Strategic Quality Dissertation

Strategic Quality and Systems Management

The report on strategic quality identifies how organizations like Chery Motors Company can plan their strategic quality change and respond to market environments for their successful implementation. It also evaluates the strategic quality change of the concerned organization with effective planning to improve the performance of the organization, defining resources, tools and systems helpful in business processes and implications of planned strategic quality within an organization. The research work on strategic quality is also focused to identify the various systems essential to implement strategic quality change in an organization. It identifies the design of systems used to monitor the implications of strategic quality change, their ability to respond changes in market environments, embedding a quality culture in organizations for continuous organizational improvements and monitoring implementation of strategic quality, and identifying outcomes of a strategic quality change in the concerned organization.

Organizations should adopt continuous planning and implementation of strategic quality change either they are public or private organizations. Every quality management initiative must be tied up with their main business process performance indicators to make a real impact on the productivity and continuous growth of their respective organizations. However, strategic plans are rarely transferred into quality management strategies that are essential to make sure overall performance improvement gains. Cherry Motors Company, founded in 1997 in the Chinese province of Wuhu achieved considerable growth in the automobile production industry due to their effective strategic management policies. In 1999, they started their operations in automobile production using SEAT Toledo chassis system and improved their production quality by successfully founding a research and development institute. They also recruited large numbers of Japanese automotive consultants to get their assistance in achieving six sigma or lean process standards to their Wester/Japanese competitors. Cherry Motors improved aesthetic design of automotive parts production and made a contract with AVL Australia to get assistance in continuous production of 18 new engine models to integrate them into new models.

Ability to Plan Strategic Quality Change in an Organization

Plan of Strategic Quality Change in Improve Performance of Organization

Plan of strategic management quality to implement change within an organization is highly essential to improve performance in an organization. It improves the competitiveness, departmental quality and successful implementation of of their strategic quality change to make quick fixes into the realm of solutions. It leads them to the successful development of strategic management qualities and achieving their business objectives in competing with others. Planning strategic quality change in an organization of international reputation like Cherry Motors is possible if management successfully executes their strategic plans and deliver their desired changes in project through effective communication with their partners and stakeholders and effective management of their people (Crawford 2013).

The process of strategic quality plan starts with what an organization mean about their strategic quality management process to get competitive edge over their competitors. It identifies the process of defining quality to make sure the continuous process of developing quality standards along with creation of quality and translation of vision into a series of quality strategies. Quality strategic plans are associated with review of organizational strategic plan or imperatives, identification of strategies that have been used in the past, understanding the voice of their customers, engaging employees to get their feedback with continuous commitment to quality, creation of quality vision, development of the statements of quality standards, identification of quality strategies and development of effective and result oriented strategic implementation plan (Crawford 2013).

Chery Motors have always focused to achieve their customer satisfaction by adopting effective strategic quality management plans to enter into the market and establishing their business goodwill. They have successfully implemented the strategic plan to compete well with their business rivals and to continuously improve their products quality and standards. They have also improved the design and networking of their business processes by achieving a secure retail license after breaking international competitive barriers. They have taken all necessary steps in planning a strategy quality change to ensure consistent growth in their Foreign export, Sales growth, Production growth, increasing for the next several years. Policymakers at Chery Motors Company has given key importance to effectively plan strategic issues with the interpretation of information in predictable ways (Dutton and Duncan 2004).

Defining Resources, Tools and Systems to Support Business Process

Resources, tools and techniques are considered to be highly effective in meeting strategic quality plans and supporting business processes. Organizations that are interested in developing new products or want to improve their existing products or services depend largely on innovative tools and techniques used in strategic quality management systems. Businesses can be developed with the generation of new business ideas by listening to their quality management teams, or by measuring customer satisfactions. Benchmarking, strategic quality management teams, and the measurements of customer satisfaction are the resources, tools and systems that are used in quality management and recognized to be highly supportive of the management of innovation (Bossink 2002). Some quality tools have also become essential part of a most successful business organization in the recent times. These tools and systems are used in mainstream management to effectively control their manufacturing processes like Fishbone diagram that is quite specific to the engineering as well as to manufacturing disciplines. These resources, tools and systems have a strong focus in Kaizen, Lean management and other useful techniques most successfully used in various organizations like Chery Motors Co. (Thomas, Corso and Pietz 2013).

Strategic quality tools are referred to as tools and systems that are used to support Kaizen and other quality improvement standards within different organizations. It helps them to get a competitive edge and customer satisfaction in successfully enhancing the quality of their introduced products and services to their customers. These tools and systems are mainly based on statistical and manufacturing process tools, and quality tools that are most effectively used in organizations. Typically these resources, tools and systems are used to analyze Kaizen work within organizations, team analysis and review of business activities and uncover of inefficiencies. Chery Motors have successfully adopted these resources, tools and systems like Poka-Yoke, a Japanese term, that means ‘mistake-proofreading’ and it is lean manufacturing process used to help the equipment operator to overcome their equipment operating mistakes. The main objective of this tool and system is to get rid of product defects with successful correction, prevention or drawing attention on human errors. 5-S –S is another successful method used in quality management standards and it is based on five Japanese words including seiri, seiton, seiso, seiketsu and shitsuke. They represent housekeeping, workplace organizations, clean up, standardization and sustaining discipline in manufacturing organizations (Andersen, Savik and Lawrie 2004).

Implications of Planned Strategic Quality in an Organization

Strategic quality management with effective planning can make a considerable impact on public or private level organizations. It can make a significant impact on their customers as well and increase their competitiveness among others. In this way, organizations can make timely and more effective decisions with the aim of managing limited resources in a rational way along with improvements of their services to achieve greater satisfaction from their customers (Salkic 2014). Strategic approach to management has made considerable impact on various organizations in the recent years and it has improved their quality and customer services more significantly. It has gained more and more popularity due to the increased complexity of organizational environments, technological developments, globalization and shrinkage of economic resources at global level. The central focus of strategic quality planning is associated with the efforts of internal and external decision makers that work together in solving various issues and making the organizational achievements more effectively by crafting and implementing new strategic quality services. Furthermore, strategic planning focuses on the achievements of three C’s like cooperation, collaboration and coordination that can be operated to create a highly supporting culture and leadership system within the organization (Asghar 2011).

Strategic Quality
Strategic Quality

A planned strategic quality change could affect the strategic goals of the organization and enhance its productivity, competitiveness and customer satisfaction. Strategic quality change within the culture of an organization can impact the entire vision of the organization and thus improve every aspect of business process. These changes could also impact the managerial and personal staff working within the organization. Change can even create confusion in the operational processes of the organization, but it can even alter the clarity and stability of various roles and relationships that can even create chaos. It needs the realignment and renegotiation of formal patterns of business relationships and policies. But strategic quality management can improve the performance of an organization and increase productivity despite chaos or instability in roles and responsibilities of management. Strategic quality planning is useful in developing a link between organizational strategy and organizational performance, particularly in terms of their business quality. High level of strategic quality is also useful because it creates the potential of pursuing both differentiation and cost leadership strategy with a market where that organization operates and offers its products and services (Prajogo and Sohal 2006).

Design of Systems to Monitor Implications of Strategic Quality Change

It is the main responsibility of senior management is to come together to review, discuss, challenge, and finally agree on how effectively the components of strategic quality plans are used. The genuine commitment from senior team members is essential to make sure the successful implementation of strategic quality planning in a business organization like Chery Motors. Furthermore, strategic group members should be well aware about their purpose and intention to make changes, and pushing for consistent operational definitions that each member of the team agrees on. The strategic quality management is useful to prevent differing perceptions or turf-driven viewpoints effectively. A carefully selected team of professionals is highly essential to overcome business processes, group dynamics and interpersonal issues. An organization can know about their strengths, weaknesses, threats and opportunities through conducting a SWOT analysis. It helps them to identify them to know about their strengths and core capabilities, products, resources, and maximum facilitation of their customers. In this way, organizations like Chery Motors can know in which areas they are best and why they are in this business and how effective can compete with their competitors (Finlay 2000).

It is the core responsibility of top level management to develop and design systems to monitor the impacts of strategic quality change in organization of internal and external business environments. In their internal business environments, organizations like Chery Motors should monitor work environments, use the latest technologies to improve productivity, improve warehousing and logistics and give rewards and promotions to the best performers. They can review external business environments to know about different opportunities and growth possibilities or market conditions. They should evaluate whether or not these opportunities corresponds to their organizational strengths. Business managers can even evaluate critical changes in the marketplace over the next one to five years, the position of their organization for the anticipated market changes and need for greater innovation or change needs to occur in the organization to be successful (Peljhan and Tekavcic 2008).

