is the poor logistics and supply chain services that are driven by tax regime leading to multiple storage locations spread across different parts of the country. In addition to this, the poor infrastructure and network of highways hinder transportation facilities causing delays, damage and higher costs. Also, the third-party logistics industry in India is highly fragmented, with thousands of transporters, consolidators and freight forwarders. Hence, finding a reliable provider is very difficult. Therefore, transportation becomes a major issue (Rushton & Walker, 2007). Moreover, impact of corruption on logistics is quite high, and includes informal payments to be made to various officials including customs at the border crossings, to police at checkpoints along the route, and to cargo handlers in the port (Subramanian & Arnold, 2001). From a human resource perspective, external factors that impact business are availability of labour with required skill set and competencies as per the job. In Indian labour market, most of the educated youth opt for jobs in IT, banking and other services. This leaves the less educated labour available for jobs that require more of craftsmanship, and less of intellectual capability. With English not being the native language, this group is less fluent in the language. Dealing with cross-border clients becomes difficult for them, and leads to misinterpretations or misunderstandings. Culture also acts as a barrier if not understood in the right sense. Hofstede and Usunier quoted (2003; p.138) that ‘it is essential that negotiators share the national culture and values of the country they represent, because otherwise they will not be trusted by their own side’ The core component of national culture are values which are preferences of individuals, with their roots embedded in their background, upbringing, learning, education, societal norms, traditions, and customs; and hence, the inherent character of values that exist cannot be influenced or easily adopted, either, by people of different set of values. ‘Professional culture’ component also impacts international business and negotiations. The professional culture includes the common symbols learned and understood by all parties involved, and are more superficial. These form a ‘requirement’ in the negotiation factor in order to progress, and vary with the discipline involved such as for diplomats, bureaucrats, politicians, business and media persons etc. 2. What are the issues confronting all Australian manufacturing businesses that make India a desirable outsourcing destination? What effect do these factors have Australia? Leethal Fashion Accessories chose India as a desirable outsourcing destination for some of its business activities including product manufacturing and also selling market for some of its accessories. The business offshored to India by Leethal included transformation of Australian designs to ready-to-wear garments and importing jewelry to be sold at local departmental stores. In Australia, labour is very expensive and hence the manufacturing cost. Also, investing in the abandoned textile and fashion industry in Australia may not yield promising results. The only way out is to reduce the manufacturing costs, for which there was no better option than outsourcing production process to India where labour cost is low. In India, labour cost in small firms is cheaper with low wages; the reasons attributed to issues such as tax regulations, corruption, inappropriate working conditions, union troubles, employment of less educated or even uneducated labour etc. Holmstrom (1984) pointed that wages are lower in small scale industries in India because the employers save on fringe benefits like Employers’ State Insurance and Provident Fund; they also save on costs of job security, safety precautions, union trouble, labour courts and inflexible work practices based on precise job descriptions. On the other hand, Australian labour cost is very high. Labour market regulation in Australia is very strong and has legal consequences attached to non-compliance of minimum wages, occupational health and safety codes and trade union regulations. The tax regulations on small-scale industries are also quite high, and have the option of tax relief for foreign and local investments, termed as ‘homework.’ Through offshoring practice, Lee was able to achieve a turnover of $ 2 million in very less time. Weller (2007) identified four main reasons that contribute to the low performance of Australian textile industries: Australian space-economy creates vast distances between urban centers and places of residing; this creates lesser opportunities for creation of markets for these goods. In the larger markets, one or two large-scale manufacturers dominate leaving very little room for the small-scale operators to play. The geography of Australia also demands customized products in specialized niche markets. Lastly, the lifestyle and climate of Australia enhances demand for customized clothing, thereby reducing the profits on ready-to-wear garments; for this reason, even the large-scale producers concentrate their activities in sports wear and casual wear markets further reducing scope for smalls-scale industries. Considering these reasons related to high labour cost, economies of scale, and government regulations in Australia, Indian markets prove more beneficial to the Australian textile manufacturers. . 