Strategic Management For Business Services Offshoring

External issues affecting the company

Discuss about the Strategic Management for Business Services Offshoring.

The case study focuses on choosing an Australian company that has resulted in some of its activities in other parts of Australia. It has lead to some of the loss of jobs in the old facilities of Australia. Strategic management of the company is responsible for taking decisions that focus on the cost cutting aspects of the enterprise. The company chosen for describing the external and internal issues for its shift in manufacturing facility from Sydney to China is Industrie Clothing Pty Ltd. the company is focused on the production of men’s clothing. It is an Australian fashion clothing manufacturer that was founded in the year of 1999. However, Industrie Clothing has gradually expanded its business operations in Australia and other countries such as New Zealand, London, etc. Some of the business activities will be transferred to other parts of Australia that will lead to more profitability. The manufacturing facilities of Industrie Clothing are presented located in Sydney. The company is focused on providing quality product to its customers. The enterprise is focused on manufacturing distinctive masculine clothing. Shifting of a manufacturing site from one place to another location includes many risks and opportunities. The company will face many issues regarding employment of the country. However, if the job is considered as company specific, then there is a loss of employment of local employees. Local employees of Sydney will face some difficulties in the shift of its manufacturing sites to China. It will be discussed in the report in a detailed manner.

Currently, Industrie Clothing is based in Sydney in its Australian business operations. The company is specialized in manufacturing clothes for men. It has also expanded its activities in making clothes for kids also. The current facility of the company is facing some issues regarding the external environment that will be discussed in this section. The outer factors of Industrie Clothing include infrastructure, cost, laws, trends, customer base, finance, weather, and economy. In Sydney, the company has started its business operations. However, now Industrie Clothing is facing problems to continue its manufacturing process in Sydney. Industrie Clothing has conducted market research regarding the advantages of a location about its manufacturing plants (Albertoni & Elia, 2014). The results of the study have shown that if the production sites of the company will shift to China, then it will be able to complete its operations at a lower cost. Lower cost of production will help Industrie clothing to earn more profits from the market. Initially, shifting will lead a huge cost, but in the future, the cost will be overcome by making substantial profit.  External issues include financial impact, infrastructure, etc. Infrastructure maintenance of Sydney is costlier than in China. Hence, for maintenance purpose the company has to spend more money that increases the production cost (Castellani & Pieri, 2013).

Internal matters affecting the company

The laws and regulations also affect the productivity of the factories of the enterprise in Sydney. The strategic management department of the company must focus on the list of problems faced by the warehouses, plants of Industrie Clothing in Sydney. On shifting of the business operations, employees in that previous locality will face problem-related to their employment. China has located far away from Australia. Many employees that are working on the Sydney location cannot switch to China site (Castellani et al., 2015). Hence, it is a situation of loss of employment of many workers of the company.

The company in China location will enjoy many opportunities that will be discussed in a detailed manner. China is cheap from all aspects of economic factors. If the company wants to expand its business operations in China, then exporting its goods to China will be not granted as a good option for it. Manufacturing products in China will help in gaining a substantial profit. The factories that are located in the China have a competitive advantage more than that of Sydney (Cavusgil et al., 2013). The weather, availability of labor, maintenance of infrastructure, transportation costs, costs incurred for the labor, etc. is more prevalent in Melbourne compared to Sydney. However, loss of employment is also an issue that the company cannot neglect for its expansion operations. Hence, shifting of the factory location will bring about many changes regarding both operational process and employment of the workers. In Sydney area, the manufacturing site involves huge production cost along with maintenance cost. It results in reduced profitability (Cavusgil et al., 2014). Hence, these external issues affect Industrie Clothing to formulate strategies in shifting its factories to China.

