Outsourcing

Introduction

In the face of mediocre economic prospects resulting from one of the largest economic downturns since the Great Depression, companies are striving to streamline and become profitable. In addition, scandal has befallen numerous US corporations, the indiscretions flowing from the upper echelon of corporate executives, CFOs CEOs and COOs.

As a result of public scrutiny of corporate “waste” and demand by shareholders for continually increasing shareholder value, managers are seeking outsourcing and offshoring as creative means to reduce cost in the areas of production and operations. Yet outsourcing and moving operations offshore are neither new nor creative solutions. However the trend is occurring in the industries “whose tech bubble burst” in the late 90’s – the IT industry. What is more creative is the destination of the outsourced work, India.

More American firms are looking at India to outsource software services, business processes and manufacturing. Firms are attracted by the prospects of high quality work at low cost, crucial in times of a downturn. Analysts at technology research firm Gartner Inc said. “Companies are interested in going offshore, and generally speaking most of the time that means going to India,” Rita Terdiman, Gartner Inc.’s U.S.-based research director. National Association of Software and Service Companies (NASSCOM) has projected that R and D outsourcing to India will grow to $ 11 billion by 2008. (C Pettey, 2001)

India is observing a change, a change which is introducing a new wave and a new model of economy in India. This is reflected in Bill Gates comments “Three years ago, during my visit to India, the country was emerging as an IT superpower. Today, the country is handling the most sophisticated projects in the world…I am impressed with the talent we have in our India  Development Center and the quality of software being developed.” (offshoreitoutsourcing.com, 2004)  This gives an indication, about a revolution observed in economy of India, which is highlights in form of rapid growth in e-commerce and IT related business processes. One of such major buzz words is BPO which is Business Processes Outsourcing.

Definition, Concepts and Process

The definition of outsourcing given by Webster’s Universal Dictionary is: “A company or person that provides information; to find a supplier or service, to identify a source”. And according to definition given by Australian Computer Society about Outsourcing (T. Worthington), stated that in business scenario outsourcing means is a pure contracting transaction whereby one company purchases services from another while retaining ownership and responsibility for the underlying processes; the clients tells the provider what they want and how they want the work performed. Here the client authorizes the provider not only to own and operate, but also redesign underlying processes, to reap even greater cost and efficiency benefits.

But what is that which makes India, a preferred destination for Business Process Outsourcing, a phenomenon boom in Indian economy, which is now attracting business gurus from world class business institutions from Wharton, Sloan, Kellogg, and Berkeley, to come for research in India. (Rediff.com, 2004)  Furthermore, Business Process Outsourcing and India have now become a complementary term for each other.

The Indian BPO activity is currently shared by BPO pure-plays or captive subsidiaries of large US/European companies. The companies that are best positioned to take advantage in this growing business are those that have client acquisition capabilities. There are two strong groups of contenders that will pose a challenge to the current players:

•  International service firms with a presence in India – These include US/Europe based service and consulting firms with strong operations in India. Accenture and IBM are prime examples. IBM operates in the Indian BPO space through its recently acquired subsidiary Daksh eServices.
•  Indian IT services firms – Nearly all Indian IT services companies are currently busy building capabilities for offering BPO services to their clients. As they do so, the following factors will help them build sizeable BPO practices: the financial clout and the resulting ability to build a credible infrastructure; established client relationships; proven record of offshore execution albeit in a different field but one that has strong parallels to BPO.

BPO: What actually is BPO

Business Processes Outsourcing is in reality a modern management concept. Evidences from business books indicate outsourcing as an activity primarily followed by global businesses such as heavy industrial manufacturing giants, to produce or manufacture some parts of their supply chain to other location in order to lower the cost of production and add value to business and business related processes.

  But in today’s era of technology, outsourcing has taken a new avatar, it is not just limited to offshore manufacturing to save cost, it has developed itself in information technology enabled business processes which are handed over to an external agency or service provider, who takes control and performs operations of selected processes according to defined measures of performance. (Gartner Dataquest, 2004)

This means that BPO has became a part of business strategy which is focused towards outsourcing various key business processes.  A leading BPO operator in India suggests that firms and multinational’s prefer to outsource there business activities such as core competencies:   Customer Service,  Technical Support,  Collections,  Telemarketing,Back office Services, Business Process Reengineering.

It is a point to be noted that not all the business activities are outsourced, every business do not needs a call center, but every business has some back office work, which business firms can outsource. The trend of outsourcing is now not only just limited to call centers; trend has spread across different sectors in business industries, for example Insurance, Banking, Pharmaceuticals, Telecommunication and Transport industries.

And out of these Banking and Financial sector is more successful in reducing cost and adding value in their business, because for this segment of Industry, cost reduction is achieved primarily by outsourcing some of their front end processes for instance, in Banking and Insurance industry, claims processing, loans processing and client service and all similar office works are off shored to achieve cost reduction (Spectramind, 2004)

Common Outsourcing Model

For understanding the process of outsourcing, let’s take a look at most commonly practiced outsourcing model.

This model is followed by India’s premier IT firm Wipro in their Wipro Spectramind Service Delivery Model. This model has four key stages, as shown in the diagram below and the objectives, activities, skills and responsibilities at each stage are different.

1. Pre Analysis: This stage is basically an assessment stage. In this stage the analysis of important business activities is carried out. The major focus is on identifying actual business of client, with respect to internal and external environment, this phase takes about two weeks to determine the processes.
2. Analysis: This is second stage, in this stage, the process which can deliver better results if outsourced are finalized. Then the solution and cost incurred on solution is determined. A strategy is formulated, which is then discussed with client, thoroughly documented and preparation to implement this plans are initiated.
3. Transition management: This is implementation stage. Here, the strategy is matched with organization’s business, along with starting processes to integrate with ongoing business.
4. Operation: The last end of BPO is operation phase, all the operation has been successfully implemented and business is now rolling with new methodologies. The practical problems which arise during running of business are again reviewed and feed back is obtained. At the end of this phase, the actual cost advantage and benefits of off shoring are observed.

Above figure displays a typical cost breakdown in a business organization, it suggests that technology and communication claims lion’s share about 47.5 % of the total costs, and other major is cost incurred on employees which counts to 29.2 %.

For a multimillion business, even a slight percentage of saving on above two factors results in enormous cost savings. And if such processes are off shored, they result in 35-40 % in cost savings, and Innovation India, another BPO operator, Innovision India claims that in some cases cost reaches to even 60 % in savings. (innovision-india.com, 2004, Frequently asked questions)

For successful operation of Business Processes, three fundamental ingredients are required, which are Technology Infrastructure, Skilled manpower and Low cost of labor, and fortunately India offers the optimum combination of all the three elements.(Wipro Technologies, Wipro Spectramind, 2004)

Quality Manpower and Technical Manpower Resource

India offers a sea of engineers and technically skilled people. According to Business Week, a popular business weekly magazine, says that, As of March 2001, India had over 410,000 working software professionals. Out of a total of 122,000 engineers trained each year, almost 75,000 new software engineers are ready to join the industry on an annual basis. Others migrate overseas or join end-user organizations.

Educational universities, as well as the prestigious Indian Institutes of Technology (IITs), are the principal sources of newly-qualified personnel. In addition, thousands of other technical personnel are trained by private sector institutes. (Business Week, 2004)  This abundant availability of manpower provides sufficient insurance for Business organizations that they will not run out of talent.