Ability to Respond Changes in the Marketing Environment for Implementation of Strategic Quality Change

Implementation of Strategic Quality Change in an Organization

The implementation of strategic quality change within an organization is possible through the successful adoption of benchmarking. It is known as the best strategic process of identifying ‘best practices’ adopted within an organization like Chery Motors in relation to their products and processes. Using strategic quality change implementation, products are created and developed using innovative technologies, best available resources, tools, techniques and business systems. The search for best practice can be interrelated to a particular industry and also be applied to other industries to increase their productivity and customer satisfaction. The main objective of benchmarking is to understand and evaluate the current situation of a business where it stands with its strengths, weaknesses, threats and opportunities. Benchmarking involves identification of performance improvement techniques that can be used within a successful business organization. They identify how others have achieved their performance levels that they can also adapt to get benefits of available business opportunities. In the application of benchmarking, four key steps are involved, including an understanding of current business practices, analyzing business processes of others, comparing business performance with the business performance of others and implementing necessary steps to close performance gaps (Pfeifer 2002).

Embedding Quality Culture in Organization ensuring Continuous Monitoring

Embedding a quality culture in an organization is developed within an organization to make sure continuous monitoring and development of their business processes. Every successful business organization has their own organizational culture depending on their past beliefs, values and norms. It is highly due to various reasons. Organizational culture is effective to increase employee commitment and loyalty due to their emotional attachments with their organization. It is highly useful in enabling an organization to achieve their strategic goals as Chery Motors have successfully achieved their business goals after successfully planning, and implementing their strategic quality plans into business processes. The success of any business strategy relies heavily on their existing organizational culture. It is also effective in reducing disagreement in between different organizational departments and facilitates decision makers in developing their business policies (Malhi 2013).

Continuous improvements in organizational culture help them to achieve the commitment of their employees, delight their customers and build added value to their developed products and services. To build continuous improvements within a business organization, it is necessary to implement a quality culture in that organization. Culture is defined as the arrangement of things, norms or values on the basis of which organizations operate. It identifies the personality of the organization of what employees do with shared beliefs, behaviors, attitudes and assumptions acquired over time. Attitude shows the outlook and thoughts by which work habits emerge and related to qualities stem applications. Vision, mission, values, goals and strategies of the organization work as guideline principles of an organization and its culture is culminated from them (Bertels, Papania and Papania 2010).

Monitoring Implementation of Strategic Quality Change in an Organization

An organization can never win the battle by simply developing an effective strategic plan. But getting it implemented is generally tougher and complicated task to do. Monitoring, controlling and successful execution of strategic quality is highly important for the success of a business organization. Monitoring the strategic business plans is important due to several reasons as they are highly effective in meeting business needs. Strategic quality plans help to assure that business efforts are aligned with their strategic quality plans. It helps to make sure the results Chery Motors or a successful business organization can achieve aligned with their quantified objectives. Business monitoring and controlling help organizations to take corrective actions by fine tuning their business strategies and planning their business processes. Monitoring is a part of control process that is useful to encourage improved business performance by knowing it will considerably improve performance of their workers. Monitoring offers essential link in between their written business plans and their day-to-day business operations to manage their businesses, according to their plans (Daft 2003).

Evaluation of the Outcomes of a Strategic Quality Change in an Organization

Outcomes of Strategic Quality Change

Strategic quality change that is aligned with the goals of the organization needed to improve the quality of their products and services and enhance customer satisfaction. The processes of organization are redefined to make sure efficient and effective steps to ensure the quality maintenance throughout all the processes of the organization before the final product is produced. Strategic quality change is useful to assist the increased efficiency within an organization as achieved by Chery Motors by eliminating all the wasteful tasks. It is helpful for a successful business organization to better manage their available resources by implementing a system of quality control to make sure cost-effectiveness and to meet expanding customer needs. Overall, outcomes of strategic quality change are helpful to various organizations to get competitiveness and to achieve sustainability and satisfaction of their customer needs by eliminating unhealthy tasks (Lyon and Sullivan 2007).

Recommended Areas for Improvements to Strategic Quality Change Aligned with organizational Objectives

It is highly recommended that an organization should implement a balanced scorecard to make sure each and every department of the organization has achieved considerable improvement. The balanced scorecard is the strategic planning of the organization aligned with business activities to the vision and strategy of the organization. It is highly effective to improve the internal and external communications, coordination and successful monitoring of organizational performance against their strategic goals. The balance scorecard gives a framework of providing performance measurements to help planners that should be effectively done and measured. It enables business executives and top level management to successfully execute their business strategies (Hillier 2004).

Conclusion

Strategic management can help in implementing the strategic plan. Appropriate measures show the strategy is important for the leaders, provide motivation, and allow for follow-through and sustained attention. By acting as operational definitions of the plan, measures can increase the focus of the strategy, aligning the workforce around specific issues. The results can include faster changes (both in strategic implementation, and in everyday work); greater accountability (since responsibilities are clarified by strategic measurement, people are naturally more accountable); and better communication of responsibilities (because the measures show what each group’s primary responsibility is), which may reduce duplication of effort. Creating a strategic map (or causal business model) helps identify focal points; it shows the theory of the business in easily understood terms, showing the cause and effect linkages between key components. It can be a focal point for communicating the vision and mission, and the plan for achieving desired goals. If tested through statistical-linkage analysis, the map also allows the organization to leverage resources on the primary drivers of success.

References

Bossink, B., A., G., (2002). “The Strategic Function of Quality in the Management of Innovation.” Total Quality Management, Vol. 13, No. 2.

Andersen, H., V., Savic, N., and Lawrie, G., (2004). “Enabling Quality Management: How Strategic Context is Needed to Drive Effective Application.” 2GC Working Paper, 2GC Limited.

Thomas, C., Corso, L., Pietz, H., (2013). “Evaluation, Performance Management, and Quality Improvement: Understanding the Role They Play to Improve Public Health.” Centers for Disease Control and Prevention, CDC.

Salkic, I., (2014). “Impact of Strategic Planning on Management of Public Organizations in Bosnia and Herzegovina.” Interdisciplinary Description of Complex Systems.

Asghar, Z., (2011). “New Approach to Strategic Planning: The Impact of Leadership and Culture of Plan Implementation via the three Cs: Cooperation, Collaboration and Coordination.” ASBBS Annual Conference, Las Vegas.

Prajogo, D., I., and Sohal, A., S., (2006). “The Relationship between organizational strategy, total quality management (TQM), and organization performance – the mediating role of TQM.” European Journal of Operational Research.

Finlay, P., (2000). “Strategic Management: An Introduction to Business and Corporate Strategy.” Financial Times, 1st Edition, London.

Lowson, H., R., (2002). “Strategic Operations Management: The New Competitive Advantage.” Routledge, 1st Edition.

Peljhan, D., and Tekavcic, M., (2008). “The Impact of Management Control Systems – Strategy, Interaction on Performance Management: A Case Study.” Organizacija, Volume 41.

Pfeifer, T., (2002). “Quality Management Strategies, Methods, Techniques.” Hanser Fachbuchverlag, 1st Edition.

Malhi, R., S., (2013). “Creating and Sustainability: A Quality Culture.” Malhi, J Def Manag 2013, Defense Management.

Bertels, S., Papania, L., and Papania, D., (2010). “Embedding Sustainability in Organizational Culutre.” Network for Business Sustainability.

Daft, R., L., (2003). “Management. – Sixth Edition” Thomson Learning, South Western, Ohio, USA

Lyon, E., and Sullivan, C., M., (2007). “Outcome Evaluation Strategies for Domestic Violence Service Programs Receiving FVPSA Funding.” National Resource Center, Harrisburg, PA.

Hillier, F., (2004). “Introduction to Operations Research.” 8th Edition, McGraw.

Thompson and Martin, (2010). “Strategic Management.” 6th Revised Edition. ClExcl Vacation.