The internal environment of a company includes resources, capabilities, management values, stakeholder goals, corporate culture, employee mix, and strategy success. Industrie Clothing is facing many internal issues in the above-discussed aspects. Employee mix is an important feature that Industrie Clothing cannot ignore. Moving business operations to offshore is a vital decision for the company that includes problems for the present employees of that region. In this scenario, some of the employees of Industrie Clothing are not willing to shift to China (Elia et al., 2015). However, other factors inside the company have forced to move its manufacturing plant in China. The resource of the company is tremendous. It is the reason for taking the decision of offshoring its production unit and the management unit in China. The employees face problems in handling China operations perfectly from Australia. It also leads to some losses. The amount of profit projected by the senior management of the team as well as the marketing team of Industrie Clothing is not achieved from the China operations. The corporate culture of Industries Clothing supports innovation, business expansion, success in strategic goals, etc. It ‘s hard for maintaining the entrepreneurial culture in China through its products exporting to China. Offshoring few operations will help in defining the corporate culture in China (Jayaraman et al., 2013). Exporting of goods and earning profit is not a single motive for a company’s culture. Industrie Clothing wants to spread its brand reputation in China.

Stakeholder Analysis

The management goals, the resource capabilities of Industrie Clothing are unyielding that has helped the strategic administration of the company of shifting its manufacturing plant and few management operations in China. Chinese people preferred the brand gradually. In the first stage, the company had not taken any risk in opening its new branch along with its factories in China. It is initially a right and safe decision (Larsen et al., 2013). However, now Industrie Clothing is growing, and it has its presence not only in Australia but also in other countries such as New Zealand. A branch in China will help Industrie Clothing in understanding a deeper knowledge on the consumer analysis as well as market trends of the country. The employees of the company are competent enough in managing the manufacturing sites along with the international business operations (Linares-Navarro et al., 2014). Few workers are facing some issues in running the calculations of exports in the Chinese market. Apart from that, due to trade laws of Australia and China, the business of the company is getting affected. Trade rules and regulations is a factor that affects the predicted forecast of the enterprise regarding business objectives, profitability, and marketing goals. Internal issues also include distribution channels and supplier issues. The distribution channel must be very smooth and stable so that customers are satisfied. Hence, Industrie Clothing maintains a strong reputation indirectly. However, the firm has a strong distribution channel in Australia (Luo et al., 2013). Nevertheless, it does not have a strong distribution channel in China. From Australia, it is tough to manage the Chinese distribution system smoothly.

Stakeholders of the company include government, shareholders, customers, suppliers, labor union, investors, creditors, and board of directors. Speakers consist of various types of persons. In this scenario, the involvement of the stakeholders is necessary as it is a vital decision for the company in the field of offshoring business activities. While taking the decision regarding offshoring management activities along with the shift of manufacturing plant of men’s clothing in China, the labor union, and the investors clash with each other (Luo et al., 2012). The labor unions are supporting the fact that the company must continue its business operations in Australia only. Nevertheless, the other stakeholders such as investors, shareholders, the board of directors wants to offshore few business activities of Industrie Clothing. Stakeholders want growth of the company that will result in profitability. The primary motive is to flourish the business in different parts of the world. Apart from that, the creditors, investors are ready to invest their money in the firm (Musteen, 2016). Hence, they want business expansion. The board of directors of Industrie Clothing also supports the decision of the shareholders, creditors, and investors.

However, the shift of management activities along with manufacturing plant affects the stakeholders of Industrie Clothing. If the whole production unit changes to another country, then the labor union, shareholders, suppliers will get disturbed a little bit. Despite providing an opportunity to the employees associated with the production unit, the workers who are working at a lower level are not getting any chance. The suppliers of the company can lose their business to some extent. It can lead to disturbance of the vendor company relation in the long run (Musteen & Ahsan, 2013). On the other hand, the stakeholders who are supporting the offshore business activities in the Chinese market are in a dilemma about the success of their venture in the foreign country. Profitability is the main motive of each stakeholder of Industrie Clothing in Australia. The New Zealand is controlled from Sydney. The production unit of Sydney provides the New Zealand branch the supply of the required men’s clothing. Moreover, it is seen that the Australian production unit and its employee base are high. This strategy will be followed in the production unit of the new target market. Few changes are needed to be done (Oshri et al., 2015). Customization of policy is the main formula for success of the company while offshoring its management activities.