Almost all articles for example business organization’s white papers, newspaper articles, journals, CEO interviews, and point out at one common and major success factors of BPO in India. Almost everyone is convinced that India has one of the world’s largest talents of English speaking professionals. This gives India a sustainable competitive advantage over other competitors.

India’s base salary for computer professionals is one of the lowest in the world. By having such a low base salary, India attracts many companies from countries with a stronger dollar. One could get the same project done in India for 1/10th the price it would cost in the US. This translates to huge savings for US companies, which makes outsourcing very attractive to them. (Anant, 2003)

Secondly, the cultural differences between India and the Western world (including Europe) are not as great compared to other countries like China or Korea. If we look back to over 60 years ago, India was under British rule. Under British rule, learning English was mandatory in all schools across India. Today, English is still mandatory in most schools across India and as a result, the communication gap between India and the Western world is much smaller than with countries like China and Korea, which also have equally qualified software professionals.

Additionally, most educated people in India know English. This knowledge of the English language allows for western influence with respect to media such as movies, music and entertainment. This social acclimation decreases the culture gap between India and the Western world as compared to other Asian countries.

Thirdly, just as the Persian Gulf has its natural resources in crude oil and South Africa in diamonds, India’s natural resources lie in its abundant technically skilled manpower. India produces about 73,500 software professionals per year and these numbers continues to grow. (Why India, 2004) A lot of countries do not have the manpower with the skills that are needed and have no choice but to outsource to countries like India. India has had a lot of growth in the IT field. In 1985-1986, there were about 6,800 workers in the IT industry and this number grew to about 522,000 workers from 2001-2002. (Why India, 2004)

IT Service

In an article, ‘Indian IT Industry: Dream Run’, by Business Week, a very good equivalent, it says current scenario of Indian IT industry is as good and matured as old wine. The reason is justified and evident because many major business giants, for instance Microsoft, IBM, Sharp, General Electric, and many others industry competitors have considerable presence in India. Due to accessibility to most wanted skills and talents, they are all in India. (Business Week, 2004)

Industry Analysis

Bargaining power of Buyers. Buyers/customers are a strong force in the industry. Powerful buyers drive down profitability because they bargain for lower prices, demand better product features for the same price, and play one competitor against another. As buyer companies gain experience in offshore models, more will increasingly evaluate Build and Build, Operate, Transfer (BOT) captive delivery models as a means to move offshore.

Intra-Industry competitive rivalry. The market has gained additional players with the arrival of non-IT companies on ITES-BPO turf. The ITES-BPO market today is characterized by the presence of companies such as Dell, HP, EXL, WNS, Sitel, HSBC, the Standard Chartered Bank, Convergys, Wipro Spectramind, Infosys Progeon, Daksh, MsourcE, among others.

The increase in competition, both locally and from global vendors, will continue to chip away at the margins of domestic vendors particularly in the more developed offshore markets. The following are the key factors that currently impact offshore pricing (Industry Trends, 2004):

1. Economic pressure on US-based companies;
2. Size of deals are significantly higher than seen before;
3. Market entry of multi-national supplier firms;
4. Critical mass of qualified suppliers competing heavily.

Pricing pressure will continue in 2004 and beyond. Vendors that demonstrate strong client relationships, deep domain knowledge and productivity improvements will be able to better protect their margins.

Bargaining power of Suppliers. Suppliers are a weak force in the industry. This can be attributed to the fact that hardware, software, process training/certification and other vendors to BPO outfits supply relatively undifferentiated products/services.

Threat by Substitutes. The important factors which might enhance the threat of substitution are following. Emergence of alternative locations as outsourcing hubs. China, Philippines and a few Asian and East European countries are slowly building competencies, which could cannibalize India’s share of BPO business. As captive delivery centers mature in capabilities they may become potential threats to independent BPO outfits.

Threat by New Entrants. New entrants are potential competitors. New entrants are a moderate force in the industry. The easier it is for new companies to enter the industry the greater the competition in the industry. A number of leading industrial groups in the country have set up or are planning to set up ITES-BPO facilities with a view to participate in this emerging opportunity.

Infrastructure

Till year 1994, Department of Telecom was monopolistically ruling the telecom market in India, and after liberalization of this sector, many private operators came in picture, this resulted in a telecom competition and services were improved, costs went down up to 85 % (Wipro Technologies & offshore outsourcing.com, 2004). These price reductions was followed by improvement in services, and since last 9 years India has became a symbol for having world class IT and telecom infrastructure. For example, today India has about 500 high-speed datacom links, connecting Indian IT companies with customers and partners worldwide. (Why India, 2004)

Issues

Even though there are a lot of arguments and concerns regarding spread of Business Processes Outsourcing in India, some of them relate to ethical issues. Great part of which arise due to job losses according to BPO from high wage countries like United States and United Kingdom, alone UK has lost 8500 jobs to India since last 7months (Hindu business online 2-Apr-2004), similar scene is observed in US Job market. US have observed 400000 service and about 1 million manufacturing jobs to offshoring.

The biggest issue here is about the future of those hi tech workers in US who lost their jobs to a guy in distant location, just because he can do the same job in 1/10th of the price (K Dollan & R Meridith, MSNBC) There are reports that the workers in US were forced to give training to their counterparts and then kicked off from their job, this has resulted in allegation on Indian IT firms for stealing of Jobs, tax payer’s money. But the answer comes from the process itself; people should acquire new skill sets in accordance with the changing trend of business (Indiatimes.com, 2004)

Conclusion

The advantage of outsourcing such processes results in increase in cash flow, efficiency in revenue generation and brings down cost. According to NASSCOM estimates, the Indian ITES-BPO industry in 2002-03 grew by 59.1 per cent to US$ 2.3 billion. In 2003-04, according to NASSCOM estimates, the Indian ITES-BPO industry is likely to grow by about 54 per cent to reach US$3.6 billion. (Industry Trends, 2004)

Although the best day of out sourcing saga of India is still far away, and if this trend continues at this pace, then one day world will see techies from US and other developed countries seeking working visa for India.  But more or less, the fact remains same that for coming 4-5 years, India will definitely be apple of US’s out sourcing eye, and will continue the enjoyment of being the preferred destination for Information Technology enabled Services, for industry giants all over the world.

