CornelliTix is considering outsourcing some business functions to reduce costs. Analysis of three potential locations - India, Philippines, and Panama - found that the Philippines offers the largest cost savings in labor, while India provides a stable outsourcing market and Panama offers strong tax incentives. Outsourcing customer service and technical support roles could achieve cost reductions through lower wages abroad, while allowing Cornellitix to focus on core competencies in the US and use additional profits to invest in growth. Risks like increasing wages, security concerns, and cultural differences would need mitigation for outsourcing to be successful.

1. CASE FOR CORNELLITIX
OUTSOURCING
Team 15
Jingyuan Xu
Nicole Ghannam
Ratnika Prasad
Seojin Lee
Spandana Govindgari

2. Analysis of CornelliTiX business model
●High current ration in recent years
- larger than 3
- indication of Cornellitix's ability to meet its short-
term debt obligations without stress
●Stable short run liquidity

3. ●Negative return on assets and gross profit margin since 2008,
indicating negative earnings in business operations.
●Low gross profit margin(<20%) and high SG&A-Gross Profit ratio
index(>30%) indicate no sustainable competitive advantages in the
long run
●High operating expense largely due to SG&A expense
CONCLUSION
Reduction in SG&A Expense (Selling related salary,
advertising, shipping, legal and professional fees, insurance,
rent fees, etc.) is desired to reduce operating expense, thus
increasing net income. Obviously, SG&A Exp does not vary
siginificantly throughout the US, thus seeking opportunities
worldwide is necessary to revitalize Cornellitix. Overall,
outsourcing would be a great choice in terms of reducing
SG&A Expense.

4. Outsourcing Components
CRITERIA
* low location dependence
* business criticality
Technical Support
Customer Service - Average salary/p.a US ~$30,000
Total employees = 800*15/100 = 120
Total costs for this sector ~ 120*30,000= $3,600,000
NEED NOT BE ON SITE
CONTRIBUTES TO 8.43% of labor expenditure
Strategy- Process- Tools
timeline and scope of our solution

5. Karibe vs Other Locations
- political risks (corruption, terrorism, political unrest)
- environmental risks (natural disaster, geographic location,
time zone)
- cultural risks (language, religion, behavioral standards)
- economic risks (taxes, licenses, government regulations)
Components that these risks can affect:
- Financials (currency, tax rates)
- Labor Market (language skills, university graduates,
availability of work force)
- Infrastructure (real estate, transportation, power grid)
- Business Environment (regulatory risk, corruption,
intellectual property protection)

6. Potential Outsourcing Locations
Aim of outsourcing- To cut costs, primarily labor costs.
Potential countries analysed on the following factors
* Low labor cost
* Local Government incentives and benefits offered
* Language and communication ease
* Cultural similarities to the US
Based on these factors, the countries that seem the most
suitable are
1. India
2. Panama
3. Philippines

7. ANALYSIS: Labor cost cuts through
outsourcing
Average wage rate in the BPO sector of countries based on 2011 estimates
provided by Sourcingline Inc ( http://www.sourcingline.com/outsourcing-location/)
Country Average
wage rate
Approx No of
employees to
be hired
Total labor
cost of
outsoutsourci
ng
Cost cut (in
%)
Philippines $2610 120 $313, 200 91.3
India $8000 120 $960,000 73.3
Panama $17000 120 $2,040,000 43.3

8. Analysis: Government Incentives
INDIA
●Incentives to small scale foreign IT companies through the Software Technology
Parks of India Scheme
●Primary benefits to CornelliTiX are tax benefits available under Section 10A and 10B
of the IT Act namely
1.10 year tax holiday to IT firms setting up venture in notified IT parks and Special
Economic Zones (SEZ).
2.5 year tax holiday for IT firms setting up a project in backward districts and
states.
●POINT TO CONSIDER: Above named tax benefits expired on 31 March 2011. The
government currently has no plans to renew these benefits.
●CONCLUSION: Government incentives alone do not support outsourcing work to
India
PHILIPPINES
Registration with the Philippines Export Zone Authority or Board of Investment grants
the following advantages to BPOs
●Tax breaks for upto 4 years
● Payment exemptions
● Deduction of labor expenses

9. PANAMA
●Foreign Investor Protection Law- Guarantees the same rights to foreign companies as
domestic enterprises
●10 year stability guarantee- All rules applied to companies at the time of the
registration will remain the same.
●Panama Pacifico Special Economic Area
○One Stop Shop: Single, onsite government office fast-tracks the process of doing
business in the area.
○Labor Benefits: Negotiable weekly resting day, Companies may remain open on
Sundays and holidays
○Fiscal Benefits:
■NO federal taxes for BPO companies
■Exemption from indirect taxes for BPOs