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Strategic Issues HRM

Strategic Issues in HRM

Owing to the globalization, many companies have begun setting up their business boundaries beyond a single place. They are going from their primary market to other countries in order to have access to the much larger international market (Heidenreich, 2012). In management terms, the foreign countries where these businesses attempt to set up are the host countries while the country where the corporation has its head office is the home country. Multinational companies are a function of sovereign companies, each focusing on its domestic markets. But the independence of the subsidiary is not always true since a lot of times the subsidiary also has to borrow the policies of the parent company. While multi-nationalization is an organization wide phenomenon, dealing with the employees, from recruiting to managing is the job of the human resource department. It is assumed that Human resource management is a soft skill; however effective practice within the organization demands a much strategic focus in order to confirm that the organizational goals can be achieved via human resource. Today, when the terms ‘strategy’ and ‘human resource’ are combined, it means that the human resources becomes responsible for adopting the steps and practices to achieve the longer term organizational goals and objectives (Jiang, 2012).

There are not only the huge advantages that the multinational are benefitted from the host and the home country but also, there exist several critical strategic issues that these companies have to face. However, there are a lot of advantages the host country gets from multinationals in the form of investment opportunities, income for unemployed resulting in a much better standard of living. Speaking of multi-nationals, the main idea behind these multinational organizations is that they organize as per the local responsiveness in order to be efficient worldwide (Shah, 2012). This local responsiveness does not always hold true; some firms borrow the policies of the parent company assuming it to be better for the overall corporate results.

Misalignment of subsidiary from overall corporate strategy

Moving from one country to another creates the problem of misalignment between various departments and the overall corporate strategy. Usually the problem occurs when the human resource department is not aligned with the parent company’s mission and vision as it begins operations in another country to adapt as per local standards. The drift in one department of the organization causes the entire subsidiary to shake up as a result of unguided principles and policies.

Cultural diversity

Besides the merits of multinationals, one major strategic issue that the Human resource manager faces is based on the fact that when companies go global they tend to have a diverse workforce in their organization. And it is this organizational diversity that makes managing people across various religious, cultures, and standards, a major problem in implementing the goals of the organization as a team. Talking of diverse workforce culture, when a company moves from a country where unethical practices are considered to be the norm to a country that has stringent policies against any unethical practice, it is at that time when the problem for the management takes a start. For example, in countries such as Saudi Arabia, where bribery is thought to be the norm to run the business but such a practice is highly disregarded and looked down at in countries such as Brazil (Rose, 2012). Then managing employees from such a background becomes a problem for the manager in order to ensure that the disease of unethical does not spread in the organization.

Recruitment, selection and placement problems

Recruitment, selection and placement of the employees are the main functions of the human resource managers. However, this function is important and is viewed as the backbone of any business which guides the success or failure of the organization. Studies have also identified the three forms of approaches used to employ people beyond the local boundaries. Of the three approaches quite often multinational companies adopt the ethnocentric approach (CHOY, 2007). For instance had the company have a policy of employing people only from the parent company, the practice of ethnocentrism can pose a difficult situation for HR managers challenging them to train such nationals as per the local standards, policies and demands of the consumers such as American employees going to Saudi Arabia. Given the limited independence to select and recruit the people as HR wills, this diverse workforce tends to pose a problem of controlling of human power, their communication and remuneration.

The differences of employment practices

Another problem that the human resource faces is with respect to the employment practices. Under this are the problems of age, racial, sex and cast discrimination arises of which gender discrimination is very common (Wu, 2008).Given the differing laws and rules in each country it is important for the human resource to go by those laws to sustain and succeed beyond borders. For instance, countries such as India are really high in gender discrimination by restricting management and engineering position to men and softer skills jobs to women. Research by Pudelko (2007) clearly shows that when the a MNC moves from a country that does not offer equal employment opportunities such as India to a country that gives equal employment opportunity such as Thailand, the manager explicitly tends to discriminate the jobs based on gender in the latter case as followed previously in the other country. This happens because the HR manager is accustomed to policies adopted and practiced in the parent company and would be likely to follow the same policies at the subsidiary.

Basic salary and other forms of compensation

Human resource has the major function of motivating its employees to keep them committed to the organizational goal and mission. This motivational strategy largely comes from the compensation that the human resource manager engages in. Other than the selection problems, what is of particular challenge for the HR employer and the employee working in the organization is how to compensate employees in the multi-national context. The concern is how to appropriately measure and manage the compensation of the human power within the organization relative to employee contribution and performance in the MNC. And this is the basic function and duty of the HR managers towards their employees to regularly appraise the performance of its workers and keep giving proper constructive feedback (Sepura, 2009). For instance, if a company is based in the US, it tends to evaluate its employees based on performance only while that is not the case in Japan. Japanese firms value seniority and experience and would evaluate performance based on the employees experience in the industry and his position in the hierarchy (Harzing, 2006; Kono & Clegg, 2001).

Strategic Issues HRM
Strategic Issues HRM

Having offices in both developed and developing countries there tends to be a huge gap in the salary payout. For instance, workers working in US might earn 5 times more than their counterparts working in any underdeveloped nation, example India or Pakistan with the same skill set. Here comes the challenge for human resource to make sure that wherever it operates must do so in acceptable and fair boundaries. Nike a well-known company outsourced its manufacturing to Pakistan where under aged children worked for extensive long hours at a very low pay out of around 60 cents (Buckley, 2000). Quite similar is the case of MNCs that operate in low cost countries. In this case, the human resources management may face the ethical issue of whether to narrow the gap in compensation.

When it comes to paying basic salary, it is observed that a lot of MNCs that are fair in their practices want to and try to pay its workers a fair wage that is in line with the wage of their parent company. They also do so to retain and attract the best employees and avoid extensive training costs, but then again such practices are seen as disruptive for the local companies and the economy as a whole. The problem comes in when the local companies are not able to pay as much and this lead to disruption of the entire wage structure (Timo, 2005). As a result of this, the healthy competition falls out and they themselves fail to compete and work towards the economic growth. However, as a result of this factor the human resource is unable to decide again what compensation can work best for the employees. And how can this compensation make the organization seem as a non-disrupting entity which exists for the good of the economy (Marin, 2010).

Industrial relation factors

Freedom, voicing the opinion and autonomy are some concrete terms that are quite popularly used and practiced in countries such as Germany, UK and USA. Industrial relation factors pertaining to workers, employer and unions may vary from country to country. For instance, in much developed and open economies such as Germany, co-determination is the rule. This means that a lot of firms in Germany have their employees speak up and voice their opinion in corporate strategy and company operations such as wage and hour setting but that might not be appreciated elsewhere. For instance in countries like Japan where there is high power distance and a lot of centralization, employee contribution in these areas might not be the norm (McCrae, 2004). Here comes an issue that must be worked over by the human resource manager and this tends to greatly impact the HRM practices. If a multinational company appoints a local from Japan as the head of HR and have some workers from the parent company shifted to the subsidiary, this can create conflicts between the employer and employee. Because the head might not be familiar with the idea of employees collaborating and working together on issues of pay or perhaps other HR related issues, he might consider the employee to be interfering in matters he is not responsible which creates an uncomfortable working environment within the firm.

Attempting a balance between global and local amalgamation

One key challenge facing the MNC Human resource is how to attempt a balance between the global amalgamation and the local adaptation. The dilemma for the human resource is the fact whether it should go by the policies and practices of the home country because it views those practices to be much fair or should it adopt local policies which can be exploitative. When the human resource decides to adopt a fair culture for its employees based on ‘not-so-local’ practices they are accused of exporting the practices of another country and trying to impose it on locals ignoring their traditional and cultural values (Chen, 2008). However, when the human resource decides to go by the standards of the country where they are operating, a problem originates of ‘trying to exploit’ the employees that work under it and not being there for the better living standards of the host country citizens just because the policies of that country are generally exploitative in nature. This puts the practices and workings of the human resource manager at question as to which root to take. All in all, the country of origin for these MNCs is seen to be the major influence in shaping what balance to take (Almond, 2011). Quite a lot of research has been conducted on this issue and it was eventually comprehended that the way MNCs manage their foreign subsidiaries tends to be out of the result of the national origin (Harzing, 2003).Elaborating on the view, Harzing (2003) concluded that although MNCs are quite internationalized, their major controlling practices are determined by their country of origin.

Transferring the policies from the parent company is also much more problematic for the service oriented industries than the manufacturing firms. Because service provision requires the firm to deal with employees and the expectations of the customers who have differing cultural values, the burden of localization falls on the human resource to meet the local customer demands (Gamble, 2003).

