Case Study: Small Players Frock to India

Introduction

Currently many small companies, located in Australia prefer to outsource some of their business processes to India. This country has recently attracted the attention of numerous enterprises due its cheap and relatively skilled labor force (Hatch, 2006, p 50). Certainly, one of the major rationales for off-shoring is the cost effectiveness of this strategy. However, operation in an unknown environment frequently entails a great number of risks, associated with different organizational cultures, language barrier, the peculiarities of the domestic legislation etc. In this paper, we need to discuss those factors, which can hypothetically impact the performance of such firms as Leethal Fashion Accessories or similar ones. These factors are of various types: political, economic, social, and so forth. Furthermore, we need to analyze the reasons, which attract international companies to India, for example, necessity to gain competitive advantage. In this regard, it is vital to evaluate the impacts of such policy on the country, whose companies use India as an outsourcing destination. Finally, it is necessary to speak about the difficulties faced by these businesses and the ways to overcome these challenges. On the whole, it is quite possible for us to argue that in the future India will act a key outsourcing agent for Australian and British manufactures.

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The analysis of external environment

In order to describe external factors, which may affect Leethal Fashion Accessories, we should conduct PESTLE (Political, economic, social, technological, legal and environmental) analysis. This tool helps to identify those opportunities and threats to which the firm can or may be exposed. It is more preferable to present the findings in table format.

Political 1) High levels of bureaucracy and corruption. Certainly, Indian government encourages foreign firms to enter the countrys market, but their state machine is overcomplicated and corrupted. The manufacturers, willing to outsource their business in India, will have to follow multitude of procedures in order to receive permission of the authorities (Rajeev & Vani, 2009, 54; Hatch, 2006, p 50).
Economic 1) The cost of transportation. Firms like Leethal Fashion Accessories can incur additional expenses due to the fact that roads in India leave much to be desired (Kotlarsky, & Oshri, 2008, p 228)
2) The cost of labor
3) The cost of energy
Social 1) Language barrier. Although many Hindus speak English as a native language, people, who come from Australia, the United Kingdom or the United States, experience significant problems while communicating with them (Joshi & Mudigonda, 2008, p 215). Subsequently, this can result in misinterpretation of the instructions, given by the managers. This obstacle hinders the process of communication within the organization.
2) The cultural difference. People, coming from the English-speaking world often cannot effectively interact with local contractors even due the cultural difference existing between them (Palvia, 2008, p 79). This includes different etiquette, interpersonal relations, value systems and norms of behavior.
3) Peoples awareness about CSR (Corporate Social Responsibility). In advanced countries, society sets rather high requirements for the enterprises: this includes working conditions, health insurance, wages, usage of eco-friendly technologies etc. As soon Indian population becomes more prosperous, foreign firms will find it more difficult to operate in this country (Rajeev & Vani, 2009, p 52).
Technological 1) Infrastructure: despite its rapid economic growth, India still has a poorly-developed infrastructure: roads, telecommunications or power supply (Joshi & Mudigonda, 2008, p 215). In turn, it gives rise to delays in delivery (Hatch, 2006, p 50).
Legal 1) Taxation policy of the government: international firms are so much drawn to India because the government of this country takes a favorable stance towards foreign investors, because they decrease unemployment and contribute to the development of the state. However, the situation can drastically change when local manufactures strengthen their positions in the market. In this case, the government can impose heavy taxes on Australian (or Western) companies and this may be a serious threat to their prosperity.
Environmental 1) Climate of the country. It should be taken into consideration that weather conditions in India are extremely unstable. This geographic is exposed to droughts, floods, and tropical cyclones (Dinar, 1998). All of them can inflict heavy damages on infrastructure, especially roads and communication systems.

So, in this section, we have enumerated the external conditions that can influence the performance of small manufactures like Leethal Fashion Accessories. It has to be admitted that some of them such as awareness about CSR or cost of labor are purely hypothetical, which means that they can manifest themselves only in the distant future. Yet, some of them are palpable even now, namely: 1) weather conditions in India; 2) infrastructure of the country; 3) language barrier, cultural difference, and 4) bureaucracy. They can lead to procrastination, increased expenditures, downturn in quality of the products and dissatisfaction of the customers. Therefore, the management should be aware of these risks and make everything possible to alleviate them or at least reduce to a minimum.

Overall, we can say that this task is not insurmountable and the benefits of outsourcing to India overweigh its risks. Many consultancy firms prefer to off-shore their call centers to India; all the more, it produces no adverse effects on their relationships with the clients. Several studies have demonstrated that India is a very profitable alternative for such firms due to several reasons: 1) young people of this country speak English as the native language; 2) they are sufficiently qualified for this job; 3) the cost of their labor is lower in comparison with the British or Australian employees (Jaiswal, 2008, p 405). It should be acknowledged that such practice has been criticized by the public, allegedly because of the language barrier, but recent research indicates that this criticism is caused by other circumstances: long queue time, high percentage of calls blocked, and average handle time (Jaiswal, 2008, p 405). This example proves that the discontent of the clients is stirred up mostly by low performance requirements, adopted in these consultancy firms: but it has nothing to do with the language barrier. Thus, if this company wants to access Indian manufacturing scene, it has to ensure that their organizations functions according to the best standards, adopted in Australia.

