Business Location: Outsourcing - Case Study Example

Business Location Name: Course: Professor: Institution: City & State: Date: Business Location Outsourcing involves contracting or subcontracting of none core activities to free up personnel, cash, facilities and time for activities in which the company embraces competitive advantage (Halvey & Melby, 2007). For example, a company that possesses competitive strengths may outsource legal, data processing, manufacturing, payroll accounting, marketing or other aspects of their business to focus on what they can do best and hence reduce average unit cost, focus on core business, restructure cost, improve quality of products and enhance capacity innovation (NCHRP, 1999). Off shoring is a type of outsourcing that entails the shifting of a company's business function to an overseas nation. This can involve transfer of service centers, product manufacturing or operations to another country. Off shoring is commonly intended to cut the cost of doing business. Shifting of business functions to other countries is usually targeted to countries with more favorable economic environments (Halvey & Melby, 2007). On the other hand, on shoring relocates the business function to the original country, but in a different location. On shoring requires a company to consider relocating their operations on a more preferable location of the country; particularly where cost of doing business is reduced (Halvey & Melby, 2007). Global sourcing is the practice of obtaining goods and services across the geographical boundaries. Global sourcing is especially meant to ensure efficient delivery of products and services across the global market, through low cost labor, tax reduction, reduced cost of raw materials and trade tariffs among other economic benefits (Halvey & Melby, 2007). Near shoring is "the transfer of business or IT processes to companies in a nearby country, often sharing a border with your own country" (Cinquegran, 2008). Off shoring is commonly used where both participants expects to realize neighborhood benefits such as time zone, geographical, economic, linguistic, cultural, historical or historical linkages. Globalization is the process by which regional societies, economies and cultures have become interconnected through transportation, communication and trade. In particular, economic globalization is the term used to refer to connection of national economies into the international economy through, foreign direct investment, migration, trade, capital flows, spread of technology and military presence (Desmond & Faulkner, 1995). However, globalization is commonly viewed as being a resultant of combination of technological, economic, biological, socio-cultural and political factors. The term is also associated with the international transmission of ideas, popular culture and languages by means of acculturation (Halvey & Melby, 2007). Case Studies National institute of health and clinical excellence (NICE) National institute of health and clinical excellence (NICE) is an example of a company which have undergone relocation in the recent past. NICE is a health authority agency of England and Wales. It is a special unit that operates under National Health Service (NHS). NICE was established to stamp out what came to be known as post code lottery of health care in Wales and England where treatment was administered on the basis of NHS primary care trust. Previously, NICE was located at Peter house in the heart of the city centre of Oxford (Ashok & Cynthia, 2003). Later, they relocated to a permanent office at Brentwood’s City Tower, which had a spacious floor. Initially, the purpose of relocating was to strike a half and half balance of staff between Manchester and London offices. Being relocated to Manchester, NICE saw is as an opportunity to come close to the universities at the north, with the intention of tapping them as their employees. According to Halvey and Melby, a manager of the company explained: We did have some reservations about recruitment because many of our staff need a high degree of technical expertise but we have had a great response in terms of quality of applicants and technical, project management and administrative positions have been field from good field of applicants. We now have an excellent new team who has welcomed the opportunity to work for a national organization (Halvey & Melby, 2007, p. 97). Mexican dry-cleaning and laundry industry in America Many firms and business have relocated to North America since the commencement of North America free trade association (NAFTA) in 1994. Particularly; firms have taken advantage of the free open market policy in 1994. The massive movement towards the north has particularly been occasioned by Mexico’s flexible environmental laws. In the United Nations, dry-cleaning companies are required to comply with the regulations of the Environmental Protection Agency (EPA) as well as the obligations of Montreal Protocol. Mexico’s desire for economic growth has led to its reluctance in regulation of on U.S and Mexican Dry-cleaning industries. Irish Bank