10. Other Benefits of Potential Outsourcing Locations
India
- Large labor force: around 478.3 million
- English is the nation's lingua franca
- Common political interest: U.S and India are the two largest democracies in the world
- Strong work ethic of labor force
Panama
- English is commonly spoken
- Similar time zone: only one hour difference from the Eastern Time Zone
- Geographic location benefits: lower travel costs, greater feasibility of physical oversight
- Dollar-based economy: no foreign exchange risks
- Large and stable service sector
- Trade Promotion Agreement with the U.S: elimination of tariffs and other trade barriers
- Successful enforcement of intellectual property rights
Philippines
- English is one of the two official languages
- Substantional labor force: 38.9 million
- Highly educated population: 93% literacy
- Strong cultural, historial links to the U.S: familiarity with Western practices
- Current infrastructure investment boom

11. Risks of Potential Outsourcing Locations
●India
1.Rapidly increasing wages: possibility of unexpected costs
2.Expiration of tax benefits on March 31st 2011; no renewed plans
3.Weak implementation of intellectual property laws
●Philippines
4.Recurrent political turmoil: threats from terrorist groups
5.Relatively high crime rate in the region
6.Corruption:134th in the Corruption Perception Index in 2011
●Panama
7.Security concerns: smuggling, money laundering, human
trafficking
8.Popular location for drug transhipment
9.Natural hazards: tropical storms and floods

12. Minimizing Risks
●Increasing Wage Expense
-encourage signing long-term labor contract
-taking wage growth rate into consideration when evaluating future benefit
●Trust and Security Concerns:
-hire trusted, loyal and well trained employees to oversee production
-Break down tasks to enhance quality control
-set up internal supervision mechanism enhancing confidentiality
●Lack of cultural and language homogeneity
-avoid cultural ignorance through training, communication and understanding
-cultivate strong and cohesive company culture and spirit
●Turmoil and crime threats
-choosing relatively safe company location
-set up corresponding protection and emergency mechanism
●Coordinating and collaborating problems in management
-hold regular real-time conferences reporting operations and asserting goals and
deadlines.
-set up corresponding incentive policies and bonus system in company

13. ETHICAL ISSUES TO CONSIDER
1. CUSTOMER CONCERN
Issue: Customers such as the US government may have policies against
buying products developed outside the US
Justification: In our solution, we are only outsourcing the after- sales service
component. The core teams, namely Sofware Engineers/ Developers and
Quality Assurance/ Testers are still in the United States. Therefore, US
government policies should not be restrictive in this case.
2. JOB LOSS
Issue: Outsourcing work would lead to approximately 100-120
employees losing their jobs
Justification: While there are job losses in the short run, the cost cutting due to
outsourcing is necessary for the continued sustenance of CornelliTix; else,
company failure would lead to much greater job losses. Further, this move
allows us to use the additional profits to invest in new markets, leading to the
company's expansion and more jobs in the future

14. CONCLUSION
Based on prelimnary analysis, it can be concluded that
outsourcing the work of the Technical Support/ Customer
Service teams would be advantageous to the company. An
analysis of three possible locationz namely India, Philippines
and Panama shows that while Philippines offers the greatest
cut in labor costs, India offers the stability of a known
outsourcing market and Panama offers the greatest tax
incentives for companies to outsource work there. Thus,
outsourcing work to any of these countries would be beneficial
to CornelliTix

15. References
http://smallbusiness.chron.com/advantages-disadvantages-outsourcing-it-764.html
http://www.mit.gov.in/content/export-promotion-schemes-dpl-elec
http://www.sezindi
http://www.www.unctad.org/
http://www.panamaanswers.com/
http://www.doingbusinessinthephilippines.com/
http://www.foreigndirectinvestmentphilippines.com/
http://www.philembassy.nl/default.asp?iId=KHGKD
http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results
http://www.state.gov/
https://www.cia.gov/library/publications/the-world-factbook/index.html
http://www.pacificbridge.com/publication.asp?id=10
Evaluating Offshore IT Outsourcing in India. Naureen Khan, Wendy Currie, Vishanth Weerakkody,
Behavini Desai. Brunel Univ. 2002.
http://www.philwebservices.com/top-risks-in-offshore-outsourcing.html