References

1. Newspaper Articles/Interviews/Reports:
2. The Hindu, 2004, online edition, ‘Outsourcing set to continue: Nasscom chief’, 29-Feb-2004. viewed on 29 November, 2004 <http://www.hindu.com/2004/02/29/stories/2004022900401500.htm>
3. Indian Express, 2003, online archives, ‘Value-added BPO is new outsourcing mantra’, 14-July-2003, viewed on 29 November, 2004 <http://www.expresscomputeronline.com/20030714/cover.shtml>
4. R Choudhury, 2003, ‘The cyber coolie is here’, The Hindu Businessline, online edition, 8-Dec-2003, viewed on 29 November, 2004 <http://www.thehindubusinessline.com/2003/12/08/stories/2003120800360800.htm>
5. R Fournier, 2004, ‘Kerry to use tax laws to block BPO’, The Economic Times, 26-Mar-2004, online edition, viewed on 29 November, 2004 <http://economictimes.indiatimes.com/articleshow/584138.cms>
6. A Sinha, 2003, ‘Chang must not get Chintu’s job’, The Economic Times, 22-Dec-2003,online edition, viewed on 29 November, 2004  ; http://economictimes.indiatimes.com/articleshow/msid-373081,curpg-3.cms;
7. The Times of India, 2004, online edition, ‘UKtakes up India’s BPO challenge’, 11-Jan-2004, viewed on 29 November, 2004  <http://timesofindia.indiatimes.com/articleshow/416414.cms>
8. The Economic Times, 2004, online edition, ‘Outsourcing uneconomical for high value jobs’, 31-Mar-2004, viewed on 29 November, 2004 <http://economictimes.indiatimes.com/articleshow/592571.cms>
9. The Economic Times, 2004, online edition, 30-Mar-2004, viewed on 29 November, 2004 <http://economictimes.indiatimes.com/articleshow/590964.cms>
10. P Ravindran, 2004, ‘Factors that are worrisome for BPO sector’, The Hindu Businessline, online edition, 3-Apr-2004, viewed on 29 November, 2004  <http://www.thehindubusinessline.com/2004/04/03/stories/2004040302210300.htm>
11. K Thiagarajan, A Gangopadhyay, 2003, ‘Brain, Bandwidth and Bottomline’ The Hindu Businessline, 2003, online edition, interview, 28-Sep-2003, viewed on 29 November, 2004 <http://www.thehindubusinessline.com/iw/2003/09/28/stories/2003092800240700.htm>
12. Business Magazines, Journals, Periodicals, Articles, working papers:
13. P Vandervala, 2004, ‘India’s IT Industry: Dream Run’, Tata Telecom Limited, viewed on 29 November, 2004  ;http://www.businessweek.com/adsections/indian/infotech/2001/;
14. Anthony Plewes, 2004, ‘Analysis:Outsourcing CRM operation…and staying in control’, Silicon.com, 5-Mar-2004. viewed on 29 November, 2004 ;http://www.silicon.com/comment/0,39024711,39118921,00.htm;
15. Anthont Plewes, 2004,’Analysis: CRM analytics-crunch those customers’ , Silicon.com, 19-Feb-2004, viewed on 29 November, 2004 ;http://www.silicon.com/research/specialreports/crm/0,3800002402,39118496,00.htm;
16. Bob Mcdowall, 2001, ‘Outsourcing, what and where are the benefits’, IT-Analysis.com, 23-Aug-2001, viewed on 29 November, 2004  ;http://www.it-analysis.com/article.php?articleid=8573;
17. S Sandhya, 2002, ‘Outsourcing: Advantage India’, Ciber India Online Ltd, 9-Jan-2002, article,viewed on 29 November, 2004 ;http://www.ciol.com/content/search/showarticle1.asp?artid=35550;
18. Offshoreoutsourcing.com, 2004, ‘Benefits of outsourcing IT to India’, viewed on 29 November, 2004 ;http://www.offshoreitoutsourcing.com/Pages/India_Infrastructure.asp;
19. Anant, 2003, ‘Cheap labour cost in India-CIO opinion’, CIO.com,  1-June-2003, viewed on 29 November, 2004 ;http://comment.cio.com/comments/12565.html;
20. T Worthington, 1997, ‘Outsourcing and contracting out of IT products and services’, Australian Computing Society, 6-Aug-1997, viewed on 29 November, 2004 ;http://www.acs.org.au/president/1997/outsrc/paper.htm;
21. Rediff.com, 2004, ‘Now, research on Indian BPO thrives in US’, online report, 18-Mar-2004, viewed on 29 November, 2004 ;http://www.rediff.com/money/2004/mar/18bpo3.htm;
22. C Pettey, 2001, ‘Press release’, Gartner Inc., viewed on 29 November, 2004 ;http://www.gartner.com/5_about/press_room/pr20010301a.html;
23. A Sharpe, 2004, ‘US offshore-outsourcing debate intensifies’, Ovum.com, 2004, viewed on 29 November, 2004 ;www.ovum.com/go/content/c,37518;
24. National Association of Software and Service Companies, 2004, ‘Why India’, viewed on 29 November, 2004  ;http://www.nasscom.org/artdisplay.asp?cat_id=28;
25. National Association of Software and Service Companies, 2004, ‘Industry Trends’, viewed on 29 November, 2004  ;http://bpo.nasscom.org/artdisplay.aspx?art_id=2570;cat_id=609;
26. Company Web Pages/Information/Business Processes:
27. Wipro Technologies Ltd, 2004, ‘service offerings’, viewed on 29 November, 2004 http://www.wipro.com/spectramind/offerings.htm
28. Wipro Technologies Ltd, 2004, ‘Methodology, Service Delivery model’ viewed on 29 November, 2004 http://www.wipro.com/spectramind/methodology.htm#1
29. Wipro Technologies ltd, 2004, ‘Why BPO’, viewed on 29 November, 2004 http://www.wipro.com/spectramind/why_bpo.htm
30. Outsourcehome, 2003, ‘Outsource with us’, viewed on 29 November, 2004 ;http://www.outsourcehome.com/;
31. Tata Telecom Limited, 2004, ‘outsourcing @ india’, last updated 5-Apr-2004, viewed on 29 November, 2004 http://www.tatatelecom.com/outsourcing/
32. Daksh e Services Pvt Ltd, 2004, viewed on 29 November, 2004 http://www.daksh.com/
33. Outsource2india.com, 2004, ‘Offshore Outsourcing India’  online, viewed on 29 November, 2004 ;http://www.outsource2india.com/why_outsource/articles/offshore_outsourcing.asp;
34. Cygnet Infotech Pvt Ltd, 2004, ‘offshore development’, viewed on 29 November, 2004 ;http://www.cygnet-infotech.com/outsourcing-offshore-india.htm;
35. Anthiphon, 2004, home page, viewed on 29 November, 2004 ;http://www.antiphon.co.uk/;
36. Innovision India Pvt Ltd, ‘frequently asked questions’, viewed on 29 November, 2004 http://www.innovision-india.com/faqs.htm

Since new products and services chance upon financial services, continuing systems development is inevitable. This is regardless of whether the function is outsourced, back-sourced, or sent offshore. Systems development tends to be chaotic even in less turbulent situations. Each project demands its own standards. Capable personnel are scarce, so management has to set down firm business goals at the outset (Keyes, 2000). Teams which work on systems development must never lose sight of the core purpose and priorities of the enterprise they serve.

Systems development should be integrated in to strategic leadership to cope with fundamental changes in the environment for business (Morrison and Taylor, 1999). Customer definition, location, and value deliveries should guide project resources, goals, and deadlines (Schniederjans & Schniederjans, 2007). All re-engineering must be evaluated against the yardstick of new customer values (Talwar, 1999). IT specialists should not determine priorities and structures. The latter should be determined by changes in customer demographics and needs.

High impact relationships with affluent clients are typical examples of the kind of projects which companies in financial services should address (Oberlin and Powers, 2004). Conclusions IT is not a stand-alone value generator in financial services-the tail cannot wag the dog! IT has to help a financial services business compete in an increasingly tough environment (Melnick, 1999). Outsourcing is inevitable because the specialized skill sets of financial services and IT are not in convergence. Financial services are not in evolution but in transformation (Morrison and Taylor, 1999).

