Paper Example on Offshoring: Maximizing Profits While Managing Overseas Firms

Introduction

Offshoring has made it possible for organizations to mobilize capital and other factors of production to overseas markets to take advantage of better terms of production, such as cheap labor, better infrastructure and a qualified workforce that produces quality goods and services. As a result, their profit margins have skyrocketed over the years (Stojanov, 2017). However, offshoring faces one major hurdle - a proper oversight of the subsidiary overseas firm by the parent company, which is attributed to two major factors. First, the large distance between the companies that makes it impractical to make regular visits. Secondly, the partnership agreement that gives autonomy to the subsidiary firm to operate under its set of principles, without interference to achieve the overall goal of the parent company (Richards & Shackelford, 2014). As a result, it becomes hard for a parent company to keep up with the state of affairs in its overseas firm. It may come a time when the parent company will demand the expansion of production to meet a sudden increase in demand. While the offshore firm can overstretch its resources to meet the new quota, the reality is there will be a decline in the quality of output. Therefore, the only sure way of increasing quality output is by investing in good infrastructure and more labor.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Save 25%

Scenario One: Production is at its peak

When production is at its peak, all factors of production have been fully utilized with a very small percentage of inputs going to waste. In such a scenario, trying to squeeze out more output can lead to a decline in the quality of goods and services. For instance, using less raw materials to produce more will lead to a diluted product. Also, putting workers through longer periods of work may lead to fatigue and a decrease in the proficiency of work. In severe cases, the workers may strike demanding better pay and working conditions leading to legal battles, which may shine a bad light on the company's reputation.

Action to be taken:

First of all, a thorough audit of the outsourced firm needs to be taken to ensure that this is the situation at hand. For this situation to be fully satisfied, all factors of production have to be fully utilized with very little going to waste. Once the situation has been ascertained, the only logical plan would be to come up with ways of expansion. Since production is at its limits, trying to overstretch the resources will destroy the quality of products. Remember our competitors are watching and waiting with bated breath for us to make a mistake to take advantage of the situation. A decline in the quality of our products will push our customers to switch to our competitors and we do not want that since it will be an uphill task to win them back.

Therefore, an expansion of infrastructure and an increase in the labor force is inevitable not just in the short-run, but in the long run also. However, the expansion is not an easy exercise and will take a lot of planning and capital to see it through and the process may take several years to complete. This does not mean however that production will cease during this expansion exercise. The old plant will continue with its normal production, as the new improved plant is constructed in a different location. As we look for ways to scale up production, the immediate action to be undertaken will be to look at market trends for our products. This will allow us to transfer more units to areas where the consumption rate is high and fewer units to markets where consumption rate is low and this will be the norm until we can meet all demand (Stojanov, 2017).

As an emergency protocol, recalls will be made from low consumption regions to act as feeder channels to the high consumption areas. To deal with the issue of a sudden increase in demand, the company can partner up with more offshore companies. Although this will not translate to immediate output hike, since the new workers will have to be trained for months to gain proficiency, it is a great long-term investment. The new crop of workers may even be transferred to the new facility once it is finished. On the issue of shipping costs becoming too costly, we will take advantage of other shipping methods. Alternatively, instead of shipping small batches frequently, we can produce large batches and ship them on a monthly or bi-weekly basis.

Scenario Two: lax in production

When there is a lax in production, the plant has not yet reached its full potential either through poor workmanship or lack of demand for more goods and services. We will deal with the former case since in the latter case production is a derivative of demand. In the former case, inputs are not fully utilized to reach optimum production. A thorough audit of the firm is required in this case also. However, we will use a different approach to prevent the firm from cleaning the house before we show up. One of the approaches we will use is to offer anonymous questionnaires to workers to understand their working conditions, such as how they are paid, how long they work and how they are treated by the management. This will ensure that the offshore firm adheres to the labor laws of the country.

Action to be taken:

If, after thorough auditing, it is realized that the firm has broken all labor laws and infringed the workers' rights, then the top management and all individuals responsible will be held accountable. This will act as an example for a future crop of management to operate within the precincts of the law. Although terminating the partnership with the rogue firm may be the best decision, the problem is that it will stop production entirely (Richards & Shackelford, 2014). We need to keep the production in motion to cater to our clients. We can replace a few individuals at the top and everyone else will get the picture and fall in line.

To curb the problem of laxity, more inputs should be utilized to the full potential to raise the output to meet the increased demand. Workers can be called upon to work overtime and their hourly payments doubled to entice them to put in the extra hours. In the future, auditing will be done regularly and randomly and impromptu visits made to prevent the management from cleaning their tracks before our auditors show up. Alternatively, we may create a permanent oversight department to keep the management in check and to keep us in the loop on whatever is going on there.

The last thing we want is for individuals to run illegal syndicates in our name, which may tarnish the company's reputation and cost us our business. We will operate by the book to keep the government and media from our backs. While this relationship is of utmost importance to us currently, in the not-so-distant future we can choose to build the firm that will be directly answerable to us. We will still work with our current partner to keep production going, as we make plans to construct our production plant. This way, we will be able to create an overseas firm that is built on our culture and operates within our principles and goals.

Bottom Line

In either case, the expansion of production is inevitable. As the demand for our product continues to grow, so is the need to scale up production to meet the new demand. This can only be achieved by investing in infrastructure and a larger workforce. While we are likely to be persuaded by half-baked solutions that may offer temporary solutions in the short-term, we will still face the same problems in the future. The best solution is to deal with the problem head-on now and the sooner we begin, the better it will be for us in the long-run.

In as much as offshoring has considerably reduced production costs, we still face recurrent challenges such as high shipping costs and input costs. Unfortunately, seating and wishing these issues away will not make them disappear. These are common problems that are associated with a low output. To deal with this issue, we will have to produce in large quantities that will absorb these recurrent costs. As you are all aware, when we outsourced our production to a third world nation, we sacrificed a lot, including better transport and telecommunications networks. Therefore, we have to put up with these issues if we are to keep operating competitively at the international level.

To sum up, we have to start thinking about the future of this company. Any decision we make today will either have a positive or negative outcome on the company in the future. Our product is steadily growing in popularity and we cannot let this popularity wane simply because we cannot deliver what our esteemed customers are demanding. Let us not cease production, but at the same time let us not be complacent when it comes to taking the big step towards a secure future. We just have to invest in better infrastructure and a larger workforce; there is no way around it.

Conclusively, in as much as it is needed to cut production costs, it is paramount that the companies together with the suppliers oblige to labor laws. Breaking labor laws is a direct breach of the institution's ethical code of conduct. Therefore, there is need to balance all issues at hand to avoid future legal ramifications. It is of utmost significance that the company carries out offshore audits on the supply chain to ensure suppliers meet the set quality standards while attending to infringement on labor policies. A larger workforce will ensure improved productivity which is vital for the company's revenue. Nevertheless, the strategic management of the supply chain will ensure efficiency as per the ethical guidelines.

References

Stojanov, M. (2017). The challenges of offshoring and outsourcing. Trakia Journal of Sciences, 15(1), 87-92. Retrieved from http://tru.uni-sz.bg/tsj/TJS_Suppl.1_Vol.15_2017/16.pdf.

Richards, E. L., & Shackelford, S. J. (2014). Legal and Ethical Aspects of International Business. Wolters Kluwer Law and Business.