There are various departments of Industrie Clothing that are not shifted to China such as marketing and sales, research and development, operations, human resources, etc. These units are occupied with many Australian employees. However, the Australian manufacturing plant also has many experienced employees that are very competent to manage the operational part of the production unit. The stakeholders are not ready to transfer to all the expertise to the new Chinese plant (Paz-Aparicio & Ricart, 2013). The Board of Directors is facing a dilemma in discussing the transmission of the different employees from Australia. Decisions are not to be taken without the consent of the employees. The company will face problems from the stakeholders like government and suppliers. The current production plant is getting a subsidy from the Australian government. As it is a local company, hence it got more allowance and other facilities from the Australian government.  When a company goes global, then it has to pay a substantial amount to the government of that country (Pedersen et al., 2014). Though the division of China will earn significant revenue from the market, hence the facilities from the government will be less when compared to Australia.

Employment is a vital aspect that companies cannot ignore. The strategic management of the company is focusing on the movement of some of its operations in China. Hence, to some extent employment of the business has few effects on it. The production unit depends on many units such as suppliers, distributors, operations, warehouses, inventories, etc. Many people are associated with these departments (Persaud & Floyd, 2013). Many expertises are there that are not ready to switch from the Sydney branch to other branches. They want to stay in Australia only for their benefit in work. To mitigate the situation, Industrie Clothing is ready to pay a good amount to the capable employees of the production unit. Therefore, few employees will agree to shift into China location. Apart from that, some employees at a lower level that will be facing some issues related to their jobs (Schmeisser, 2013). Initially, a situation of employment chaos will be prevalent in the company as well as in the region.

However, employment will not be affected in Australia. It is because the company will put the employees into different other departments of marketing and sales, human resources, operations, etc. Recruitment will be required in the new plant that will be opened in China. Apart from the hiring of new employees in China, the old expertise will handle the production unit in a better way. Industrie Clothing provides facilities and other employee benefits to its experienced workers (Slepniov et al., 2013). Recruitment and selection of new candidates in a new location incurs a huge cost. If the company wants to cut cost, then it is feasible to transfer employees from Australia to China. The strategic management department of Industrie Clothing is taking decision for the benefit of its workers. If the workers are satisfied, then automatically they will be motivated towards their duties and responsibilities. Employee retention is much easier and cost efficient that new recruitment and selection of suitable candidates. It saves both costs and time to the company. Hence, the number of employment in Australia will not be witnessing any vital changes. The old employees of the company will be staying in the other departments. Shifting of production unit incurs not only a cost to Industrie Clothing but also a degraded relationship with the suppliers and distributors of Australia (Tallman & Mudambi, 2013). Hence, implications of employment will not affect the sites of Australia.

Conclusion

Offshoring is an activity that is implemented by many companies all over the world. Offshoring includes relocation of various operational processes such as accounting, supporting process and manufacturing. Usually, both government enterprises and private enterprises use relocation of its some business process in many countries. It is also known as a form of outsourcing. It is related to the outsourcing of administrative and technical services that supports global and domestic operations from outside the local country. It can be done using captive i.e. internal or outsourcing i.e. external delivery models. Some terms are related to the concept of offshoring. The terms are production relocation, innovation offshoring; IT enabled services offshoring and reshoring. However, the idea of production offshoring is appropriate for this study. Production offshoring is also known as physical restructuring. It involves the relocation of various physical processes of manufacturing into a destination of lower cost. The report describes different benefits and issues faced by companies while applying the production offshoring in its strategic management of the enterprise. However, the employment issue and the local jobs are emphasized in the report. The Australian company Industrie Clothing has to keep in considerations about many factors to offshore its production unit and few management operations in China. It is a vital decision for the stakeholders of Industrie Clothing that involves equal effort and thinking capabilities for the production unit in the new target market i.e. China.

References

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