IT should provide quality and assured support without occupying management resources. Immediate cost implications are not entirely relevant for outsourcing decisions-the Balanced Business Scorecard approach is better for assessing the preparedness of an enterprise to engage the future (Talwar, 1999). It is not possible to support back-sourcing of IT from IBM by JPM in this case.

References

A leader in global financial services, (2007), company web site, retrieved February 2007

“Outsourcing, China and Wal-Mart”

Wal-Mart, an American corporation boasting “Everyday Low Prices” has expanded and outsourced to include the employment of foreign labor and suppliers to meet their corporation’s demands. In doing this, there are several benefits to utilizing cheap Chinese labor. By using Chinese factory labor, the Wal-Mart Corporation is able to provide goods at low prices, increasing their appeal to the consumer. Also, by using cheap labor in other countries, Wal-Mart expands their corporation worldwide, including opening stores in those countries where the company employs cheap, foreign labor. By using Chinese labor, Wal-Mart is able to maximize its corporation’s profits overseas to the United States, where the price range is much higher.

In addition, Wal-Mart’s use of foreign labor benefits the poor, foreign countries, such as China, who seek overseas companies to provide jobs and increase their countries’ capita of export. While there are a number of benefits to utilizing Chinese labor, there are numerous amounts of drawbacks. The consumers of Wal-Mart do not approve of the exploitation of the cheap foreign labor, as the conditions and reality of the factory worker’s’ employment and treatment by the factories that produce goods for Wal-Mart are brought to the public’s eye. Also, Wal-Mart, in utilizing Chinese labor, has outsourced many work opportunities for Americans to China. In addition, Wal-Mart depends heavily on Chinese suppliers, allowing Wal-Mart’s supply to become vulnerable to the consequences of fluctuation in the Chinese market and economy.

Wal-Mart provides deplorable working and living conditions for its workers, including the young women of the factory performing mechanical tasks, such as assembling circuit boards without the use of safety gloves and working long shifts in airless, hot sweatshops without fans. Also, Wal-Mart provides a dormitory for its workers to live in, with the option that you can choose to live elsewhere. However, even if a factory worker elects to live elsewhere, the cost of rent and utilities will still be deducted from his paycheck, in addition to paying rent where he resides. Read also “” essay

This example of control over the factory workers highlights the unfair conditions they are subjected to, without any control over, if they wish to maintain their job. The Wal-Mart corporation knows that the conditions provided and the environment do not meet regulations, and yet continue to allow them to continue. The factory workers are intimidated and coerced to lie about their conditions to inspectors when prompted. These include, but not limited to, forcing a seven day work week, while legally allowing only a maximum of six, and forging pay slips to reflect a fairer wage than what is paid to the workers.

The Chinese factory workers realize that their living situation is unfair, but are not allowed to complain or take proactive measure against Wal-Mart’s treatment of its factory employees, silenced by the threat that they will be fired if they do not lie thoroughly enough to inspectors with a false truth crafted by the heads of the factory to blind the inspectors to the reality of the factory worker’s plight. Upon knowing of the conditions in these Chinese sweatshops international organizations endeavor to improve conditions for factory workers and expose the reality of the factories’ practices.

The article from the Atlanta Journal-Constitution details international activist groups’ attempt to regulate unfair labor practices. Activist groups, such as the China Labor Watch, strive to improve conditions for Chinese factory workers. In the article, it states, “China Labor Watch, a New York-based nonprofit watchdog group, issued a report stating that several Chinese suppliers to Wal-Mart routinely fail to pay wages and provide health insurance as required by Chinese law.” It is the mission of the China Labor Watch, among many other advocacy groups, to defend the workers right through research and advocacy, providing assistance and raising awareness.

However, these activist groups are not very effective. Despite international organizations efforts to improve conditions, many of the conditions and practiced of Chinese factories go unnoticed and undocumented, in part due to unscrupulous record keeping on behalf of the factory, such as forging a falsified book of records to show inspectors. However, journalists and reporters have been successful in investigating and releasing articles, photographs, and video footage of the factory conditions, enlightening the world to the truth, hoping to gain public recognition of the illegal practices and garnering support to counter them. To improve labor conditions for the Chinese workers, I, as the consumer, would boycott the Wal-Mart corporation and not purchase their products manufactured in Chinese sweatshops. 

Read about disadvantages of Single Currency

I will choose instead to purchase products from corporations who utilize fair labor practices. The retail industry is a consumer driven industry; the reactions of the consumers will affect the corporation, including their supply and production practices. I would also lend my support to the international organizations, such as the China Labor Watch, in promoting awareness of the unfair treatment of Chinese laborers who do not have the protection of a fair union.

Introduction

The conditions of doing businesses change dramatically for the past century and especially for the past 30 years. With the continuous improvement of the infrastructure marked by transportation, communications and technologies, as well as changing role played by the government and the financial markets, firms found new ways and equipped with new abilities to control their operations and interact with suppliers, customers, competitors and other stakeholders.

Given the above infrastructure changes, vertical integration became a logical option for firms as the demand of product and market size increased tremendously which allowed the high-volume production since the early 90s. With the continuous advancement of the production and telecommunications technologies, it comes to a stage whereby market became a viable substitution of organisation as the exchange coordinator. Hence, one of the most important strategic decisions of firms is to define their boundaries and under what circumstances should they consider using market instead of internal organisation to coordinate exchange.

This essay is to try to describe the key characteristics of Transactions Costs Economics (hereafter TEC) and with real life examples given as how it affects the decision of using market vs. organisation. Also, by quoting the example of Sony (battery), Apple (iPod) and firm that I am working with, we can see how firms define their vertical boundaries and what is the role played by coordination in a vertical chain. TEC One of the principle contributors to the study of TEC is Oliver E. Williamson.

While Williamson drew on the earlier work done by Ronald Coase regarding the concept of transactions costs, he further advanced it and had developed the Transaction Costs Analysis (TCA) theory in the 1970s and the 1980s. In the neo-classical approach of economics study, firm is treated as a “black box”, and internal workings of which were not considered to be important. TEC, however, argued differently. It tried to explain why firms exist and why they existed in a particular form of structure and the extent to which it will integrate vertically, given the existence of transaction costs.

Transaction costs can be aroused from:

• researching potential suppliers
• collecting information on prices
• negotiating contracts
• monitoring the supplier’s input
• legal costs incurred should the supplier breach contractual negotiations

Another key characteristic of TEC is its underlying assumptions, namely bounded rationality and opportunism. Bounded rationality refers to the fact that people are bounded by the limits of their own knowledge and memories. People may also be bounded in their rationality when they are overloaded with information which is beyond their processing abilities.

Opportunism refers to the possibilities that people might try to maximize their own benefit by lying about their true intentions or chances that people might exploit another party by taking advantage of unforeseen situations. It is worthwhile to mention that while TEC had tried to modify the assumptions under neo-classical decision theory by adding the deceitful human behaviour element in TCA, the core assumption of profit maximisation is still maintained. One of the key methods to maximize profit is to minimize costs.

By assuming that management and the owners of the firms are rational, they must compare the cost of internal co-ordination, which includes the cost of internal production and the cost of governance, to the cost of using the markets, which includes external production cost and transactions costs. In essence, management is considering the “Make or Buy” decision when they do the cost comparison exercise. With the assumptions highlighted above, TEC then attempts to explain why a firm will integrate vertically by specifying three attributes that are used to characterize any transactions s, i. e. Frequency, Uncertainty and Asset Specificity.

