. Less-than-expected cost savings. Conflicts and misunderstandings arise because of differences in the national and organizational cultures between the focal firm and foreign supplier. Such factors give rise to cost-savings that are less than originally anticipated. 2. Environmental factors. Numerous environmental challenges confront focal firms including: exchange rate fluctuations, labor strikes, adverse macro-economic events, high tariffs and other trade barriers, and high energy and transportation costs. 3. Weak legal environment. Many popular locations for global outsourcing have weak laws and enforcement regarding intellectual property, which can lead to erosion of key strategic assets.4. Risk of creating competitors. As the focal firm shares its intellectual property and business-process knowledge with foreign suppliers, it also runs the risk of creating future rivals (e.g., Schwinn). 5. Inadequate or low-skilled workers. Some foreign suppliers may be staffed by employees who lack appropriate knowledge about the tasks with which they are charged. Other suppliers suffer rapid turnover of skilled employees.
The focal firm needs to invest in supplier development and collaboration.Firms ought to go offshore for the right reasons.The best rationale is strategic.Cost-cutting is often a distraction from more beneficial, long-term goals such as enhancing the quality of offerings, improving overall productivity, and freeing up knowledge workers and other core resources that can be redeployed to improve long-term performance. Need to get employees on board. Global sourcingtends to invite opposition from employees and other organizational stakeholders. Disaffected middle managers can undermine projects. Poorly planned sourcing projects can create unnecessary tension and harm employee morale. 3. Choose between a captive operation and a contract with outside specialists carefully. They should be vigilant about striking the right balance between the organizational activities that it retains inside the firm, and those that are sourced from outside. 4. Choose countries and suppliers carefully. A common reason for global sourcing failure is that both buyers and suppliers tend not to spend enough time upfront to get to know each other well. They rush into a deal before clarifying partner expectations, which can give rise to misunderstandings and inferior results
Global Networking and Offshoring HCL - Operations strategy
What is Global Networking for IT sector ??An international networking methods that spans alldepartments, offices, and subsidiaries of the corporation. Globalnetworks bring their own set of problems, including those ofdifferent time zones, languages, established standards, and PTT(Postal Telephone and Telegraph) companies.What is offshoring with respect to IT sector?Offshoring is a natural extension of global sourcing. It refers tothe relocation of a business process or entire manufacturingfacility to a foreign country.
Why to go for offshoringMNEs are particularly active in shifting production facilitiesor business processes to foreign countries to enhance theircompetitive advantages.Offshoring is especially common in the servicesector, including banking, software code writing, legalservices, and customer-service activities.
HCL Enterprise Evolution And The Journey Leading global IT enterprise comprising two companies in India : o HCL Technologies & o HCL Infosystems. Founded in 1976. A global transformational enterprise. Its range of offerings includes : product engineering, custom & package applications, BPO, IT infrastructure services, IT hardware, systems integration, and distribution of information and communications technology (ICT) products. 80,000 professionals of diverse nationalities, who operate from 31 countries.
OFFSHORING BY HCLHCL Technologies Ltd on June 1, 2002 announced a 100% acquisition of GulfComputers Inc, USA.- HCL Technologies Ltd announced the formation of a strategic technology jointventure with Jones Apparel Group, Inc. Jones Apparel Group, Inc. a Fortune 500Company,-HCL Technologies Ltd announced on August 16, 2002 that it has entered into a jointventure with m.a. partners - a management consulting firm - to address softwareservices opportunities in Global Finance Markets, especially in the areas ofInvestment Banking, Asset Management and Private Banking.-HCL Tech, leading global IT services company, on August 19, 2002 announced astrategic alliance with Sento Corporation, a US based customer contact solutionsCompany.
The 2005 Offshore Location Attractiveness Index by A.T. Kearney • Identifies 9 emerging markets in its list of the 10 most attractive offshoring suppliers: India, China, Malaysia, Philippines, Singapore, Thailand, Czech Republic, Chile, Canada, and Brazil. • In addition to Canada, the other advanced economy in the top 20 destinations is the U.S. (11th). • The index emphasizes various criteria: – Country’s financial structure (compensation costs, infrastructure costs, tax and regulatory costs); – Availability and skills of people (cumulative business-process experience and skills, labor force availability, education and language, and worker attrition); and – Nature of the business environment (the country’s political and economic environment, physical infrastructure, cultural adaptability, and security of intellectual property). International Business: Strategy, 8 Management, and the New Realities
MOST FUNCTIONS CAN BE OUTSOURCED AND OFFSHORED TODAY Offshoring Wealth management, life Institutional, Investment & Scoping Retail Banking and general insurance business banking matrixIT, Infrastructure Core banking systems Life policy systems maintenance and Loan accounting and equity / Fixedand administration application development Income trading systemssupport (ITO) Application development and maintenance Remote infrastructure management Package implementation and support Database administration, data mining and warehousing solutions Middleware development and supportProduct based Mortgage and personal loan origination, Insurance claims administration and Project finance documentationtransaction processing and servicing collections payment Support FX, currency ops and derivativesprocessing and eDisputes processing Policy underwriting settlement Credit card processing Insurance agency management Trade finance and LCs – advice andcustomer contact Consumer finance Fraud detection settlementcentres (BPO) Cash management / Fund transfers and Recoveries Corporate finance reconciliations Trial balance analysis Risk management Brokerage operations Securities processing Commissions administration Custody operations and trade Inbound/outbound contact center Customer query handling Data entry, indexing and content management Customer background verification and finalization Loyalty retention (customer care program) Customer statement and other periodic reporting Regulatory requirements/mandate related support and administration Payment processingAnalytics Mortgage and personal loans Fund performance analysis Equity research and M&A analyticsOutsourcing Portfolio pricing Reporting and accounting support (valuation and related financialactivities (KPO) Data warehousing Actuarial support modeling) Data-mining Product pricing including Dynamic Credit proposal analysis, preparation and Marketing analytics Financial Analysis (DFA) models documentation, portfolio analytics Financial model validations Library servicesSource: KPMG, Knowledge Process Outsourcing, February 2008 1 0
HCL Technologies, another large Indian outsourcer, reported on Wednesday revenue of$915 million, up 33.5 percent from the same quarter last year. The company said thatnet profit had reached $103 million, up 35 percent from the same quarter last year.
Risks in Global Sourcing• Less-than-expected cost savings.• Environmental factors.• Weak legal environment.•Inadequate or low-skilled workers•Risk of creating competitors. 19
Strategies for Minimizing Risk in Global Sourcing1. The focal firm needs to invest in supplier development and collaboration.2. Firms ought to go offshore for the right reasons.3. Need to get employees on board.4. Choose countries and suppliers carefully.5. Choose between a captive operation and a contract with outside specialists carefully. International Business: Strategy, 20 Management, and the New Realities