Cultural differences

The major cultural differences between various countries demand human resource department to act in accordance with the culture of the country’s foreign subsidiary. Lingual skills form another sort of barrier to most organizational growth. When a company is moving to another country they must make sure they are well aware of that company’s priority and value system in order to enhance the intercultural communication in cross-cultural management (Gullestrup, 2002). A lot of times, employees from the local context tend to prefer to be spoken in their own language because they tend to feel ethnocentric of their culture. For example, in Saudi Arabia, the locals do business in their own language and prefer to be spoken in Arabic only. A company moving to another country must also educate its employees of various languages to settle in well with the local populace. The difficulty for the human resource manager is when they have no knowledge of the culture of another country and do not have the required training to deal with the ethical dilemmas (WriteWork, 2004)

When there is a drift between the values of the parent company and the subsidiary that’s where human resource department has to come in and get to a congruent solution. Culture clashes are the most prominent problem in these businesses. When the company decides to shift, it must have an adaptive approach to its subsidiary, where there is high independence between the parent and the subsidiary and the corporation is much consistent with the local environment (Grewal R, 2008). However, given the senior management, usually it’s the other way round. Subsidiary is expected to borrow a lot of rules from the parents creating cultural differences to take over the legitimacy. Generally, US MNCs have an organizational structure that is often more centralized and formalized; in contrast, Japanese MNCs have strong but informal centralized co-ordination with a network of Japanese expatriate managers, yet are likely to adapt HRM practices to local conditions due to the perceived periphery status of subsidiaries. Now given the different cultures in each country it becomes difficult for the human resource to organize people from one country to the other with the cultural air being so different (Caprar, 2011).

Local labor laws

When a company begins its operations beyond its borders, it is important for them to recognize that the local employment relationship is governed by local labor laws. There are certain countries that favor the employees while there are others that favor the employer. Contrasting the labor laws in America and Europe, there is considerable difference in each area. Taking an example of US, they usually have really brief offer letters stating the pay, compensation, bonus or stock options and at the same time it also includes a statement favoring the employer that sates that the employees might be terminated at any time by the company without giving reasons. This concept of employment is a form of employment contract that is not recognized in any other country because it is seen as harsh and as a result it does not have a legal standing in the court. However, companies that have operated in Japan, Brazil or China would not be appreciative of such HR practices had the parent company been in US had the employer adopted the same policies.

Communication glitches

Communication forms the backbone of any organization. It is only effective when taught rightly by the superior management in the company. Had the communication not been so strong and transparent, it can lead to major ethical problems for the organization as a whole and the HR particularly who is primarily concerned with the effective training of its people. It is the duty of the human resource manager to prepare its employees communication via training. It must be noted that broken communication can lead to corruption problems (Lager, 2010). Corruption might not be that big issues in the developed economies but developing economies do pose a question mark. In a survey in 2012 by Ernst and Young, around 39% people said that corruption occurred quite often in the developing countries (Newswire, 2012). Countries such as Pakistan and Brazil are rated quite high on the corruption continuum. A problem that occurs for the human resource is to prepare its employees shifting, or moving to these countries on how to deal and communicate with the people in such countries.

Four level training to avoid merger failure

It is important to make sure that a harmonious organizational culture is maintained and there is no merger failure of subsidiary and the culture (Weber, 2004). It is extremely important for the managers to train and orient their employees before shifting them to the international operation. Yet a lot of countries even today do not have structured or systematic overseas oriented training practices in order to acquaint them to the foreign country economics and practices. A lot of organizations are realizing the worth of international businesses and have been trying to incorporate the special training in their operations for their employees. This sort of training has four basic levels. The first level deals with cultural awareness. This initiative must be undertaken to acquaint the employees of the cultural differences and it impacts the business outcomes. The second level knowledge must deal with attitude formation as to how the attitude can lead to a particular type of behavior towards other. For instance, managers who form stereotypes tend to view their foreign based employees with a critical eye and unconsciously have a favorable or unfavorable behavior towards them. Level three is the factual knowledge of the country the subsidiary is going to be developed in. And lastly the problem comes of building up skills and adapting to those skills such as language adjustment (Weber, 2004).

Conclusion

However, in order to overcome the problem of strategic differences within the MNC, firms must look into the generic strategic international orientations when crossing the local borders to step in the international market. MNCs and the human power can help and create a hybrid of the strategic orientations in order to make sure that the practices of the host country are molded blue print of the home country corporation so that it meets the local demands of the customers, enable employees to adapt to the local standards to counter the overseas problems and ensure an alignment between the subsidiary and the parent entity.

References

Harzing, A.S., 2003. The relative impact of country of origin and universal contingencies in internationalization strategies and corporate control in multinational enterprises: Worldwide and European perspectives. Organization Studies, 24(2), p. 187.

Almond, P., 2011. Re-visiting ‘country of origin’ effects on HRM in multinational corporations. Human Resource Management Journal, 21(3), pp. 258-71.

Anabel Marin, S.S., 2010. Heterogeneous MNC subsidiaries and technological spillovers: Explaining positive and negative effects in India. Research Policy, 39(9), pp. 1227-41.

Buckley, S., 2000. The Littlest Laborers: Why Does Child Labor Continue To Thrive In The Developing World?

Caprar, D.V., 2011. Foreign locals: A cautionary tale on the culture of MNC local employees. Journal of International Business Studies , 42, pp. 608–28.

CHOY, W.K.W., 2007. Globalization and Workforce Diversity: HRM Implications for Multinational Corporations in Singapore. Singapore Management Review, 29(2), pp. 1-19.

Wu, C., 2008. Overt employment discrimination in MNC affiliates: home-country cultural and institutional effects. Journal of International Business Studies, 39(5), pp. 772-94.

Shah, F. A., 2012. A Critical Review of Multinational Companies, Their Structures and Strategies and Their Link with International Human Resource Management. IOSR Journal of Business and Management, 3(5), pp. 28-37.

Gamble, J., 2003. Transferring human resource practices from the United Kingdom to China: the limits and potential for convergence. International Journal of Human Resource Management, 14(3), pp. 369-38.

Gullestrup, H., 2002. The Complexity of Intercultural Communication In Cross-Cultural Management. Intercultural Communication and Changing National Identities, (6), pp.1-19.

Grewal R, C.M.D.F., 2008. Navigating Local Environments with Global Strategies: A Contingency Model of Multinational Subsidiary Performance. Marketing Science, 27(5), pp.886-902.

Harzing, A.W.K., 2006. Response styles in cross-national mail survey research: A 26-country study, International Journal of Cross-Cultural Management, 6, 243-266

Heidenreich, M., 2012. The social embedded of multinational companies: a literature review. Socio-Economic Review, pp. 549–79.

Jiang, K., 2012. How Does Human Resource Management Influence Organizational Outcomes? A Meta-Analytic Investigation Of Mediating Mechanisms .Academy of Management Journal, 55(6), pp. 1264-94.

Kono, T. & Clegg, S., 2001. Trends in Japanese management. Continuing strengths, current problems and changing priorities, Houndmills, New York: Palgrave.

Markus Pudelko, A.-W.H., 2007. HRM practices in subsidiaries of US, Japanese and German MNCs: Country-of-origin, localization or dominance effect? International Business review, pp. 1-40.

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Newswire, C., 2012. Only 52% of Canadian companies protect themselves against corruption risks when buying into business globally: Ernst & Young. Regional Business News.

Timo, N., 2005. A survey of employee relations practices and demographics of MNC chain and domestic luxury hotels in Australia. Employee Relations, 27(2), pp. 175-92.

Weber, R. A., 2004. Cultural Conflict and Merger Failure: An Experimental Approach. Management Science, 49(4), pp. 400-15.

Chen, R., 2008. The Cost of Doing Business Abroad in Emerging Markets and the Role of MNC Parent Companies. Multinational Business Review, 16(3), pp. 23-39.

Rose, C., 2012. The Corner House Case and the Incomplete Incorporation of the OECD Anti-Bribery Convention in the United Kingdom. Tulane Journal of International & Comparative Law, 20(2), pp. 351-83.

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WriteWork contributors, 2004. Ethical difficulties faced by multinational companies in today’s business world.

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Financial Statements CEMEX

Financial Statements CEMEX

CEMEX is one of the largest building materials suppliers and cement producers in the world. The company produces, distributes and sells cement, mix-concrete, aggregates, and related building materials in more than 50 countries in all over the world. CEMEX has a rich history of improving the well-being of those it serves through its efforts to pursue innovative industry solutions and efficiency advances and to promote a sustainable future. CEMEX is recovering from the global economic recession and the loss that the company had in the last couple of years. The year 2011 compared with the year 2010, the company had a good impact.

