Question

A company has recently opened a branch in the Bourbon Isles to outsource a large chunk of analytics back office operations. This will require a significant amount of accounting and financial judgment, since, while labor costs are incredibly low in the Isles, there might be certain pitfalls of outsourcing. Even if we believe that the quality of talent in Bourbon Isles is the same as in the United States, create a detailed list of 10 points that you would want to consider before this move. Base your thoughts on economic and political issues which should affect the decision and not personal ones. (1.5 points for each clearly presented point, supported by some evidence from required or external readings)

Answer 1

1. Time difference - Working hours in United States will not match the timing in Bourbon Isles. For instance when it is 10:00 AM in US, it will be 07:00 PM approximately in Bourbon Isles. This will cause a great hardship for sharing of details. Urgent requirements might have to wait till the office hours in the later country, causing inefficiency and genuine hardship for employees of both country.

2. Foreign Exchange Risk - This usually affects all the transactions between both the branches. Company will have to take extra effort to hedge transactions against any possible foreign exchange loss. This will increase the cost to company.

3. Political Factors - Political environment of Bourbon Isles will have to be considered before making any decisions. Each government will have their own ideologies, company should make sure their values and goals are not against such ideologies.

4. War/ Coup :- A country which is not stable or has a threat of potential war or coup should scrutinized before making any investments.

5. Local regulations:- Laws and regulations of each country differs with other. The companies legal team should have a in depth knowledge of these local laws and regulations. This would else costs the company huge in penalties and fines.

6. Cultural Risk:- Social conditions and customs vary from country to country, it is necessary to make sure that the goals, values and rules of the company adhere to social conditions and custom of this foreign country.

7. Prohibited goods/ services:- The company should carryout basic research to confirm that the services provided by branch to main company are not prohibited.

8. Foreign Taxation:- Tax effect on the branch should be accounted for. High tax countries can negatively effect the profit the company plans to make by outsourcing. This will include both income and capital gain taxes.

9.Repatriation regulations:- Most developing countries have limit on the amount of money the branch can repatriate to home country during a period. This should be taken into account before making outsourcing decisions.

10. Bureaucracy:- Red tape, administration delays, corruption etc. in the bureaucracy of foreign company should be researched before making decisions. How this will effect the ethical values of the company should also be considered.