The reasons, which attract international companies to India

Small businesses confront several issues which make India a desirable outsourcing destination. The most crucial one is the low cost labor. In comparison with Australia, the United Kingdom and other highly-developed countries, wages in India are much lower and manpower is less expensive (Gentle, 2004, p 8). In this case, we should speak not only about wages as this is not the only driver. Off-shoring enables to cut down overall operating expenses: insurance, office maintenance, or travelling costs. In addition, Indian subcontractors attract Australian firms because people of this country are more fluent in English. In part, this is one of the reasons why they are preferred to Chinese manufactures (Joshi & Mudigonda, 2008, p 218). It should be mentioned that India has many advantages over other developing countries: in the course of the twentieth century this state has achieved a certain degree of stability unlike Philippines. Its government supports the idea of laisser-faire capitalism, which means that they practically do not interfere into the affairs of private businesses. Apart from that, the government has no anti-Western sentiments as it is in China (Joshi & Mudigonda, 2008, p 218). Indian educational institutions ensure that their graduates can meet professional and academic requirements, set by Australian and British firms.

Finally, we should not overlook high competitiveness of the market in Australia and in the Western world. In order to retain customers: firms have to work out new methods of enhancing performance. In early nineties, off-shoring was regarded with apprehension by many managers; they were not sure that that this strategy would yield fruits. Later it became evident that off-shoring to India was a very prudent solution. At present, outsourcing is a common practice among small firms, struggling to withstand competition. Moreover, this is one of the best ways to boost profitability. The case of Leethal Fashion Accessories eloquently substantiates this statement: the starting capital of this firm was only $ 200,000 and now its turnover constitutes $ 2 million (Hatch, 2006, p 50).

Outsourcing to India can have significant implications for Australia. It is hypothesized by some scholars that Australian workforce will move to those spheres which cannot be outsourced to other countries, particularly, service industry, which includes retail trade, health and community services, hospitality industry etc (Booz Allen Hamilton, 2004, p 6). Most importantly, off-shoring should not be regarded as something negative because this process contributes to the improvement of personnels skills, quality of products. The country manufactures need to position themselves as providing the best price-quality ratio (Booz Allen Hamilton, 2004, p 7). Nonetheless, we cannot deny the fact that at the given moment several Australian industries are in decline, especially IT sphere, which is continuously outsourced to India as well as to other developing states. On the whole, the impacts of off-shoring on Australian economy are exaggerated by the media, because only 2-4 percents of jobs can be potentially transferred to India, China or other countries (Booz Allen Hamilton, 2004, 7). Again, we need to emphasize the idea that the only protection from outsourcing is the excellence of performance, improved production practices, competence of employees and flexible pricing.

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Outsourcing to India offers a good opportunity to small businesses, which cannot organize mass production. To some extent, this state represents the so-called cottage industry: the manufacturing of this country are willing to accept small orders and do custom work (Hatch, 2006, p 50; Nag, 2007, p 137). So, this policy can promote the development of small businesses in Australia. The impacts of off-shoring have not been fully described and analyzed as this trend still remains relatively new.

Methods to control challenges, faced by Leethal Fashion Accessories and similar companies

As it has been noted before, the companies operating in this country have to deal with various challenges such as poor command of the English language, cultural differences, underdeveloped infrastructure, inability to meet deadlines, corruption of the local authorities, and unstable weather conditions. At first glance, these problems may appear almost insoluble. Yet, many of them can be effectively addressed provided that the CEO and his or her associates rely on the experience of those enterprises which have encountered these problems. At this stage, the role of HR management becomes immense. It is necessary to describe the duties of the employee, his or workplace activities, certain level of language proficiency, cross-cultural-competence, motivation etc. On the basis of these criteria, they would be able to better evaluate candidates, applying for the job (Ployhart et al, 2006, p 138). In-depth job analysis can prevent the firm from incurring many losses.

Integration of the employee into the team is one of the most crucial tasks for the management. They need to pay careful attention to formal orientation programs, which help new hires to understand the nature of their work, their daily duties, the expectations of the management, organizational structure of the company etc. In the long term, it can minimize conflicts in the workplace, avoid extra expenses, and provide an incentive to the employees (Bohlander & Scnell, 2009, p 338). They need to feel that they are being valued by the company. Unfortunately, this aspect is frequently disregarded not only in India but in advanced countries as well. It should be taken into account that orientation program is not the only part of employee integration; the training should be provided on a regular basis usually it is done at least once in two years.