Introduction

CEMEX is one of the largest building materials suppliers and cement producers in the world. The company produces, distributes and sells cement, mix-concrete, aggregates, and related building materials in more than 50 countries in all over the world. CEMEX has a rich history of improving the wellbeing of those it serves through its efforts to pursue innovative industry solutions and efficiency advances and to promote a sustainable future.

The aim of this paper is to evaluate the performance of CEMEX through a critical analysis of the financial statements of the last two years, the analysis of five aspects of performance evaluation which are profitability, efficiency, short and long term Solvency and market based ratios. In this analysis will include the information of the company CEMEX, and the analysis of the financial information.

CEMEX background

CEMEX is one of the largest cement companies in the world, was founded in Mexico in 1906, the company is based in Monterrey, Nuevo Leon, Mexico and has operations throughout the world with production facilities in 50 countries in North America, Caribbean, South America, Europe, Asia and Africa (Cemex, 2012).

CEMEX had an annual cement production of production capability of 82 million tons. One third of the sales come from Mexico operations, one quarter comes from the plants in USA, 15% from Spain operations and other small percentages from the other plants in the world (Cemex, 2012). The main competitors of CEMEX are Holcim, Lafarge and Heidelberg Cement. CEMEX is constantly evolving to become more flexible in their operations, more creative in the commercial offerings, more sustainable in the use of the resources, more innovative in their global business and more efficient in their capital allocation.

Interpretation of accounts: ratio analysis

In this analysis we review the financial statements (Balance Sheet, Cash flow and income statement) of the company CEMEX. These to evaluate the performance of the company in the different aspects.

  1. Profitability ratios. An expectation on making more income from sales of the good or service than they spend performing the services or making the goods.
  2. Efficiency ratios. A level of performance that describes a process that uses the lowest amount of inputs to create the greatest amount of outputs.
  3. Short-term solvency ratios. Measure a company’s ability to pay its current bills and operating costs – obligations coming due in the next fiscal year.
  4. Long-term solvency ratios. Measure a company’s ability to meet it’s long term obligations, such as it long term debts (bank loans) and to survive over a long period of time.
  5. Market indicators. These ratios relate the current market price of the company’s stock to earnings or dividends (Reimers, JL, 2008).
Financial Statements CEMEX
Financial Statements CEMEX

Analysis of financial statements

The year 2011 was an important year for CEMEX, after the global economic recession the company is facing a difficult situation with some of the markets, nevertheless CEMEX launched an accurate transformation designed to make the company more efficient, more agile and more customer focused. The changes made in the company, designed to position the company for a future of beneficial growth, are already showing results. The results of the ratios of the 2011 financial statements are the next ones:

2011 2010
Gross profit margin 28.5% 28%
Net profit margin -10.24% -9%
Operating margin 6.3% 2.5%
Return on assets -3.5% -3.1%
Return on equity -10% -8.2%

Table 4.1 Profitability ratios

2011 2010
Current ratio 1.04:1 0.98:1
Quick ratio 0.73:1 0.71:1

Table 4.2 Liquidity ratios

2011 2010
Inventory turnover 10.77 11.80
Assets turnover 34% 34%

Table 4.3 Efficiency ratios

2011 2010
Debt to equity 65% 62%
Total debt/total equity 1.25 1.04
Total debt / total capital 55.59% 51%

Table 4.4 Solvency ratios

After the global economic recession CEMEX is facing difficult situations, in table 4.1 the gross profit shows that the company has 28.5% in 2011, compared with 2010 is almost the same; in the table 4.1 shows the gross margin in 2010 was 28%, there was an increase of 0.5%. In the table 4.1 shows that the company had a loss in the net profit, the ROA and the ROE in the last two years but an increase on the operating margin compared with the year 2010, in year 2010 was 2.5% and the year 2011 increase to 6.3%. That means that the company is profitable, there were some difficult situations the last couple of years nevertheless the company is making a profit.

With the information of the financial statements we can determine that the company is facing some problems with the ability of paying current bills and operating costs, in the table 4.2 the current ratio of the year 2011 is 1.04 on the year 2010 was 0.98, there was an increase this year, although the ideal ratio is 2:1, this year the current and quick ratio were below the ideal ratio. In the table 4.2 the quick ratio in 2011 was 0.73 and in the year 2010 was 0.71, the ideal for the quick ratio is 1:1. Table 4.5 shows that the company has a debt to total capital of 55.59%.

The table 4.3 shows that the company is turning over the inventory 11 times in the year 2011, the year 2010 the turning over of the inventory was 12 times in a year. The average is 12 times. The assets turnover in the year 2011 is of 34%, this value is the same than the year 2010, and this means that the company is efficient.

The market indicators for CEMEX for the year 2011 are book value per share is 17.54 and the tangible book value per share is 2.94. The earning per share in 2011 is -11.13, that means that there were losses; the earnings per share excluding extraordinary items dropped 13.71% (Financial Times, 2012).

Comparing CEMEX in the last 4 years there was a significant deterioration on the operating margin and the EBITDA margin, from the year 2008 to the year 2011 year. Now the company is increasing the operating margin, this year have an improvement compared to year 2010, this deterioration was in the time of the global economic recession.

Conclusion and recommendations

CEMEX is recovering from the global economic recession and the loss that the company had in the last couple of years. The year 2011 compared with the year 2010, the company had a good impact on the operating margin and the gross profit margin it increases a 6.3% on operating margin. That means that the company is profitable but has some losses in the return on Assets and the return on equity, on the solvency part the current ratio and quick ratio are below the ideal, the company needs to keep an eye on the solvency of the company, the company has a little improvement on the efficiency on the inventory turnover, nevertheless the company has a debt of 55.59%. The company is doing better than last year and has some projects to increase the sales, improve operation, be more creative in the commercial offerings, more sustainable in the use of the resources, more innovative in their global business and more efficient in their capital allocation, the recommendations are to keep those projects and further expand them.

References

CEMEX, “CEMEX annual report” 2011 3. Financial Times “Strong sales boost CEMEX recovery”

Financial Times “CEMEX to meet all debt covenants”

Financial Times “Losses put CEMEX under pressure”

Financial Times “CEMEX to cut debt in stake sales”

Merrill lynch, “How to read a financial report” 2000

Pratt, J, “Financial accounting in an economic context” 2000, 4th edition, southwestern Thomson learning.

Reimers, JL, “Financial accounting a business approach” 2008, 2nd edition, Pearson education.

Appendixes

Profitability

GPM (2010) = GP/sales = 49953/178260 = 0.280 = 28%

GPM (2011) = 53871/188938= 0.285 = 28.5%

NPM (2010) = NIAT/sales = -16099/178260 = 0.090 = -9%

NPM (2011) = -19163/188938 = -.1014 = -10.14%

OM (2010) = OI/net sales = 4561/178260 = 0.025 = 2.5%

OM (2011) = 11984/188938 = 0.063 = 6.3%

ROA (2010) = net income/ total assets = -16126/515097 = -0.031 = -3.1%

ROA (2011) = -19127/548299 = -0.035 = -3.5%

ROE (2010) = IAT/SE = -16099/19176 = -0.082 = -8.2%

ROE (2011) = -19163/191016 = -0.10 = -10%

Solvency

CR (2010) = CA/CL = 54567/85119 = 0.98 = 0.98:1 ideal 2:1

CR (2011) = 58947/56670 = 1.04 = 1.04:1 ideal 2:1

QR (2010) = (CA-I)/CL = 39469/55119 = 0.71 = 0.71:1 ideal 1:1

QR (2011) = 41408/56670 = 0.73 = 0.73:1 ideal 1:1

TD/TE (2010) = 202819/194176 = 1.04

TD/TE (2011) = 239116/191016 = 1.25

Efficiency

Inventory Turnover (2010) = Sales/stock = 178260/15098 = 11.80 = 12 times/year

Inventory Turnover (2011) = 188938/17539 = 10.77 = 11 times/year

Assets Turnover (2010) = sales/total assets = 178260/515097 = 0.34 = 34%

Assets Turnover (2011) = 188938/548299 = 0.34 = 34%

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Modern Portfolio Theory

Why Investors Decline Modern Portfolio Theory

There is no doubt that any investor would ideally choose a portfolio which would give him high returns and put him through low risk. However, the investment world and its choices are not that simple and easy. Many times, the choices have to be made under difficult circumstances. But there are quite a few portfolio management tools and theories that can come to the rescue of the investor in making his choices. In this paper we will be discussing about one of prominent theories in this aspect. We would also try why many investors do not invest according to the theory. The portfolio management theory that is being discussed in this paper is the modern portfolio theory.

