Custom «Managing Cross-Borders» Essay Paper Sample
Offshoring practices have become vital for organizations as competition increases. Corporations had little competition in the past and the motivation to lower their costs. However, globalization has provided companies with equal opportunities in the global markets, which has reduced the available market share. Consequently, firms must look for ways to increase their profitability such as cost reduction and access to their most valuable resources. Offshoring provides organizations such a chance because companies can relocate their operations to countries with low production costs, low labour costs and access to vital resources. Apart from just relocating operations, offshoring has created a chance for companies to outsource some of their activities to third parties abroad so that they can concentrate on vital elements of their business. Despite the many benefits that accompany offshoring, managing offshore operations is challenging because of a variety of reasons. As such, companies must weigh the benefits and challenges of offshoring before deciding whether to offshore and the most appropriate locations. This paper will use Misys Company whose headquarters are in the United Kingdom and its offshoring operations in China to understand the concept of cross-border offshoring management. The company creates software for various applications and sells them mostly to corporate clients. The paper will analyse the concept of offshoring, outsourcing, their benefits, challenges, possible solutions and reason for offshoring. Additionally, it will explore the cultural dimensions that affect the management of cross-border operations by using Hofstede’s cultural theory. Finally, the paper will evaluate ways through which the Misys can apply the gamification theory in its activities.
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2.1 Cross-Border Offshoring Management
2.2 Background to Misys Offshoring
Cross-border and offshoring management is the process through which firms coordinate their activities that take place in another country apart from where their major operations are (Oshri & Willcocks 2011). The management is essential because the offshore activities must be congruent with the needs and objectives of the company. As such, there is a need for managers in the home country to communicate and assess progress in the offshore location to ensure that costs, schedules, timelines, and specifications are met. Misys established its operations in Beijing in 2002 with the aim of creating software for the banking sector. The offshoring decision was made because of the opportunities that were emerging in China. The banking system was flourishing, and banks needed software systems that would help them increase security and trading operations. Serving them from the United Kingdom would have been hectic and costly because the company would have to send support employees to help install and facilitate understanding, each time a bank bought their software. Additionally, Misys would have limited opportunities to understand its Chinese clients and the best way to serve them. The establishment of offshore operations in Beijing was, therefore, essential.
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2.3 Differences between Offshoring and Outsourcing
The terms offshoring and outsourcing are sometimes used interchangeably but have different meanings. Offshoring is the means through which a business transfers its in-house activities overseas so that it can maximize the cost advantages available in the foreign destination (William, Kannan & Kishore 2010). On the other hand, outsourcing takes place when a company contracts some of its processes out to other qualified persons or firms with expertise that can perform the activities. Offshore outsourcing is the practice of engaging a vendor to accomplish activities offshore. Misys establishment of its subsidiary operation in Beijing is an offshoring practice because its activities are carried out by its employees though in a different location. Outsourcing would involve Misys hiring another company in China to create specific aspects of its software system. In this case, the hired company would complete the tasks using its employees and resources and hand over the finished work to Misys.
2.4 Reasons Companies Engage in Offshoring
The first reason for companies to offshore activities is the cost advantage. One of the costs that motivate organizations to offshore is the labour cost. Operations in the home country may be hindered by costly labour that is caused by strong unions and government intervention through legislation. The high costs can reduce profitability and competitiveness of a company. An organization operating in a foreign low labour cost location can offer products to customers at lower prices than the company in the high-cost location. In such a situation, the company with low labour advantage has competitive advantage because it can lure clients to purchase its products because of low costs (Pieter & Désirée 2007). One of the reasons that made Misys to have an offshore operation in China is to take advantage of low labour costs. China has established itself as a low-labour destination for various companies. As such, many firms have relocated to China to take advantage to the cheap workforce. Misys can create software at a low cost in China, which increases its profitability compared to when it would operate from the United Kingdom.
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The second reason why corporations offshore and outsource is increased flexibility. When a company outsource some of its non-core activities to a vendor in an offshore location, it frees the time and resources to focus on the core activities (Sankalp 2014). As such, its time and resources can be optimized to achieve the best results while other support activities are carried out by another entity. Misys became flexible after offshoring because its employees in the UK could concentrate on creating other software while the offshore operation made banking systems’ software.