We may also say that cultural differences should not be viewed as a formidable obstacle. People throughout the globe share certain values and goals, for example, desire for prosperity, mutual respect, adequate reward for ones work, professional growth and self-improvement. These features are inherent to Australian and Indian cultures. So when building the relationships with the employees, the management should stress these things. It seems that too much emphasis is now placed on race, sex, ethnic origin. Diversity has recently become a buzz word for many scholars and managers. Naturally, it is vital to acknowledge and accept individual differences of employees. However, businesses like Leethal Fashion Accessories and their workforce should first seek common denominator that can help them reach consensus. The question arises how to attain this goal. One of the ways to do it is to adhere to the principles of corporate social responsibility. CSR should not be limited only to compliance with the legal norms, adopted in India (Bosch, 1990, p 18). The point is that ethics and law do not always coincide. Some practices, like sweatshops, have legitimate status in several countries but they are hardly permissible from moral standpoint. Small companies should demonstrate that their presence in India is not mere pursuit of profit. They need to show that they can bring improvements into the life of the community. If the management of the firm succeeds in doing it, they will considerably enhance the motivation of the workforce. This tactics can settle a great number of problems, experienced by Leethal Fashion Accessories and similar businesses because occasional delays in delivery and poor craftsmanship can be partially ascribed to the lack of motivation.

As far as external factors are concerned, we should say that they are more difficult to manage. Weather conditions are virtually unpredictable, and they cannot be controlled from outside. The thing is that Indias climate varies from one region to another: it can be tropical dry or wet (Dinar, 1998, p 232). Therefore, small businesses should carefully select the location, which should be least exposed to natural disasters and have a developed infrastructure. The only obstacle that cannot be overcome is the corruption of the local authorities or the government in general. The only safeguard is the profound knowledge of Indian legislation because peoples ignorance gives many opportunities to the bribed officials.

Conclusion

The benefits of doing business in India have already become apparent to the entrepreneurs throughout the globe. At present Australian firms are more favorable towards off-shoring part of their production processes to Indian contractors. In this paper, we have discussed the advantages and disadvantages of this strategy. The availability of skilled and cheap workforce, political stability, laisser-faire economic policy of the government, high English proficiency of the local population and presence of cottage industry make this country very attractive for foreign enterprises. The limitations of off-shoring to India are as follows 1) language barrier and cultural differences, 2) high exposure to natural disasters; 3) lack of roads; 4) corruption of the authorities. Nonetheless, these short-comings do not pose a serious threat to the performance of the companies, especially if the management is able to recruit competent employees, organize them, plan the process of production and run business in an ethical way. The profitability of off-shoring to India clearly justifies the drawbacks of this policy. Overall, we can argue that this country will soon be densely populated by small firms like Leethal Fashion Accessories because they can achieve sustainable growth in this country. There is very great likelihood that this tendency will be even more intense in the next decade.

References

Bohlander G. & Scnell S. 2009 Managing Human Resources. London: Cengage Learning.

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Bosch, H. 1990, Gordon Gekko’s ethics rule, OK? Marketing, December, pp. 8-18

Booz Allen Hamilton (2004). Outsourcing Globally: Trends and Implications of Offshoring for Australia. Web.

Dinar. 1998. Measuring the impact of climate change on Indian agriculture. London World Bank Publications

Gentle C. 2004. Offshoring: from pull to push. Balance Sheet 12, no. 4: 8-9.

Hatch, B. 2006. Small players frock to India. The Australian Financial Review, p.50.

Jaiswal. 2008. Customer satisfaction and service quality measurement in Indian call centres. Managing Service Quality 18, no. 4, 405-416.

Joshi, K., and S. Mudigonda. 2008. An analysis of India’s future attractiveness as an offshore destination for IT and IT-enabled services. Journal of Information Technology 23, no. 4, 215-227.

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Kotlarsky, J., and I. Oshri. 2008. Country attractiveness for offshoring and offshore outsourcing: additional considerations. Journal of Information Technology 23, no. 4, 228-231.

Nag. D. S. 2007. A Study of Economic Plans for India. Bradford: READ BOOKS.

Palvia, S.. 2008. Challenges for Small Enterprises in the Sourcing Life Cycle: Evidence from Offshoring to India. Journal of Information Technology Case and Application Research 10, no. 4, 75-84.

Ployhart R. Schneider, B.& Schmitt N.(2006). Staffing organizations: contemporary practice and theory. London: Routledge.

Rajeev, M., & B. Vani. 2009. India’s Export of Bpo Services: Understanding Strengths, Weaknesses and Competitors. Journal of Services Research 9, no. 1, 51-67.

Walz. J. 2005. What’s This India Business? Offshoring, Outsourcing and the Global Services Revolution. Leadership & Organization Development Journal 26, no. 5/6, 506-507.

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