Modern Portfolio Theory was first introduced to the financial world by future Nobel laureate, Harry Markowitz through his research paper in 1952. In 1959 Markowitz also wrote a book, Portfolio Selection, based on the same. He used mathematics to explain the relationship of risk to return as it relates to asset allocation. It was agreed that in cases where high returns were expected, the risk factor associated with it was also very high. However, he proved that asset classes acted differently during a market cycle. The paper also discussed how an investor can construct an investment portfolio based on his risk tolerance levels and expectation for returns (Omisore and Yusuf et al. 2012, pp. 19-28).

To put it in simpler words, stocks are generally associated with high risk and high returns. And hence if an investor buys more stocks, he might be exposing himself to too much risk. On the other hand, bonds are known for moderate returns and lower risk. Hence, according to modern portfolio theory, if an investor opts for a combination of stocks and bonds, his chances of getting a reasonable return while handling a relatively lower level of risk, increases. In short this theory for portfolio management encourages asset diversification.

Modern Portfolio Theory
Modern Portfolio Theory

However, recent studies have shown that most of times the investor does not take his investment decisions as per modern portfolio theory. This observation is made on the basis that though the benefits of diversification have increased in the recent years, considering the mean–variance portfolio theory, it is surprising to see that the level of diversification in investor portfolios has not increased accordingly. While the level of diversification exceeds much more than 300 stocks, the actual number of stocks that the investor holds remains just 3-4 (Statman 2004, pp. 44-52).

Management of Risk and Return

Many critics of modern portfolio theory would point out that this method of choosing the right investment path has ignored the part played by analysis of market and its trends. And this is also one of the key reasons that the investors cite to avoid much diversification of their assets. They believe that risk can be managed with the help of right knowledge and trading skills. This makes many to invest in high risk assets with the hope of getting more returns. They remain under the impression that in case a bear a market happens they will be quick to realize it and would sell off their high risk assets at a reasonable price. At times they also choose other alternatives to reduce the risk factor such as delegation of authority or decision delay, making them feel that they have taken a well calculated risk. And amidst all these they miss out on the diversification of their assets as they consider having solid information about a few firms better than opting for diversification (Werner F.M. De Bondt 1998, pp. 831-844).

Trading Practices

Though investors and traders try to put in practice a variety of rules and techniques, to keep their emotions at bay and let their reasons speak while making investment decisions, most of the time trading happens out of impulse. They end up buying or selling their assets without prior planning or by listening to some random suggestions made by an acquaintance (Werner F.M. De Bondt 1998, pp. 831-844).

It is also interesting to see how investors decide upon buying shares in a bull market and selling them off in a bear market. In some of the cases even the experts, who are known for taking decision in the most rational way, based upon accurate models, at times find themselves going after the crowd mentality.

Misunderstanding Modern Portfolio Theory

One another reason for many investors for not choosing the modern portfolio theory way of investing is that they confuse it with ‘buy and hold’ strategy which is done with the intention of reaping good returns in the long run. However, this is not the case with the modern portfolio theory. Though it may resemble with the ‘buy and hold’ manner of investing, as an investor who opts for modern portfolio theory will remain fully invested, it is misleading to say that the assets will remain unmanaged. As mentioned earlier, a rebalancing of holdings is always needed in accordance to mean–variance portfolio theory. This would mean that the total assets need to rebalance either quarterly or annually to keep them in line with their original portfolio percentages (Hudson Wealth Management LLC 2013).

Conclusion

It is understood that the basic fact of investing is that the investors are rewarded for taking high risks. However, not all risk is rewarded. Further, in the current economic scenario, there are not many who can really afford to take a hit. In cases for investors who hold on to a high number of high risk and highly rewarding assets are also at a greater of risk of facing a financial crisis. Hence, it is better to go with a disciplined modern portfolio theory approach of diversification which has been theoretically and practically proven for the last 60 years and have proven the ability to maximize the returns and minimize risks.

References

Omisore, I., Yusuf, M. and Christopher, N. 2012. The modern portfolio theory as an investment decision tool. Journal of Accounting and Taxation, 4 (2), pp. 19-28.

Statman, M. 2004. The Diversification Puzzle. Financial Analysts Journal, 60 (4), pp. 44-52.

Werner F.M. De Bondt. 1998. A Portrait of the Individual Investor. European Economic Review, 42 pp. 831-844.

Hudson Wealth Management LLC. 2013. What Is Modern Portfolio Theory and is it Still Effective?

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IT Outsourcing Dissertation

Is It Worth Not Outsourcing Information Technology and Keeping Operations Domestic?

The report on the importance of IT outsourcing asks the question is it worth not outsourcing information technology and keeping operations domestic and then answers best possible solution of it. The outsourcing of information technology is associated with various issues in the implementation of IT outsourcing but it has achieved highest level to increase the competitiveness of the user or client organizations to reduce costs, increase their learning and knowledge and improve their business efficiency due to best quality services from the outsourced vendors. In the global commerce and competition, IT outsourcing has been highly effective and useful due to cost efficiency, productivity, learning and experience and the development of IT knowledge. The report also described Singapore growth in IT diffusion initiative by the central government which has contributed greatly in meeting their global IT business needs and increasing the future competitiveness and economic development of the country. The outsourcing of information technology in the emerging global market and throughout the world has contributed greatly in achieving short-term and long-term business objectives of the user organization in their relation with service providers.

Introduction

The outsourcing of information technology has become a global phenomenon and various user organizations prefer to outsource their IT functions despite keeping operations domestic. It is worth to outsource information technology despite some contractual and operational level deficiencies. The report identifies the global commerce and competition and how IT outsourcing has contributed greatly in meeting business objectives of user or client organizations to achieve competitiveness in their business operations and administrative functions at lower costs and highest level of efficiency. The report describes various aspects that contributed greatly in the expansion of IT outsourcing and giving it worldwide popularity among top business organizations. IT diffusion model in the Singapore context, development of IT outsourcing in the emerging markets, management of IT outsourcing in the global firm, and outsourcing of information technology worldwide has become so popular that large numbers of business organizations now depend in outsourcing the operations of their business projects. The report identifies that how business organizations have achieved efficiency, competitiveness and excellence in their business operations by adopting IT outsourcing and preferring to get the development of their business projects from outside their regional territories from experts anywhere any time in the world. Trends in IT outsourcing has increased in the recent years with increased level of communication and transfer of information across various organizations in no time and at no costs. Since 1950s, business organizations have adopted IT outsourcing due to their associated benefits like save in their operational costs, improvements in strategic performance of businesses like applications development, programming, development of desktop applications, telecom management and management of operational systems of the organizations.

Global Commerce and Competition

In the global commerce and competition, the outsourcing of information technology has achieved considerable growth among various business organizations around the globe. The report identifies is it worth not outsourcing the information technology and keeping operations domestic and suggests possible solution of it. The outsourcing of information technology is associated with some client related problems that are most common in the process of outsourcing information technology but overall outsourcing of IT proved to be highly effective and useful for various clients worldwide. Some problems in IT outsourcing include not understanding the post-contractual processes and decisions, receiving no support from client leaders, poor mutual understanding in different IT outsourcing contracts at their implementation level, lack of retained or governance team or one that is too small, the retained may not have the right skills required for the new roles, lack of losing key talent or poor knowledge transfer, inability to meet pent up demand of their services, end-user resistance to sometimes adopting new methods, issues of cultural clash between the client and the service provider and such a change does not last long. But despite all these managerial and implementation issues in the process of IT outsourcing, it is worthy to outsource information technology and not to keep operations domestic and client or user organizations should get the benefits of outsourcing with the development of their IT functions with best quality at reduced costs (McCray, 2008).

In the global commerce and competition, outsourcing of information technology is highly effective and useful for user organization and organizations are enjoying cost efficiency, productivity, learning and expertise in the latest software and IT development knowledge. There is no need to keep the operations domestic when there is such a huge opportunity available due to globalization and increased success of IT outsourcing globally. Outsourcing is based on the idea of hiring someone for the development of a specific job that is impossible to do within the regional or domestic boundaries. In business, outsourcing can be found in different industries, whether they are bigger or smaller, simple or complex. During the 1900s, the main objective of the outsourcing was to get the jobs done on labor intensive tasks and doing the business activities outside the core competencies of the user organization, such as outsourcing payroll development system of the organization, printing press outsourcing, inventory system outsourcing, ERP system outsourcing. Outsourcing in the information technology is increasing over the period of time and user organizations are outsourcing certain technical functions to reduce costs and to enjoy quality services out of their territorial boundaries. As the technology is continuously increasing, more sophisticated functions of the information technology firms are being outsourced. Like other utility providers, the new forms of outsourcing also assume to take the responsibility of some highly technical jobs, on behalf of their customers, to make sure the delivery of new services to ensure excellent performance, availability and scalability of the outsourced jobs (Kathawala, Zhang and Shao, 2005).