Thirdly, the availability of high-quality service in the offshore location motivates organizations to offshore. Some locations have high-quality service compared to a firm’s country of origin. A company would prefer the location that provides the best service because quality is a vital aspect that determines competitiveness. For instance, the Chinese management systems are renowned for their focus on quality. Many Chinese corporations such as Toyota have a reputation for high-quality products, which are attributed to their culture. Consequently, companies such as Misys would prefer such a location with reputable management systems. As such, the availability of high-quality services through the excellent management system motivated Misys to establish a subsidiary in China. According to the resource-based view theory, companies gain competitive advantage because of the resource to which they have access. Access to the competent management systems can become vital because competitors in other countries may not have access to it. One of the challenges that face cross-border managers is how to coordinate geographically distant operations. Finding a location with excellent management systems can ease the cross-border management and improve cooperation between the offshore activities and the main office.
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Access to new technology is another reason for offshoring. Industries such as software development depend on technological innovations. When a new technology emerges in a particular country, it can render all the other previous technologies obsolete. As such, companies yearn to stay ahead of competitors by using the latest technology. When a country creates new and innovative technology, firms may relocate there to take advantage of the technology and the expertise of the workers conversant with it. The United Kingdom has been cited as lacking in technological innovations especially because the school curricula are not focused on software development. Companies in the United Kingdom may thus seek other locations that offer the missing technology. Consequently, Misys opted for the Chinese offshore site because there was adequate technology and other factors that made China more attractive than the United Kingdom.
2.5 Challenges of Cross-Border and Offshoring Management
Although offshoring is beneficial, managing it is marred by various challenges that are unique compared to managing organizations within a single country. The first challenge that cross-border managers face is cultural difference (Herath & Kishore 2009). Cultural differences can cause misunderstandings and loss of business. Culture determines how people relate and communicate. Failure to understand how the culture of the offshore location differs from that of the home country can impede managers from coordinating cross-border operations effectively. Language, which is part of culture, can also limit a manager’s ability to manage offshore operations. The United Kingdom and Chinese cultures are very different. Misys faced the cultural differences in China and had to engage local managers to help the subsidiary stabilize.
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The second challenge is geographical differences (Shawn, Earl & Thomas 2010). Sometimes, the offshore country may have a different time zone from that of the parent country. Consequently, when people in one country are working, those in the other are asleep. As such, it becomes tedious to monitor the progress and provide direction when the two places have varying time zones.
In the cases that involve outsourcing, the protection of intellectual properties can become a major challenge for managers (Lane, Maznevski, Dietz & Distefano 2009). Laws regarding intellectual property protection vary from one country to another. While they may be strong in the home country, the country within which offshore activities are located may be weak. Consequently, intellectual property rights may be violated, leading to loss of core competences (Guido & Sartor 2012). Sometimes, the vendors may steal vital information from the company with who they have contracted. The vendor can then sell the stolen information to the highest bidder. In such a situation, the challenge for managers is to identify the best vendor whom can ensure the vital information is secure and an effective vendor monitoring process. Additionally, the vendor may use the information provided, especially in the software development industry to reverse engineer. Reverse engineering would provide the vendor with essential information to compete on a fair ground with its client.
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Unrealistic expectations on the saving that can accrue from offshoring are challenges that confront managers. An organization may hope to save a certain amount of money through offshoring. However, other factors such as currency fluctuations can reduce the amount saved to the extent of creating stress. Managers must manage the expectations and ensure adequate support for the operations overseas. The managers in charge of the offshore operations may be expected to justify their viability by the home country, which may further strain their relationships. The liaison manager who coordinates the operations of the offshore and the parent company must mediate between them and set the level of expectation based on the prevailing conditions in the market.
3.1 Hofstede’s Cultural Dimensions
Culture refers to the norms, values and customs of people that determine how they behave, communicate and relate with others (Browaeys & Price 2011). Hofstede’s cultural dimensions theory is a framework that describes national cultures of different countries and the effects of the societal cultures on individual members’ behaviours. The theory has six dimensions, which assign a score for each country. The theory is applicable in many situations, one of which is cross-cultural communication. Globalisation has empowered multinational corporations to operate in different countries. Since various countries have varied cultures, understanding the cultures has become a vital success factor in multinationals’ global strategies (Carl 2007). The theory’s dimensions include power distance index, individualism vs. collectivism, uncertainty avoidance index, masculinity vs. femininity, long-term vs. short-term orientations and indulgence vs. restraint. Each of these dimensions has an implication between Misys operations in the United Kingdom and Beijing.