3. What types of control challenges face Leethal Fashion Accessories in outsourcing to India and how would they address them? Leethal Fashion Accessories recorded astounding business growth over a period of 10 years in the form of profits and expansive business prospects. It achieved this success owing to the low labour cost in India, which helped the Australian company to produce ready-to-wear garments at very low prices and sold at Australian competitive pricing. In addition to this, it imported jewelry at extremely low costs that could be sold in local departmental stores, thus expanding scope of selling. Overall, the business yielded greater margins of profit compared to investment. Although these were the overall business results over a period of time, conducting business with Indian firms was quite difficult. The Australian organisation had to tackle differences in business practices, environments and cultural differences during the process. It also faced issues related to timely delivery of goods, varying degrees of quality and craftsmanship, misinterpretation and misunderstandings in terms of expectations, and style and negotiation patterns. Control challenges for Leethal Fashion Accessories include quality measures, turn-around-time, behavioural perspectives attributed to cultural differences, leadership competence, employee skills and craftsmanship, management and business practices, and governmental regulations with respect to export-import businesses in native and foreign country. Gail Lee expresses concern over the quality of finished products that they received from India, which was not consistent and varied to a significant degree. Specifically, the finishing standards of products received did not adhere to Australian consumer expectations. This can result in considerable production and also reputational loss for the organisation. In order to address this issue, the Managing Director advises that the native company, i.e Australian companies, will have to work closely with the business partner across the border, and ensure they understand the supplier’s capabilities well. Setting clear goals in terms of quality expectations is very important to achieve desired objectives. Leethal Fashions Accessories ensured a detailed time line for delivery is set with the Indian firm. As the Managing Director was aware of reasons causing delay, it might be expected that these timelines are set considering possibility of delay to one or more of these reasons, the most common reason being delay in transportation due to monsoon. Next, bridging the cultural barriers, minimizing difference in styles and negotiations and eliminating possibilities of misinterpretations were tackled through increased interactions with the Indian business partners and understanding their capabilities. Gail Lee emphasizes that improved communication and understand can play a key role in overcoming these hurdles. Overall, Lee has been very successful in handling the challenges faced in conducting the business with India through a thorough understanding of behavioural patterns and external environmental influences. By adopting methods suitable for the situation and people, Leethal Fashion Accessories has been able to achieve a pioneering position in outsourcing small-scale business to India. 3. What types of controls would you implement at Leethal Fashion Accessories to ensure they perform to Australian standards and timelines? Although the business is on a small-scale, effective and advanced control mechanisms can be adopted by Lethal Fashion Accessories to improve their business results. Quality enables the organisations to sustain a continuously improving service or product along with usability and performance of the services rendered by continually reducing rates of faulty services or products. Hence, it is important for both the business partners in the present context. Keeping in mind these implications, organisations have been striving to sustain improved quality along with increased productivity in all sectors of manufacturing and service industries through different approaches. Quality management system like the Total Quality Management (TQM) can be adopted which will ensure quality outcome at every stage of product manufacturing. Through this approach, quality standards can be assigned to suppliers, operations, and logistics divisions based on end consumer expectations. Delays in delivery of products can cause substantial loss in terms of time and effort. The reasons for delay in the present context are more due to external environmental factors such as weather, transportation issues etc. In order to avoid such issues, Leethal Fashion Accessories can offshore its business to more than one supplier from different locations within India. In this manner, LFA can create a business contingency process. Rushton and Walker (2007) assert that this approach, from cost perspective, small scale industries can achieve major savings from economies of scale that are achieved with joint operations when the key resources are shared among a number of clients. For the Indian suppliers, from a service perspective, focusing on a single client by using all of the organisation and resources within the operation will yield higher quality and productivity. This approach will also help staff to become more specialized in terms of product familiarization and operational requirements. In order to develop and foster better understanding between the two business partners across two different countries, interaction needs to be increased further, and if possible