In global commerce and competition, outsourcing of information technology has become very famous among potential business organizations. Many large organizations have also outsourced some of its information technology functions to the service providing companies worldwide. Due to the popularity and the benefits they enjoy from IT outsourcing, they have now started to outsource all of their information technology functions and business operational activities. Different factors have contributed greatly in the evolution of IT outsourcing including reduced costs, enhancements in their functional productivity, higher quality of delivered IT work on various business functions, high level of customer satisfaction, time to marketing, and management ability to focus on other areas of the some of the major benefits of outsourcing. However, IT outsourcing is also associated with some challenges and risks that’s why it is examined whether or not user firms should outsource their functions and keep their business operations domestic. The outsourcing of information technology is based on the delegation of IT related activities that are associated with decision making, business processes, internal and external activities of the services, effective management and administration of activities according to agree upon deliverables, performance standards and outputs by setting up contractual agreements in between vendors and user organizations. But outsourcing is associated with some hidden costs, diminished service levels, unexpected service levels and outcomes. Despite these hidden costs and diminished service levels, various business organizations prefer to outsource some or all of their information technology functions to get excellence in their business operations and reduce their costs (Dhar and Balakrishnan, 2006).

Singapore and its Model for IT Diffusion Initiatives

Singapore and its model in information technology diffusion give best example of how outsourcing and globalization of IT functions became popular and essential among various business organizations in the world. Singapore is the major hub in Asia in the areas of manufacturing and services sector, it has improved the future competitiveness and economic development which is significantly affected due to the emergence of IT outsourcing and development of e-commerce globally. E-commerce development in Singapore is considered to be highly important from international comparative perspective due to several reasons. Firstly, Singapore is the first country in Asia that was targeted information technology as the strategic sector to promote economic development of the country during the period of 1980s. Singapore has also developed highly advanced ICT infrastructure in the country to meet the global demands before the arrival of e-commerce and internet in the country. E-commerce has represented a disruptive radical technological change and it has given new dimension to the outsourcing of information technology and other growth in the IT functions. Secondly, Singapore has achieved considerable economic growth in the country and become a hub of business activities in the Southeast Asia due to their strategy to attract foreign direct investment and to leverage their technology transfer and to considerably develop their local industries at the competitive level by supplying components and services to meet their customer needs (Wong, 2001).

IT diffusion model in Singapore was adopted in the early 1990s to prepare the country for the next phase of its future development. IT diffusion was known as IT2000 in which information technology resource were used throughout the country to give considerable development the e-commerce and IT outsourcing in the country. The Ministry of Education developed IT Master plan in the early 1997 to revolutionize the learning process in the country. The master plan was not only targeted to increase the learning of individuals to teach computer literacy and information technology but to increase the linkage between learning institutions in IT and the world around it to encourage creative thinking and to generate innovative process to promote education and administrative excellence in the country (Tang and Ang, 2002). The diffusion of information technology was broadly divided into two main levels including macro and micro levels. The macro level model was focused to aggregate various numbers of adoptions considering the user population in the entire diffusion process based on adoption, the numbers of adopters at a time and peak level in adoptions. Users are connected by some social or communication network in this model which allows items to be diffused using the neighboring adopters. The micro-level diffusion was based on modeling each user in their local adoption decisions and in the development of this model, complete knowledge of user to user relationship is essential and the knowledge of influential probability between the two neighboring users. In the development and promotions of IT outsourcing and e-commerce, the diffusion of IT model in Singapore has played a very important role in the Southeast Asia which influenced the other countries to increase their attention on the development and excellence of information technology and to grow their businesses significantly (Luu et al., 2012).

Emerging Markets and their Aspects in IT Outsourcing

Emerging markets are those markets where most of IT outsourcing profits is made and investing consultants help emerging nations to privatize their telecom sector. Such an investment arrangement in the telecom sector can provide world’s best connectivity to the businesses that locate within the nation’s boundaries. Outsourcing is associated with assurance of technology connectivity in the areas where it provides low-cost labor worldwide. Outsourcing structure in the emerging markets worldwide involves entry modalities and government structure that range from full ownership to control without equity, and arm’s length relationship. Outsourcing is also determined as intermediating user organizational functions or transacting through a business contract or deal in terms of market based activities. The information technology market has grown rapidly in the recent years in the emerging markets of the world including the United States. The buying of IT outsourcing services increased from 54% in 2000 to 59% in 2005 and same trends are also reported in other emerging countries. There were some short-term and long-term factors behind the purchase of information technology services based on discrete or project based purchase. In the short-term nature of outsourcing, there was a need reduce costs of the projects due to the current economic conditions while in the long-term outsourcing, the capabilities of the organizations were increased to get an access to new technology solutions through IT utility services like website hosting. In order to know whether or not information technology should be outsourced and to keep the operations domestic, it is necessary to know what potential benefits are associated with information technology outsourcing. The IT outsourcing market is growing steadily in emerging market like China, India, and Brazil. The outsourcing of information technology reduces the operational costs of the business, increases knowledge and awareness of latest technologies and enhances customer satisfaction through best quality IT outsourcing services at lower costs. Both the short-term and long-term factors are responsible for the continuous increase in information technology outsourcing. Short-term factors of IT outsourcing are associated with the need to reduce costs due to economic declining conditions of the world and long-term outsourcing increases the capability of delivering continuous access to latest technology solutions through IT utility (Liao and Reategui, 2002).

IT Outsourcing
IT Outsourcing

In order to examine the research question to know is it worth not to outsource information technology and keep operations domestic, outsourcing of information technology in emerging marketing like Asia, the Middle East, South Africa and Africa shows great appeal for many organizations to outsource their IT projects and to get quality work in limited resources. The outsourcing of information technology in emerging markets means companies develop partnership with service providing companies that establish legal and physical presence in the entered countries, setup necessary systems and processes and develop strong net of local relationship. The outsourcing of IT projects in the emerging markets indicates that multinational and domestic businesses are facing almost similar conditions in these markets, while their outlook and geographical condition differs. Outsourcing gives speed and scalability to the information technology projects as different companies in the developed world can outsource their business requirements to those who are well established service providers than building up own infrastructure (Data, 2013). When user organization outsource their information technology projects to service Provider Company in another country, it gets cost advantage both in labor and raw materials, and achieve highest level of productivity due to low wages benefits. In outsourcing IT projects in different areas, the user organization enjoys highest value of chain integration as it gets extensive integration with suppliers and customers. The more integrated the company is with its suppliers, the more benefits it can develop from such a relationship and strengthen their supply chain management against their competitors and achieves excellent position at their local markets. IT outsourcing also offers opportunities for retail market operations where user firms can accelerate their operations due to modernization, foreign investment, consolidation and privatization. Outsourcing of information technology becomes worthwhile for user organization depending on many factors that influence decision of IT outsourcing based on financial, resource, strategic, managerial and cultural concerns. All these broad categories suggest that outsourcing of IT projects is based on series of forces that work either in favor of outsourcing or against outsourcing. The interaction of these forces finally mold management decision making to outsource or not in the emerging markets. All these factors suggest that outsourcing of information technology is beneficial to the user organization that reduces its financial costs, improves financial index performance, improve cash flows, leverage financial strengths, get an access to external expertise and technologies that are not possible without outsourcing of information technology, build mergers and acquisitions and business transitions, reduce project delivery lead time, enhance business focus, ease globalization, build strategic partnership with experts, ease performance measurements and gives overall solution to the user organization to get best services at lower costs (Liao and Reategui, 2002).

