For this Discussion, imagine the following scenario: You are the director of new
ID: 2804471 • Letter: F
Question
For this Discussion, imagine the following scenario: You are the director of new business development for your company, and your vice president wants to expand into new markets overseas. Your company's core competency is in the area of constructing, staffing, and operating customer call centers. Your VP reasons that since the cost of labor is cheaper overseas, the company will automatically generate a higher rate of return by investing overseas." What is your reaction to the vice president's premise? True? False? Why? Is it really that simple? Describe other types of risk that play a role in making such a decision to expand internationally. Should you always assume that foreign projects need to generate higher returns when compared with equivalent projects in the U.S.? Why or why not? Be sure to support your arguments from the readings and outside research.
Explanation / Answer
Investing overseas for setting up call centers for the company may or may not be profitable. It depends on lot of external factors which is not in control of the company. Key types of risks for expanding internationally are:
1.) Geopolitical environment: While expanding in an external country we should consider the politcal stability in that location. Even if the country residents are hardworking, but the local government is not stable and supporting, people will not be able to work upto their full potential. For example one of the World Bank report says that North Korea is the least preferred county for expanding overseas and doing business eventhough the local population is very poor and willing to work hard for their livings.
2.) Skillset of overseas employees: We should check the education level of majority of overseas people and whether their skillset matches with the requirements. For example a US center call would prefer english speaking employees so we should see if the employees are capable to learn the language easily or if they are already well learned.
3.) Local culture: Lifestyle of local people, their aspirations should also be considered. Whether local people are ok to work in shift timings, do they carry a laid back culture or laborious attitude. E.g. As per research from International Labour Organization (ILO) people in Middle East are used to luxorious lifestyle whereas the Asian population like Chinese, Philippines, Indians are more hard working. So setting up a call center in middle east countries will not be a good idea. Similarly ILO research also says that people in population is India, China is more well suited to work in call center culture because of no apprehensions in working overtime, weekends or shifts. This shows that local culture plays a big role while assessing viability of expanding overseas.
Apart from higher returns we should also consider the long term stability of overseas business. Also we should consider the local US regulations which might impose laws on outsourcing. There should be a balance maintained between overseas employees and local US employees to reduce this risk.