Background AIB is an Irish financial service company. Its market capitalization spans to over €18 billion, 800 branches in Ireland, Poland and UK and over 24,000 staff. AIB is a minority position holder in M&T Bank which is located in Buffalo, USA. The Banks has several branches in major cities in United States and Europe. Its headquarters are in Dublin and is quoted on the New York, London and Dublin Stock Exchanges. AIB owns two data centers, two in Poland and two in Dublin (Poland and Poznan). This case discusses relocation of the two data centers. The first data centre was constructed in Donnybrook House in 1984 and the second was constructed in Bank centre, which is the banks headquarters in 1991. The two centers offer IT services for the bank’s branches in Ireland, New York, and the UK together with some other services for the bank in Poland (Hanson, 2007). For the purpose of data synchronous replication, the two building are separated physically by a two mile distance. During the subsequent years, AIB upgraded the facilities to enhance air conditioning, suppression system and fire detection. Later in 2005, it was found out that the buildings were unfit for the purpose of business security and continuity. Consequently, a massive project was to be undertaken to relocate the two data centers at a substantial cost (Hanson, 2007). Supporting strategy The Business case was to be developed using non-financial criteria because the project was not expected to generate financial returns. The strategy was inspired by varied principles as set out below. However, the principle driving factor was enhancement of the business continuity (Hanson, 2007). Business growth Sustainability AIB required more room to accommodate new servers and other IT paraphernalia, as the bank was growing swiftly. Viewed from an operational risk perspective, the two data centers were too close to each other and even more exposed to risk considering that the location was adjacent to the Dodder River which often undergoes massive flooding (Hanson, 2007). Value at risk The largest portion of AIB profits are generated from UK and Ireland. In fact, it is estimated that a major outage of business these locations would cost the bank €4m per day. This cost is would exponentially increase up to the point where IDB would be forced to close shop after a measly four days (Hanson, 2007). The closure of business would be prompted by massive loss of clients’ confidence and intervention by the market regulators. The data centre hosts critical real-tie systems such as ATM and point of sale services whose loss can cause unimaginable damage to the bank. In addition, the centers houses systems of significant financial value which includes treasury, wholesale and retail payments systems. Given the significance of these centers, relocation as a way of mitigating risk was inevitable. Business continuity enhancement IT services is very instrumental in AIB business. The volume of business that AIB transacts is absolutely high and cannot be done manually. In addition, with younger staff manual practices have been basically elapsed. Many of the banks services are highly relied upon by their customers, and are offered across the clock. As such, the bank wanted to ensure that its services are flexible enough and of very high level of quality and accessibility (Kinnard, 2010). In addition, the bank needed to comply with the regulatory guidance which requires it to demonstrate a recovery period of at most two hours in regard to many of its key services. The regulator also does not admit cases of data of transaction due to undue disruptions. It requires the bank to exercise high availability recovery point objectives (RPOs) and short recovery time objectives (RTOs) whose solution must be properly thought after. In general, the building housing these facilities must be flexible and secure. The bank decided to relocate as a strategy intended to pull together the scattered sites and concentrate them in UK and Ireland. The move was even more justifiable as a result of the reduced cost of network bandwidth (Kinnard, 2010). It is advantageous because the data centers servers can be controlled by regular maintenance and operations staff. From a business continuity viewpoint, completion of data back-ups can be done on schedule. Furthermore, without proper data and data restoration, business continuity cannot be possible. Consolidation harmonizes the business continuity agenda of flexibility, validating RPOs and reducing RTOs (Hanson, 2007). Summary of the reasons behind company’s relocation The principle reason why companies undergo strategic restructuring which includes relocation is attainment of their profit goals. Companies often relocate to a place where the cost of labor is low to increase their profit margin. This is commonly the reasons why many companies which especially require less skilled staff relocate. Some other companies will decide to relocate in search of highly skillful workers. For example, companies will most often relocate to Silicon Valley in California in search of highly skillful workers who are