TEC argues that these attributes will determine whether transaction costs will be lowest in an organization or in a market. For frequency, it refers to the situation whereby firm will seldom integrate vertically if the services rendered or goods produced are rarely used. For uncertainty, it may be rooted from bounded rationality described above and from a situation whereby different parties involved had asymmetric information of the exchange. High uncertainty would generally lead to vertical integration, given the savings in transaction costs outweigh the costs incurred for vertical integration.

For asset specificity, arguably it could be the most distinctive element in the TEC theory. As investment in relationship-specific asset that cannot be redeployed to another transaction without incurring extra cost or sacrifice in the productivity of the asset, it would lock the parties into the relationship to some degree. The level of specificity will increase if an asset has little value in alternative use. With the existence of this attribute, transaction costs may increase so much that it may push potential firm away from using market.

In turn, firm will internalize the exchange by vertically integrating the firm that provided/offered the specific assets. With the notion of the investment in relationship-specific asset, it transforms the relationship between trading partners whereby parties which made investment in relationship-specific assets, the relationship changes from a “large numbers” bargaining situation to a “small numbers” bargaining situation. This situation is described by Oliver Williamson as the fundamental transformation.

It gives raise to two important theoretical concepts, i. e. Quasi-Rents and the problem of Holdup. Both of these concepts affect the costs of arm’s-length market exchange and in turn affect the “Make or Buy” decision. Once a firm invests in a relationship-specific asset, it generates positive quasi-rent. The other party in the exchange may know this extra profit and will push for getting a share of it by holding up its trading partner. It can be done by renegotiating the terms of the exchange, or event breaching the contracts when they are incomplete.

In view of the possible Holdup issue, the incentive for firms to invest in relationship-specific assets in the first place might be greatly reduced. Without the adequate supply of these assets, it might force the firm to make them by itself. Make Vs. Buy Cases Having the theoretical basis of the TEC theory described above, we can now see how the theory can be applied to the real life examples. The first example that I quote is the defect notebook batteries produced by Sony which resulted in recall in year 2006 and in 2008.

In the personal computer (PC) manufacturing industry, most of the players, such as Lenovo, Hewlett-Packard, Toshiba and Dell, have been using the market and they buy most of the component parts required to make their desktops and notebooks instead of making them by themselves. One of the standard components of notebook is its battery. All of these PC firms buy their batteries from the market and one of the major battery suppliers is Sony. These PC firms made this “Buy” decision as they found Sony has attached economics of scale in producing notebook batteries which their in-house unit could not attain.

Also notebook batteries are not relationship-specific assets and are not too difficult to coordinate in the production flows as it is a stand alone add-on that only required when the assembly of the notebook components is completed. So Timing and Sequence Fit are not a major coordination issue. In addition, leakage of private information is a non-issue as the raw materials of making battery cells are almost homogenous and relatively “low-tech” in the manufacturing process. Hence, these giant PC firms entered into contracts with Sony for the supply of their notebooks batteries.

In year 2006, dozen of consumers worldwide reported Sony batteries were overheating and a few minor burns. The overheating batteries were shipped with Lenovo, HP, Toshiba and Dell notebooks. It resulted in a 9. 6 million notebook recall in year 2006. In this case, all PC firms were following the standard make vs. buy decision process and tried to reduce their production costs by using the market. However, all of them had underestimated the transaction costs related to the use of the market mechanism.

With asymmetric information where Sony has more information that HP, Dell and other PC firms, it may subsequently use it opportunistically. The PC firms can reduce the problem by improving the quality control and contract terms of buying these batteries. However, it comes at a cost, transaction costs. While the compensations claims from these PC firms to Sony were not publicly disclosed, it certainly damaged the reputation of these PC firms and Sony. It also increased the costs of the contracts between them.

While public expected this recall would not happen again, in year 2008, about 35,000 Sony notebook batteries were recalled in US after several reports of fire. Apparently, all parties involved had not taken into the transaction costs factor seriously enough given the 2006 recall. Vertical Integration I would like to illustrate the vertical integration strategy by referring to production of iPod by Apple Inc. While Apple Inc. claimed itself as a firm that designs and manufactures consumer electronics and computer software products, essentially it uses the market specialists as the coordination.

It contracted out of all of its manufacturing functions and only kept the core design of its products in-house. Even its software was not entirely developed in-house. Steve Jobs, CEO of Apple Inc. , ordered a team of hardware designers within the firm to design the hardware of iPod in year 2000. When Apple first launched iPod in the market on October, 2001, it used the software developed by a company called PortalPlayer. Apple also contracted another company, Pixo, to help on the user interface design and implementation. It is Apple Inc. hich continuously refined the look and feel of the software as the development progress. Regarding manufacturing, it was out-sourced to Taiwan companies with factories located in Mainland China. Component parts that made up of iPod are supplied by different suppliers, such as Samsung for microcontroller and storage medium and Cirrus Logic for audio chip. Interestingly, while Apple Inc. decided not to have forward integration for the manufacturing of iPod, it actively pursed the downstream integration by establishing its own distribution and retailing channel.

It set up an online media store of iTunes Music Store on April 2003 and operates more than 250 retail stores in more than 9 countries. With the PC iTunes software that can access the iTunes Store and the special property right protection technology (Data Retention Management) that only allows iPod to play the contents (which include music, videos and games) purchased from the Store, the iPod, iTunes and on-line iTunes Store are well-coordinated in the downstream of the vertical chain.

It also increased greatly the sales and profitability of Apple Inc.. Another case that I can refer to is my firm that I am currently working with. It is big law firm. When we decide whether we would outsource our supporting functions, such as data management and IT support, we always consider the chance of leakage of our private (client’s) information, which is critical to our profession. It will have negative legal and reputational consequence if our clients’ information is leaked to outsiders.

As complete contracting is either infeasible or too costly, most of data management applications are developed in-house instead of buying from the market. Conclusion TEC is important as it represents one of the first and most influential attempts to develop an economic theory that look into the firm structure in a more serious manner. It is most often used to analyze vertical integration of firms. With the development of technologies and communications, transaction costs to use Market are reduced.

However, the example of Sony batteries recall case shows that firms might underestimate these costs. While more firms are downsizing their structure and contracted out their functions, they strategically integrate to the functions which can enhance their overall profitability. The setting up of iTunes Stores and selling of proprietary contents by Apple Inc. for iPod is a good example. With possible leakage of private information and the failure to have complete contract, professional services firm is more likely to use the internal resources for its data and IT management.

In a similar nine, Alexander “DIVA approach is not only exemplar of naiveté©, but also suggestive of many implications that were overlooked in his proposal. And, even more discouraging, a best-case scenario analysis reveals that even without complication, there Is little room for error afforded by the plan, Therefore, I would not advise Alexander to move forward with his investment strategy, as its potential for reward is far outweighed by its risk.

In a vacuum, Alexander proposal would be very feasible and attractive, but in reality the real estate and rental Industries are Incredibly volatile and hard to predict even for specialists In those fields. The success of Alexander proposal Is not Just contingent upon a host of variables, but variables forecasted by an amateur lacking a sense of conservatism. To begin, the projected costs of the project include no allowance for incidentals. This Is a giant red flag.