in different ways. For example, frequent visits by Lethal Fashion Accessories’ officials to the Indian locations, conducting frequent meetings at various levels including the employees in operations facilitated by translators or interpreters in order to ensure clarity of communication. Investment in advanced communication technology, like video conferencing, telephonic lease lines and internet mechanisms will add value to effective and timely communication process. The impact of sociocultural barrier cannot be avoided, but only minimized through mutual efforts to do so from both the ends. This, to an extent, determines the management practices followed by the companies. Impacts of societal culture on management in Indian contexts can be seen on functions such as staffing, communication, leadership, motivation and control. Staffing for top managerial positions, especially in private sector, is generally from familial, communal, and political considerations (Schuler & Jackson, 2007). Australian management practices could differ from this to a significant extent, which could create lot of disturbance, confusion and also failure. The resulting outcomes may be attributed to the type of industrial relation systems, operation of labour markets, and changes in business systems (Budhawar & Sparrow, 2002). In such situation, evidences suggest that adoption of rationalized HR management practices have been very successful in achieving the desired outcomes (Budhwar, 2004)). Based on the same concept, both companies will have to design HR practices and management policies that are mutually beneficial to conduct business. In order to avoid and/or reduce loss of money due to impact of corruption from the government and other parts of business like in transportation and shipping, option of contracting out these services will be of help. In the sense, shipping and delivery services may be contracted out for a defined period of time to local and international courier services or other organized transportation service providers. Besides this, companies at both ends, i.e. Lethal Fashion Accessories and its Indian supplier can hire respective legal advisors who can facilitate easy movement of goods and a smooth running of business in a much more ethical and legal manner. Conclusion In conclusion, outsourcing business to other locations can be highly promising for small scale industries, and will provide opportunities for making good profits and pave way to greater business expansions. In countries like India, the low labour cost can be considered as a competitive advantage to bring more business; this will help the economy to improve and provide greater number of employment opportunities to its people. The challenges that crop up during this process will have to be tackled from both the ends in order to achieve desired outcomes. Most of these challenges can be overcome through effective leadership and management strategies that can facilitate appropriate human resource management. The challenges that cannot be tackled, like the sociocultural barriers, would require a different approach. These challenges would exist if the native company chooses any other location in the world, and will have to be handled effectively. India has the potential and drive to improve its economic condition, and also has a variety of skills and craftsmanship that needs to be harnessed through different types of opportunities. The large scale outsourcing industries in India have been extremely successful in providing high-quality service to business operating from various other locations in the world. Taking lessons from these successes, small scale industries can also make good businesses with the Indian market, through effective leadership, communication, suitable practices and a strategic approach. A need for exploring different business opportunities and practices become more important for all types of industries to gain a competitive edge in the fast-paced globalizing producer and consumer markets. References Bangemann, T.O. (2005). Shared services in finance and accounting. England: Gower Publishing, Ltd. Budhwar, P. (2004). Managing human resources in Asia-Pacific. U.S.A: Routledge. Hofstede, G and Usunier C, J. (2003). Hofstede’s Dimensions of Culture and their influence on International Business Negotiations. In Ghauri, P and Usunier C, J’s International Business Negotiations. 2nd ed. London: Emerald Group Publishing. Holmstrom, M. (1984). Industry and inequality: the social anthropology of Indian labour. U.S.A: Cambridge University Press. John, M.S. Agro-based and Food Processing Industry: A Study in Theni District of Tamil Nadu. In Soundarapandian, M’s Small Scale Industries: Management of small scale industries. New Delhi: Concept Publishing Company. Rushton, A and Walker, S. (2007). International logistics and supply chain outsourcing: from local to global. U.K: Kogan Page Publishers. Subramanian, U and Arnold, J. (2001). Forging subregional links in transportation and logistics in South Asia. U.S.A: World Bank Publications. Articles and Journals: Budhawar, P and Sparrow, P (2002). Strategic HRM through the Cultural Looking Glass: Mapping the Cognition of British and Indian Managers. Organization Studies. vol 23, No 4, pp 599-638. Hatch, B. (2006). Small players frock to India. The Australian Financial Review, 5 December, p.50. Weller, S. (2007). Retailing, Clothing and Textiles Production in Australia. Centre for Strategic Economic Studies: Working paper No.29. Read More