concentrated around this particular region (Click & Duening, 2005). Some companies will relocate with the intention of saving cost of production due to proximity to less costly source of power or raw materials. Logistical strategy such as going closer to the suppliers in order to cut on transportation costs is another reason why companies relocate (NASDA, 1991). Government incentive and flexible regulation policies attract investors from other countries. For example, reduced tax rates, lax environmental laws and weak workers union attracts many businesses. Clustering whereby companies will relocate to join other companies in the same industry for strategic reasons is another cause of shift in business location (Seidl, 2007). Conclusion Recent manufactures attend to mass markets internationally. Manufacturing methods such as JIT, Six Sigma, Kanban and lean manufacturing have influenced manufacturers to look for mass markets beyond their mother countries (Stair & Stair, 2005). Two discrete economies are apparently coming up— manufacturing economy, which is speedily budding in the developing world the service economy, it holds strong influence over most parts of the industrialized world, and the manufacturing industries which have recorded a notable increase for the recent past. The proportion of products transacted at the global scale has considerably gone up (Hanson, 2007). Considering the import exposure, it is apparent that more than 70% of goods and services are transacted through the international trade. It therefore becomes very critical for many manufacturers to formulate their strategies within a global context. The complexity of decision making by the manufacturers has considerably been driven by the global competition between different manufacturers. Global markets are facilitated through local assembly, export or fully integrated manufacturing. Organization production processes is underpinned in relation to these factors (Halvey & Melby, 2007). Location is one of such factors, although not given much attention. Manufacturers often make decisions based on quantitative analysis such as the transport costs, economies of scale among other cost based factors (Alan, 2006). The manufactures who ignores location as a key factor in strategic decisions mostly fail to succeed in the recent competitive environment. Location is usually critical in ensuring competitive advantage of a manufacturing company. For example, location determines the availability of skilled workforce which can affect the company’s ability to effect technological based processes and running of quality and effective manufacturing programs (Halvey & Melby, 2007). In the current time, many manufactures have decided to relocate to mainly attain of their profit goals. Manufacturers often relocate to a place where the cost of labor is low to increase their profit margin (Devi, 2007). This is commonly the reasons why many manufactures which especially require less skilled staff relocate to developing countries where there is a large pool of cheap labor. Other manufacturers are relocating in search of highly skillful workers. For example, manufacturers will most often relocate to China in search of highly skillful (Halvey & Melby, 2007). References Alan, E., 2006. Off shoring: The Next Industrial Revolution? In Foreign Affairs, 85, 113-128. Ashok, D., & Cynthia, K., 2003. The New Wave of Outsourcing. Fisher Center for Real Estate & Urban Economics. Fisher Center Research Reports. Click, R., & Duening, T., 2005. Essentials of business process outsourcing. New York: John Wiley and Sons. Cinquegrani, S., 2006. Nearshoring: A Smart Alternative to Offshore: IT Today. Auerbach Publications (online). Available from http://www.dbresearch.com/PROD/DBR_INTERNET_EN- (Accessed 14/5/2011). Desmond, G., & Faulkner, M., 1995. The Ideal Entrepreneurial Business for You. New York: John Wiley and Sons. Devi, K., 2007. Building Your Business Plan: 28 Days to Designing and Starting Your Business. London: Lulu.com. Halvey, J., & Melby, B., 2007. Business process outsourcing: process, strategies, and contracts. New York: John Wiley and Sons. Kinnard, W., 2010. Relocation of AIB’s main data centers. Citrix (online). Available from: http://www.continuitycentral.com/feature0488.htm (Accessed 14/5/2011). Kinnard, W., 2010. Effective business relocation: a guide to workable approaches for relocating businesses displaced by urban renewal, Volume 1970, Part 1. Center for Real Estate and Urban Economic Studies, University of Connecticut. National Cooperative Highway Research Program., 1999. Economic trends and multimodal transportation requirements. Washington D.C: Louis Berger International, Inc. National Association of State Development Agencies., 1991. Directory of incentives for business investment and development in the United States: a state-by-state guide. Washington DC: The Urban Institute. Seidl, R., 2007. Business process outsourcing relationships in Swiss banking: an exploratory study. Gotiggen: Cuvillier Verlag. Stair, L., & Stair, L., 2005. Career in Business. New York: McGraw-Hill Professional. Read More