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Although the theory has applications in many disciplines, it has its limitations. The first limitation is that the dimensions refer to national cultures, which may not reflect the nature of subcultures with the country under consideration (Sunil & Paul 2013). As such, the theory cannot be used accurately to determine the individual cultures in a country. Secondly, the theory was created long time ago and may not reflect the cultures in the present. Cultures change as a result of interacting with others and can rarely remain constant. Therefore, using the theory currently may not capture the new trends in the cultures under review.
3.2 Power Distance
The power distance evaluates how people accept power disparity between the leaders and subordinates in an organization. A high score means more people are willing to accept the differences in power distribution between organizational leaders and their subordinates. A low score indicates that people expect that power distribution should not differ with a large margin. Since Misys operates in both the United Kingdom (UK) and China, it is essential to compare power distribution expectations of employees in both countries. The United Kingdom has a score of 35 which is a low rank (David, O’Donnell & Garavan 2012). The score means that Misys employees expect to be treated with respect and fairness by their managers. They expect to be involved in the decision making of their organization. Such an expectation influences the UK operations because the management style adopted must be participative to include the views of the employees. On the other hand, China has a very high score of 80, which means that employees accept the power difference between them and the management (Carl 2007). The implication for Misys offshore venture in China is that the employees must be treated differently by the management compared to the practice in the UK. Employees do not expect to be involved in the decision making and only work according to the directions given. The company, must therefore, try to balance its leadership style between its UK operations and Chinese location. Using the same approach would be ignoring cultural differences, which is likely to fail. The disadvantage of such a high score in China is that employee engagement with the organization may be poor and innovation and creativity may be curtailed. The managers at the offshore location might be forced to conform to an authoritative leadership style that is enshrined in formal organizational structure. Such a move may conflict with the UK strategy and vision. The best strategy, however, is for the UK operations to provide the Chinese managers with autonomy to use the appropriate management style that augers well with the cultural orientations of the Chinese people. Bulldozing the UK practices in China may be interpreted as cultural imperialism and will be resisted.
3.3 Individualism vs. Collectivism
This dimension measures the degree of interdependence among members of the society. A high score indicates that a country’s culture is individualistic while a low score shows that the culture is collective. In an individualistic society, people are concerned with their personal welfare and have little regard for other people. On the contrary, the lives of people are shaped by the collective welfare of its members. Concern for the group is essential to the welfare and performance of the people. China has a score of 20, an indication that the country is highly collective (Sarah 2006). People’s performance is determined by the effects of the results on the welfare of the group. This is essential for Misys in Beijing because the group approach can be harnessed to the company’s advantage. When the company is designing motivational rewards, it should consider fostering a work environment that promotes socialization. Additionally, the company should understand the importance of family and respect the employees’ aspects that relate to family. The challenge that the UK operations would have with the Chinese operations is that the focus in China is on collective welfare while in the UK, it is individual. The best way to make the operations in China successful is to satisfy the collective needs because personal relationships override the company and its tasks. The collective aspect of the Chinese culture is vital to Misys operations because it promotes teamwork based on trust and loyalty. The software development requires cooperation among employees to create innovation. The UK is very individualistic with a score of 89 (Browaeys & Price 2011). People’s perspectives are shaped by personal aspirations for success. As such, the UK culture differs with the Chinese culture, which would require Misys’ managers in the UK to learn the Chinese cultural communications so that they can manage employee expectations successfully. Personal fulfillment is pivotal in the motivation of UK employees, which contrasts sharply with the Chinese workers. While Misys’ UK activities can be enhanced through competition by individual workers, the Chinese activities can achieve better results by encouraging inter-group competition.
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3.4 Masculinity vs. Femininity
This cultural dimension determines the values that drive the members of a society. High score means that the culture is driven by values such as success, competition and achievement. Both China and the UK are masculine cultures because they share a score of 66 (Sunil & Paul 2013). The UK culture is success oriented and people have clear clarity on their ambitions and expected performance. Likewise, the Chinese culture is masculine to the extent of workers sacrificing their leisure time for work. Chinese students value their performance in school more than anything else because the grades determine success. In contrast, feminine cultures value quality of life and caring for others and have a low score. In this dimension, Misys offshore operations and its EU activities can be at par because in both, achievement, success and ambition drive the employees. The managers from the UK can share their experience with their Chinese counterparts with regard to how to achieve success without violating each other’s expectations. Since both cultures have fundamental differences in other dimensions, Misys can leverage their approaches to achieving success and incorporate the best practices in the entire organization. The work ethics in both cultures are essential to the cooperation of workers in China and the UK. The similarity in this dimension can be a foundation through which the two operations can cooperate to achieve a common goal.