Even If Alexander outsourced certain responsibilities to experts, the likelihood of error and unforeseen costs In bidding for a property, closing the sale, major construction and renovation, and managing a rental property is almost certain. So, without a contingency reserve, the robbers are obvious. But even worse, Alexander, a neocolonialist In any of these pursuits, Is the one handling a majority of these functions- this means It Is no longer a question of will there be unforeseen costs, but actually how much should be anticipated?

On this front alone I am incredibly skeptical of the proposal. To bring this project to fruition and realize the gains projected, the following processes need to occur without Incident: Alexander bid must be accepted by the seller, which requires that he obtain an appropriate mortgage, and avoid forfeiting his deposit, which could be something to the tune of $17,500 or more. For the closing sale of the property to go smoothly, there mustn’t be any lien issues from the existing bank withholding loan proceeds to the architect, since the construction was not finished.

After this, the construction needs to be essentially error free and at an expedited pace to be complete by the four month timeshare set- and this is without a professional general contractor. Additionally, the job must not exceed the $165,000 figure that was given by a non-lengthened contractor, who very likely may have even a low-ball estimate to seem Like an attractive candidate.

The last architect was off by $1 1 5,0001 , indicating that the scope of the work necessary to complete the Job may be deceptive and much greater than anticipated, however there is no reserve beyond budgeted amount, making this possibly the hardest mission to accomplish. If, however, the project Is completed within the four allotted months, and without going over budget, the next phase is filling vacancies, which Alexander is also planning to have accomplished by the end of the fourth month. This means that during the I OFF or, interviewing, and selecting tenants, and securing leases.

These tenants must also be willing to accept the rental rates to achieve Alexander target level of rental income, which are almost $10,000 higher than the current owner’s figures. If this is not accomplished, he could be losing $2,000 per month on each unoccupied unit. Beyond these start-up efforts, Alexander plan will only be successful if the operating costs do not exceed what is specifically budgeted for in his cash flow assumptions- these do not include costs of fixing up the units between tenants, updates, reserves or evictions, bad tenants, or law suits, and any other unforeseeable expenses. 

Read why a company’s management team should give serious consideration to bidding

Though possible, it is incredibly hard to imagine that the stars would align so perfectly that all the aforementioned conditions are met as forecasted and result in triumph. It seems much more likely that some unforeseen incident will paralyze the process, creating a rippling effect that throws off virtually all of Alexander predictions. For example, a delay in the closing process would delay construction, delaying when tenants can move in and therefore when income can start being generated, and so on.

The plan is contingent upon virtually incident-free operation that is somehow achieved under the direction of an amateur- this is fundamentally flawed. As such, I believe Alexander proposal is far too deficient in and of itself to be used as a viable plan. Beyond the limitations of the actual plan, another shortcoming of pursuing this opportunity on Revere Street are the serious implications associated with Alexander “do-it-yourself” approach. By not outsourcing responsibilities to experts, he may be avoiding the explicit employment costs, but he is likely to pay more for doing the Job himself later.

For example, hiring a general contractor would ensure that the building is constructed to code, would be more efficient because the GO would know how to best handle subcontractors and manage the overall project, both of which would help expedite the process and give Alexander time to do other value-added functions. If not, Alexander risks serious code-violation liabilities, will probably manage less effectively, and the project could therefore take much longer than anticipated, which has the same rippling effect as in the aforementioned.

Additionally, Alexander may have seriously underestimated how demanding the reject will be, and did not consider anywhere in his proposal how this may compromise his current full time Job. Even with a general contractor hired, he will still be tasked to find tenants to fill the vacancies, while Juggling the rest of the logistics, and it seems like a tall order. Since it is already included in the budget, I would hire outside management at least for the duration of construction to help find tenants.

One of the major issues being an amateur in this field is determining good tenants from bad, and the costs associated with bad tenants could be significant, and gain are something that Alexander did not include in his projected costs. Management would be instrumental in mitigating this risk, as they are usually well versed in landlord-tenant laws that Alexander may not be aware of, and also add more time for Alexander to focus on other important responsibilities.

In general, I disagree with Alexander plan to save costs by doing work himself, because this generates a greater risk for both explicit and implicit costs- I. E. Bad landlord-tenant relationships could taint Alexander reputation and dissuade other potential tenants lifer, and all of his time. By outsourcing some of the responsibilities, many of these issues could be avoided. But, if problems do arise, is it worth the consequences? Though the risks are significant and abundant, the potential for profit is always worth considering before dismissing an opportunity.

To assess the profitability of Alexander plan, I ran a best-case scenario analysis. By exclusively using the figures as set forth in the proposal, and excluding the additional costs I outlined above but were overlooked by Alexander, I determined the ceiling for profit potential. Exhibit 1 shows the cash flow assumptions, including costs and cash not included in Alexander cash flow statement, but included in his proposal. Holding all other factors constant, year 1 of operations would realize only $2,113 in NON and year 2, and all subsequent years, would see $15,610.

On a $99,000 cash investment, his pretax return in year 1 would only be 2. 13%, and then 15. 8% in subsequent years. However, this is a best-case scenario, and given the major caveats discussed in the aforementioned, I believe that Alexander will actually not break even in the first year, ND be looking at a significantly lower rate of return in years to come. So, even if everything were entirely feasible and it didn’t come at such an immense risk, I would not say that the effort put into this project would even be worth it.

One of the biggest risks concerning insolvency is that should Alexander not be able to cover his debts, under the banks law, he is personally responsible, which means that this investment could end up in devastation for him and his family. With so much uncertainty, and not a big return, the risk is Just too great to Justify pursuit of the reward. In sum, because of faults with the plan itself, the major implications of Alexander DID approach, and a return greatly exceeded by the associated risks, Alexander should not invest in the Revere Street property.

However, I do agree that pursuing a real estate investment opportunity is wise, but under certain conditions. One of the biggest conditions that must be met is that he base his projections and make his plans off of expert opinions- he should invest in help and recognize that as an amateur, he is neither qualified nor capable of making the best decisions, and would infinite from seeking expert advice. Similarly, he should place more emphasis on the value of outsourcing to professionals, and less on blind trust in his own capabilities.

Johnson Controls core business is facility management (FM), which we’ve been in nice our founding In 1885. Johnson Controls has been In the FM business for nearly 60 years. We have significantly expanded our facilities management capabilities over time, to the point where we now manage 1. 5 billion square feet worldwide – encompassing 72,000 buildings of various types for a wide spectrum of customers. We will bring this vast experience and accumulated best practices to our management of HOC facilities operation. Each year, Johnson Controls purchases over $6 billion in goods and services, externally. As a Fortune 100 company, we leverage the more than 400 purchasing partners we have formed business legislations with around the world through our central purchasing team.

Additionally, we have numerous long-term business relationships with local and 1 OFFS competitively priced in the marketplace. The company has a robust range of technical capabilities that encompass all types of facilities and systems. We are a full Facilities Management company and we know and understand buildings. This expertise will benefit the health care market in all aspects of solution development. The Global Workplace Solutions (GAS) division brings ingenuity to the places where people work, live and travel for over one hundred and twenty five years.