Management of IT outsourcing in Global Firm

Management of IT outsourcing is based on the management of workers who work for the development of desired technology abroad. It is not an easy task to do because it is associated with cultural differences to manage in outsourcing the IT projects. The outsourcing activities of a firm have become a very important issue in the modern day world with politics, welfare economics, international business and business management. The management of IT outsourcing is not a new phenomenon and getting development of information technology projects in locations other than the country in which they are used by the user organization. The world has seen dramatic increase in the outsourcing of information technology in which domestic firm sends some part of value added activities, whether the development of payroll systems in IT, the development of inventory or ERP systems, or software writing developed for another country continuing to sell its output into the domestic market. It helps domestic customer to transfer money to foreign producers other than local by draining liquidity out of the domestic economy. The phenomenon has developed the management of global firm in IT outsourcing to generate value for product design, manufacturing, support of services sector, services support, distribution services, customer services and the development of different software development projects. All these activities are performed in multiple differentiated locations all over the world by using intra-firm trading activities to tie up operations into an efficient whole, and then selling unique mix of goods and services at differentiated market places around the world and enhancing the position of these goods and services to original home market (Tallman, 2011).

The management of IT outsourcing in the global firm has led to significant increase in the exploration of new knowledge and expertise, cost savings and improvements in the bottom line. Some companies have even achieved greater returns by outsourcing their projects worldwide and using their global partners to drive innovative strategies to develop new software, innovative products and services in the information technology, faster service time-to-market and their successful entrance into new markets. It has made considerable shift of traditional outsourcing to the collaboration globally and getting competitive advantage over time without any need to be restricted their operations within the domestic markets. The outsourcing of information technology is worthwhile to the business organizations as it has increased their efficiency, increased global technology standards with open architectures, and developed a powerful collaboration tools and infrastructure by outsourcing their IT projects. Furthermore, the global collaboration of the information technology has aligned strategic development, organizational design, product development, program and project management, platform specification and intellectual property management of the organization involved in the outsourcing of their information technology projects at the global level (MacCormack et al., 2007).

It is Worth Outsourcing Information Technology?

In today’s global economy, the outsourcing in information technology has become very common among businesses operating in this line. Some large business organizations are successfully outsourcing their information technology operations to reduce costs. The report identifies is it worth not to outsource information technology and keep operations domestic. But the outsourcing of information technology projects have increased in the recent years and business organizations prefer to outsource their projects meeting their business needs. Different factors have contributed greatly in the outsourcing of IT projects with reduced costs, enhanced productivity, higher quality of IT development, higher level of customer satisfaction, time to market and focusing on the main areas of the benefits of outsourcing. At the same time, outsourcing of IT projects pose some risks and challenges to business owners that’s why report indicates that operations of information technology should be done domestically. The outsourcing of information technology is based on delegation of some or all IT tasks to professionals in other countries. These tasks are offered to them to enhance the quality of work and considering the IT related activities in business processes, internal activities, and services to external providers who manage and administer these activities according to already decided deliverables and performance standards. But considering some risk factors in IT outsourcing it is essential that organizations should be careful in planning of what knowledge to be kept in-house and what to be outsourced. Companies can also face some other risks to outsource information technology in the formulation of scope and decision making on budget and schedule estimates (Dhar and Balakrishnan 2006).

Business world has shrunk in the recent years and same trends of outsourcing information technology have also been adopted by the IT industry unlike traditional models of economy. The level of communication has increased in the modern world and it is now possible to transfer the information across the globe in no time and at lower costs. It is not essential to produce goods at the site of consumption as the consumer of information not cares where the information is generated and how much time it will take to be on time. The non-tangible nature of the information technology has made this business highly attractive to be outsourced to highly qualified professionals. Is it worth not outsourcing information technology and keeping operations domestic is not good in the modern world because IT outsourcing is associated with knowledge and learning produced through outsourced activities and business processes. In outsourcing, the property or decision rights of a user organization over information technology are transferred to an external organization. The IT outsourcing is based on high expectations of the user organization but it is also associated with some bitter disappointments. The outsourcing industry has shown considerable increase in the recent years and worldwide spending on the services of IT outsourcing have reached to a milestone of $64 billion in 2001 and increasing with a constant rate. But despite these growth patterns, both the user organization and the vendors are struggling to realize about the value proposition of outsourcing as vendors deliver economic and management benefits to their customers outweighing contractual costs (Levina and Ross 2003).

Since the early 1950, business organizations are using outsourcing of information technology (IT) to get the benefits of best services from worldwide at reduced costs. Early period of outsourcing was associated with the extraordinary benefits of saving operational costs, but in the recent times, the motivation to outsource IT projects has been shifted to strategic business performance improvements. Large numbers of IT functions has been outsourced like programming of business projects, applications development, desktop applications development, telecommunication management and operational systems. The associated value of knowledge and learning in outsourced activities has given new prospects to the outsourcing industry that has grown with a rapid pace in the recent years. In performing some activity, business organizations learn more about the development of some specific product or service. It gives greater knowledge to the business organizations to be competitive with their competitors after getting the development of their outsourced projects at reduced costs with extraordinary benefits. But at the same time, outsourcing of IT projects cause some severe problems to the pervasiveness in IT functions of most of the business organizations. The lack of appropriate IT resources that the user organization outsources may reduce the capability of the organization to compete well. When some particular function, knowledge or activity or non-core IT activities are outsourced, they may lead to the firm’s capability of outsourcing wide array of other related competencies, or deteriorate some of retained competencies and activities of the organization, particularly if the information technology projects are outsourced among large numbers of subunits considering the business needs of a user organization (Singh and Zack 2006).

The business outsourcing can be done anywhere at any time; whether business projects are small or large, simple or based on huge complexity. During the period of pre-1900, outsourcing was only focused on the production of labor intensive activities and business activities that were performed outside the core competency of the organizations, like the outsourcing of the printing press, janitorial work and food preparation, and recruitment of seasonal migrants’ farm workers. In the industrial society, outsourcing was expanded to the manufacturing industry to get the reduction in costs after great depression period in Western economies. Most of the large business organizations outsourced their manufacturing operations like outsourcing of automobile to different producers and metal, glass and rubber products. Latest developments in the considerable growth of information technology (IT) have given companies new opportunities to outsource some of their technical functions that are beyond their technical competencies. For example, in the earlier outsourcing of information technology, payroll processing was outsourced by user companies to vendors worldwide. When technology increased considerably worldwide, other information technology operations and functions were also outsourced like data management, document storage functions and technology and maintenance of their platforms. Like other established utility providers like energy providers, the new outsourcers would be responsible to offer best services at reduced costs on behalf of their customers, and to manage the delivery of new services while ensuring their availability, scalability and performance. Therefore, companies have adopted global outsourcing strategies in the information technology because they want to build sustainable competitive advantage and competitive flexibility in their worldwide operations (Kathawala, Zhang and Shao 2005).

The strategic value of IT outsourcing is highly focused on the knowledge and learning of information technology and reduction in costs to get competitive advantage over others. It is worth outsourcing information technology due to highest level of productivity and information sharing organizations have achieved over the years with no need to keep their operations domestic. The business activities that contributed greatly in the business growth of user organizations and service providers include the production of specific outcomes due to IT outsourcing, knowledge sharing that can be viewed as a platform from which many activities and outcomes can be derived and increased level of learning is enjoyed. Outsourcing maintains and increases the level of knowledge and learning associated with the activity which makes a profound impact on the long-term ability of the organization to compete than merely outsourcing its activity itself. But some organizations do not take knowledge and learning into considerations with outsourced activities as they find it highly difficult to find out the economic or strategic value of such intangible assets. Outsourcing of information technology is associated with some unique issue like the pervasiveness of IT functions in most user organizations. When executives consider it non-strategic in nature, they find that information technology is a source of strategic innovation and business strategies can be greatly influenced by emerging technologies that are only possible through the outsourcing of information technology. But the lack of appropriate IT resources that are outsourced by user organization can limit their ability of competition. The organizations face the deterioration of their retained competencies and activities, particularly in the areas of information technology resources that are shared among large numbers of subunits and affect the shape of most organizational processes (Khidzir, Mohamed and Arshad, 2013).

Conclusion

The report has identified that despite various issues in IT outsourcing, the outsourcing of information technology has become very popular throughout the world. The report has identified various points like the global commerce and competition, IT outsourcing in emerging markets, Singapore IT diffusion model, and the overall development of IT outsourcing in the world. The report has answered the question on IT outsourcing ‘is it worth not outsourcing information technology and keeping operations domestic’ in a way by highlighting all important points that determined the importance of outsourcing some or all functions of information technology to get business competitiveness and efficiency through reduced costs, best quality of products and services developed due to IT outsourcing and getting competitive edge over their competitors in this world of competition in information technology.

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