Case Study: Leethal Fashion Accessories and Outsourcing to India

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Leethal Fashion Accessories and Outsourcing to India

The forces of globalization allowed economic agents to transcend boundaries and exploit the comparative advantages of other countries. The movement created a context in which the exchange of commodities, natural resources, capitals and even workforce became not only possible, but even natural. Given this state of events, economic agents would often outsource their manufacturing operation to more cost effective regions.

Outsourcing is generally understood as a situation in which a multinational organization opens a manufacturing plant, or contracts an already existent manufacturing plant, in a foreign region and produces its item here. The most common advantage is that of financial savings, but one could chose a foreign location due to its know how advantage, its skilled labor force and so on. Despite the benefits however, outsourcing is a delicate issue. It for instance creates dissatisfaction within the domestic market of the company, as the process is associated with incremental levels of national unemployment. Aside this however, outsourcing is in its essence a complex issue, especially when barriers are imposed. India is probably the most relevant example in this sense.

2. External Environment Factors

Take for instance the case of Leethal Fashion Accessories, an Australian apparel manufacturer and vendor, outsourcing its production operations to India. Upon penetration of this foreign industry, they must have been met with several factors. For once, there would have been the legislation, in the meaning that the Australian organization would have been faced with the necessity to comply with two sets of legislations -- the Austrian one and the Indian one. Additionally, while they appreciate the contribution of foreign investors to the economic development of the country, India remains rather enclosed. They also pose several conditions to the foreign investors, who would even at times have to go though bureaucratic hoops just so that they gain the right to operate in the state.

Somewhat still linked to the political climate is the fact that the levels of corruption in the south Asian country remain high. Corruption is here a way of living and it is present at all levels, starting with teachers demanding money from the students, continuing at the business level and ending at the state level where officials continually take bribes. While the national press is filled with stories of corruption, the international debate has been scarce as India has not, until recently, presented interest for the westerners (Natale and Fenton, 1997).

Another external factor would have been raised by the cultural barriers. The most relevant example in this sense would be given by the fact that the exporter and the worker speak different languages. They would generally try to communicate in English, but even this language is often misspoken and misunderstood in India. The direct result of this situation would have been a limitedly effective communication process, which would materialize in delayed deliveries and reduced control abilities.

Still linked to cultural barriers is the Indian belief that the cow is a sacred animal. The cow is here held and respected like a member of the family. This virtually means that the Australian company would have had to respect these believes by not speaking ill of the cows, not eating cows in the presence of Indians and so on. Making apparel, bags, purses, belts, wallets or any other accessories from cows' leather would have been out of the question.

3. Issues for all Australian Manufacturers

Aside the limitations before hand presented, fact remains that Australian organizations continue to outsource their manufacturing and otherwise operations to India. There are as such several reasons which make India a desirable outsourcing destination. A first reason is given by the fact that the costs associated with the labor force are significantly lower in India than they are in Australia. Within the domestic country for instance, the average annual income per capita is of $38,200, whereas the income per capita in India is less than $3,000. In manufacturing for instance, the average Indian workman is paid less than $1 per hour; in IT -- a major source of Indian outsourcing revenues -- the software developer is paid one fifth of the wage of an Australian developer (Online Opinion, 2009).

Aside costs, India offers the benefit of skilled labor force. The country is highly technologically developed, meaning then that its labor force is accustomed and able to operate even the most developed equipments. Additionally, they have the necessary expertise in this field. In terms of an actual technological infrastructure, this is best characterized by the fact that India is the 7th largest host of main telephone lines; Australia is only the 24th (China is the 1st; the top contains 231 countries and was documented and completed by the American Central Intelligence Agency).

India is the second largest owner of mobile telephones, with Australia being the 36th. There are 562 television broadcast stations in the south Asian state, 3.611 million internet hosts and 81 million internet users. In terms of internet users, the figure places India as the fourth largest country on the globe; Australia is only the 24th. What these numbers virtually mean is that the Australian outsourcers are highly able to communicate with the Indian offices, and that when breaches occur, these are generated by cultural differences, rather than technological limitations.

Another element appealing to the Australian organizations is the fact that, unlike the Chinese market, the Indian one is willing to manufacture small product batches, and even personalized and customized items. Furthermore, the country in itself is more easily reachable and geographically accessible than other outsourcing alternatives, such as China.

To the foreign investor, the impact is clear -- enhanced satisfaction and improved financial results, pegged to the ability to reduce operational costs. For overall Australia however, the impacts are combined. On the one hand, there is the positive impact that the consuming population in Australia gains an increased access to more cost effective products. On the other hand, there is the negative impact felt by the working Australian population, which loses its jobs to foreign workers. This could spiral into a socio-economic problem, as the unemployment rates could decrease, with the direct consequence of reduced purchasing power and decreasing living standards for the overall population.

4. Control Challenges

Like any other outsourcing operation, the benefits encountered are challenged by the loss of control. At the very beginning of the operations, the company, in this case the Leethal Fashion Accessories, has to recognize that it will soon lose the power to centralize its management of the manufacturing activities. Since these actions will take place in a foreign location, they will most likely be overseen by a foreign manager, who would implement control decisions as he sees fit. It is in this case possible that the strategies implemented differ from the strategies desired by the Australian offices.

The managers at Leethal Fashion Accessories will encounter additional challenges pegged to the cultural barriers that differentiate them form the workforce. This could for instance translate into communication breaches and a potential situation in which the Australian manager is unable to understand neither how the production of the apparel is going, nor how the merchandise has been shipped and so on.

The following lines present some other control problems that could be encountered:

the Australian and Indian party could have difficulties balancing their decision rights, with the Indian one demanding to be more empowered the leadership team in India could prove unable to organize and manage the manufacturing team in a means that best serves the interest of Leethal Fashion Accessories

the Australian team might prove unable to recognize Indian talent and could mistreat some of its most valuable employees despite the perceived adaptability of the Indian workforce, fact remains that the homogenous group within a work setting could prove resistant to change (McCray, 2008).

The best solution to addressing the control challenges raised by the Indian climate is that of sending an Australian delegate to the foreign country and ensuring that he oversees the means in which the manufacturing operations are being run. It is imperative that the delegate be extensively trained in the organizational behavior of Leethal Fashion Accessories so that he is best able to represent and decide in the name of the Australian entity. An adjacent solution is that of sending two delegates to the country. This would ensure higher levels of control and coordination of the Indian operations and managerial style with those in Australia. The endeavor would nevertheless increase the operational costs as the wages paid to the Australian delegates would have to cover their years of expertise, their training and ability to truthfully represent the entity, as well as the costs with their relocation, which could even include the relocation of their immediate family members -- children and spouse.

Another possible strategy to be used by the leaders at Leethal Fashion Accessories is that based on the model by Otley and Berry (1980) and quoted by Stephen Linstead and his co-editors (2004), which states the following four steps:… [END OF PREVIEW]

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