The brand insistently exceeds the financial results with a track record for sustainable, profitable growth. 2 GAS continually provides value to their customers by following our guiding principles set down by our founder in 1885. These principles incorporate our mission, vision and value proposition we live by and provide for our customer’s every day. Johnson Controls mission statement is Exceeding Our Customers’ Increasing Expectations. L The mission is founded on quality, innovation, productivity and responsiveness.

All of these are important focus areas and are fundamental in successfully delivering on the Mission at GAS. The GAS mission is rather enhanced by the vision of the organization to enable change and keep our customers agile, because when buildings and environments work better, people work better and businesses perform better 1. Therefore, when incorporating the mission and the vision, GAS has a value proposition that states it will continue to deliver quality services on the ground as our foundation for trust to build competence to bring strategic value to achieve higher levels of Customer Loyalty.

Objective increase productivity, increase efficiency, significantly lower the cost of operations, and implement cost control systems, programs and methods throughout the healthcare market place. Through our communications with numerous focus groups, as well as our thorough analysis of the trends in the outsourcing industry, we are confident that implementing the solution that we have proposed in this document will result in inconsistency of services, life-cycle cost savings and world-class facilities management. As one of the largest provider of integrated real estate and facilities management services in the world, GAS will bring its expertise and reach to the health care arena.

Through a focus on building long-term relationships, sustainable innovation, financial stability and a global footprint, our goal is to be the long-term, reliable facilities leadership, operations, and maintenance services strategic partner. In addition to the immediate opportunity, we believe we can provide additional value-added services in the future. Our delivery of a unique approach will leverage our Facilities Management model, providing a single point of contact and linking all touch points between GAS and your organization.

We will ensure sustained, predictable facilities management, while providing best-in-class operational integrity. 5. Recommended Strategy One of the greatest challenges faced by owners of complex facilities is actually getting those facilities to operate as intended. The complexity of the numerous systems installed in these facilities is compounded by multiple design influences, numerous contractors, value engineering, and other variables – all working at odds tit the owner’s needs and intent. GAS will leverage its current efforts in MESS optimization and HAVE maintenance by conducting a thorough and complete commissioning.

GAS not only manages higher levels of system efficiencies during the initial commissioning but, also, during ongoing commissioning of your facility as a part of normal operations. This continuous commissioning philosophy recognizes that an intended change in one system variable often gives rise to unintended consequences in other systems. Using Facility Performance Indexing will enhance the sight of the on-site staff that ill operate and maintain assets with the insight that comes through effective deployment of great technologies.

Site plus insight produces foresight, reducing down time and improving desired outcomes. Creating a philosophy that believes that the infrastructure of a building is an ever changing, complex environment and, thus, through the use of sophisticated financial and building utilization tracking tools, GAS can optimize the exposure of the customer which in turn delivers a financial solution that differentiates GAS from the competition. To insure the continual success of GAS, a strategic plan has been created to enhance the facility management offering in the healthcare arena.

In creating this plan, it is crucial to incorporate the aspects from inception through implementation tactics, action items, milestones, deadlines, tasks with their respective owner and, finally, resource allocation. In addition, key performance indicators will be created and monitored so that the results are transparent to your organization. Change management will be a critical element in the overall success of this plan, therefore, areas where that will be utilized will be addressed, facilitating the success of the overall plan. Environmental Impact 6.

Understanding the remote environment factors that affect a business is essential to evaluating and, thus, creating a successful business model. As a facility management organization, GAS must focus on the evolution of outsourcing in the facility arena which is directly tied to the economy. With the ever increasing responsibility required to operate a safe and environmentally pleasant atmosphere for our customers to work in, it is critical that GAS maintain its cutting edge approach of reducing expenses while increasing client comfort and safety.

In March 2009, HOC anted a reduction of $105 million and said that it would eliminate 400 Jobs because of Medicaid cuts, rising expenses and a growing number of uninsured patients. Alan Avails, HOC President wanted to ensure that patients who are adversely affected can be linked to alternative care. That, of course, will become more and more difficult since we have to dig deeper and deeper, lowering our financial stability. 3 Because of the economic environment facing local, federal and the private sector, organizations need to reduce operating expenses while maintaining their level of core services.

This has been the impetus for the increase in outsourcing of facilities management. Short-term objectives, functional tactics, actions items, milestones and deadlines, as well as tasks with ownership, allocating the appropriate resources, are instrumental in a functional implementation plan. The short term objectives for GAS include:

1. Implementation of strategic occupancy planning strategy
2. Have adequate office Space
3. Playbook is in Place
4. Focus Group and Operational Leaders agree on Model
5. Resource service model in place
6. Business support services model in place
7. Sales Team and non-technical services team in place

The requirements for functional tactics that will support the short-term goals include:

• Marketing: Development of a customer focus group to leverage relationships
• Accounting: Prepare a financial statement that incorporates forecasting and budgeting
• IT Infrastructure: Create a portal for a customers and our people to leverage best practices as well as to leverage the buying power of the entire organization
• Operations: Research the outsourcing practices of clients and potential clients in the future so as to maintain the competitive pricing structure and, thus, differentiate GAS from the competition.

In conjunction with having an implementation plan in force, it is also imperative to extinguish organizational change management needs for a successful implementation. For this to be successful, understanding what can be changed is critical. GAS, being part of a fortune one hundred company, can leverage internal resources for change management with oversight by the local team. Therefore, the items to be outsourced would be limited to both market strategy and legal review. Through the outsourcing of non-core business, the GAS team can optimize the time it will require to get the product to the new market place. As an example, the modification and development of the new portal could be addressed by website designer.

In addition, through careful scrutiny of the existing facility management contract by outside counsel, the new modification will require less time and receive the benefit of the legal team of the third party provider. GAS is an existing company with an existing client base. It is critical that these new changes do not adversely affect their base business. Through the proper utilization of the focus group, GAS testing of their offer can be accomplished in a short time frame.

The oversight of the change management team is critical in this endeavor as it is equally important to maintain as well as grow. You cannot fill a bucket that is full of holes. In addition, as the GAS business model is people driven, the on-boarding of new personnel to handle this growth will require input from the human resource department. These actions can be overseen by the change management leader. Determining the success of this endeavor will require GAS to evaluate numerous business factors; primarily, the affected market place.

Through the utilization of the current supply chain as well as the focus group, it is important to factor the number of new clients from this strategy. Understanding the key factors why clients outsource facility management is key to the effectiveness of the strategy, as well as if there are changes required. Concurrently, through working with the focus group, GAS will have firsthand feedback to determine the viability of the offering to the market place. This is the foundation of growth for GAS. The model is built on the underlying principle that clients are clients for life. See table below client longevity) There is a need for the business director staff to perform a quality assessment of the service offering, post sales, to determine the level of client satisfaction. This will allow the organization to cake minor changes to the offering customize the deliverable to each client. Organization to retain customers. This is accomplished through continually demonstrating value during every customer encounter. Based on our Partnership Implementation Agreement GAS will assume full responsibility for the operation and maintenance of health care facilities.

We will deliver a comprehensive partnership approach that offers the convenience and efficiency of outsourcing all plant operations management services to one provider, which will enable health care organizations to focus on their core business value: patients’ well-being. We will use a system wide approach that allows for leveraging our facilities knowledge from on-site with support from GAS truck based business, thus, enabling the local management team the ability to access knowledge in energy, HAVE, CACAO, DOD, EPA, to name a few, without the need for outside consultants.

In addition, GAS is committed to investing in the local communities where we live and work. Beginning with education seminars, Blue Sky Involve, which is an employee outreach program that promotes and protects health in every aspect from physical to social interaction as an integral component of our partnership approach as well as irking with various local and member organizations, we invest in our relationships. The following is a cash flow analysis in conjunction with cash budgeting and forecasting.

The chart with cash flow overview includes revenue, overhead, gross margin, earnings before interest and taxes (BIT) as well as a return on the investment. This investment is forecasted to be six hundred twenty-three thousand dollars. The chart forecasts a return on investment (ROI) of over one hundred and forty-nine percent and a compounded annual growth rate (CARR) in excess of one hundred and thirty- nine percent.

The breakable point for this project is within the first year of operation, therefore, there is no requirement to amortize the debt past year one. The break even analysis is calculated by using the following equation: Break-even point = Fixed Costs/(Unit Price-variable costs). Thus, based on the above information, the breakable point is accomplished in month six. Therefore, to breakable, GAS will need to implement new contracts in excess of six hundred and twenty three thousand dollars. Implementing a new business strategy creates numerous risks, therefore, a risk taxation plan must be implemented.

This will consist of assessing the risks to the management is defined as the policies, procedures, and practices involved in identification, analysis, assessment, control, and avoidance, minimization, or elimination of unacceptable risks.  New marketplaces inherently place major risk on the continual viability of the financial return. Implementation cost may change due to the procurement of new hardware, the hiring of talented associates, redesigning a portal and acquiring all the operating certificates needed to operate facilities in a efferent environment can adversely affect the results. Therefore, by having a plan with strong change management, the organization can limit its respective liability to forecast and, thus, maintain the financial independence from the parent company.

Conclusion

Demonstrated above is a growth strategy once in place, with key success factors identified, a budget, forecast and break-even analysis created with a risk management enforced the organization can undertake this new venture with a high degree of confidence. Having clearly defined short term objectives, functional tactics, action items, milestones and deadlines put in place, the arduous task of owning the deliverable is now manageable.

We look forward to the opportunity to demonstrate our innovative solutions and world-class management service delivery to the health care arena. A facilities partnership with GAS will enable the hospitals to, not only enjoy a world class healthcare facilities operation, but also realize the benefits of state of the art technology that will deliver the sustainable results needed to provide quality patient care. In addition, implementing a strong facilities strategy will drive energy reduction Laos as we have been awarded ISO 14001 for our environmental standards.

Irresponsible business practices can be curbed through external interventions. Recently, business have been engaging in irresponsible business practices such as the excessive privatization of industries that are subsequently unanswerable to governmental bodies may result in infringement of consumer and employee rights. Additionally, certain companies are outsourcing their jobs in order to avoid the full effects of the law.

In other words, unless there is a cap on the amount of outsourcing that businesses can do, chances are that this avenue will be a method used to dodge environmental laws in countries with tough regulations. The essay shall look at the effects of irresponsible business practices with regard to such issues and a critical analysis on the matter shall be given.

Fleishman – Hillard conducted a National Consumers league Study during the year 2006 to find out what the key concerns about irresponsible business practices were. They found out that there was a lot of commitment towards the issue of corporate responsibility. According to most consumers, responsible business behavior is demonstrated by commitment to the sense of community. In other words, most companies are supposed to provide living wages to their respective employees. Additionally, most US consumers felt that when companies carry out excessive downsizing, then they are not exercising responsible business practices. This opinion was further solidified in subsequent years by the existence of the US’s economic downturn. (Bulkeley, 2001)

In the latter survey, it was found that the environment was still an important aspect of responsible business practices. Most people now fully understand the impact of businesses upon the environment especially because they know that natural resources are shrinking by the day. They asserted that corporate organizations needed to show this commitment through the use of direct action in conducting business.

What was particularly interesting to note was that the American public felt that their corporate organizations were not meeting expectations. This was largely because people felt that responsible business practices within the US are nothing short of average. Most people claim that companies are not improving their responsible practices. This is highly affected by information obtained from media sources. The latter study also illustrated that there is a tendency towards a tipping point in which consumers are getting to expect more government intervention in terms of ensuring that businesses act in socially responsible ways. (Paluszek, 2005)

It has also been asserted that close to eighty two percent of the American public feel that the government needs to do more in terms of the health care, the environment, energy and other issues that businesses have a direct interest in. It has also been asserted that lack of government oversight within industries such as food, energy, chemicals and pharmaceuticals is a clear sign that irresponsible business practices are now on the rise.

It has also been shown that interventions through international standards need to be done. In other words, corporations need to be aware that their actions are not being conducted in isolation and that they are now accountable to the kinds of issues that affect consumers or employees. (Kyle, 2005)

Overly, the findings from this study indicate that corporations ought to be on their toes. They need to realize that being proactive is their best bet against the challenges of the current business arena. Irresponsible business practices are likely to cost businesses because consumers easily gain access to this information through the internet and also through internet blogs and interactions. Company generated sources are not the only avenue for accessing information and that the American public will verify information asserted by these companies through other external sources. Corporations are also faced with the challenge of redefining their business practices. This means that the companies need to inform consumers about other dimensions of responsible business practices such as;

• Environmentally responsible actions
• Better salaries for employees
• Better jobs
• Local interactions

The latter study was an examination of some of the opinions that the American public had about their corporations. In order to bring some balances into this discussion. It is essential to look at another side of the story. Some adherents claim that the issue of responsible business practices is actually quite contradictory and may even be regarded as irresponsible in itself. People holding this school of thought claim that companies are obligated to their respective shareholders. They assert that the number one commitment for any business is to make profit. Consequently, expecting businesses to apply their resources for socially responsible practices causes companies is to behave in a socially irresponsible way. (Bansal, 2000)

It would therefore be an acceptable thing for a company’s owners to purchase hybrid vehicles using their personal resources so as to reduce carbon emissions. Alternatively, company owners may decide to support organization taking part in charitable causes through their own prerogatives. However, it has been argued that company directors have no right to deploy resources or assets to social causes that would have otherwise been utilized for profit making ventures.

In line with the latter thoughts, some groups have asserted that in order to be responsible business men, one should give consumers the alternative of paying more for a certain good or service so that the remaining balance is allocated towards other socially responsible causes. In Massachusetts, such an experiment had been conducted. Contrary to expectations, only one percent of the entire consumer market was willing to engage in such a charitable coz. This is largely because the public felt that it was their responsibility to engage in sociable causes. Additionally, they were against the idea of being involved in mass business practices that had charitable connotations. This shows that the public’s perceptions of what constitutes responsible business practices are not what one may expect. (Orlitzky & Schmidt, 2003)

According to these adherents, managers are expected to invest corporate assets to achieve corporate objectives such as product innovation, profitability, growth and other issues that are likely to improve the rate of shareholder’s return on investment. As a result of this, it can be asserted that engaging in responsible business practices such as building a green headquarters would in no way contribute towards higher returns on investment.

According to these adherents, irresponsible business practices are caused by directing resources meant for corporate purposes into sociable functions. Most of the time, this can lead to failure of a business’s directors to respect the group that it owes its highest form of appreciation and this is their owners or their shareholders