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Globalization and Procurement (graded)
For most industries, globalization is arguably one of the more common business trends of the last
decade. As your text indicates, there are several considerations that must be evaluated from a
contracting standpoint relative to multi-nation operations and contracting agreements. Let's take
the various contracting considerations presented in your text (and outlined in this week's slides),
and discuss how they can affect U.S.-based firms seeking a BPO or subcontracting agreement with
a foreign company on a region-by-region basis, including: Canada, Europe, Asia, South/Central
America, Canada, and Mexico. Based on your understanding and/or experiences in these other
regions of the world, what do you think are contracting considerations that should be considered
and addressed in the BPO contract?
Some of the contracting considerations that should be considered and addressed in the BPO
contract are:
1) Personnel issues warrant particular consideration throughout the negotiation process.Human
resources (HR) representatives from both the vendor and the customer should be included in the
outsourcing teams as early as possible. The number of representatives will depend on the scope of
the transaction and the number of sites or locations that will be transitioning employees and may
include legal counsel with employment law or HR expertise. Some of the issues that should be
addressed are:
- Due diligence i.e., preliminary information gathering and analysis
- Terms and conditions of employment
- Employee transitioning
- Administrative and financial responsibilities
- Contract-related issues (e.g., warranties, indemnities, rights upon termination)
2) Governance
This will involve determining how Customer will manage the contract globally and in each of the
locations receiving services. The issues that would need be considered as part of governance are:
- Customer's internal organizational structure
- Vendor's organizational structure
- Mechanism pursuant to which the two structures will interact
- Escalation procedures locally and centrally
- Dispute resolution procedures
- Define Change Control Procedures⋄Services
References:
Textbook
Which region do you feel has a culture that is most different from the U.S.? Cite an example of
how it is different.
Asian cultures are very different in traditional greetings and roles of men and women. Although in
today's world, more things are overlooked, knowing how to greet others properly could make a
difference in a business relationship, for example, if you insult the owner or executive during the
first meeting.
My guess would be the middle east or China. I know that in Europe they have specific laws that
protect employees rights when being transferred. They must be given the same contractual terms as
is in the contract they signed with their previous employer.
I would have said that either Asia has the greatest differences in culture. In much of Asia there is
still a stronger collective ideal, or the idea of subsuming ones self for the good of the group. the U.S.
still has the idea of Self-sufficiency and individual achievement and excellence. I remember reading
that the idea of rewarding individual workers for excellent performance did not work well in japan
and China because of the idea that is was the group that succeeded or failed. And that to let your
group down was a great failure. While there are differences much of the American culture is still
strongly rooted in WEestern European foundations, that themselves go back even further being
strongly influenced by the Roman catholic church and the roots in Judaism.
It is important to consider the cultural markers of what makes a situation ideal or even unacceptable
based on the cultural background. The more divergent the culture from our own the more
important it is to look at those differences and take them into account. a well crafted contract might
contain clauses that are perfectly reasonable to another American, Canadian or European would be
insulting to some one from Asia and cause the contract to fall through.
I will definitely say Asia is most different in culture compare to the U.S. I will use China as my
comparison, even though there may be other Asian countries that are much closer than China. Here
are a few comparisons:
Character
Chinese: Collectivist: Higher value placed on group cooperation and individual modesty.
Americans: Individualist: Higher value placed on self-reliance. Self-promotion is more accepted. High
value placed on "freedom" from externally imposed constraints.
Friendship
Chinese: Small numbers of close, lifelong friends who feel deeply obligated to give each other
whatever help might seem required.
Americans: Large collection of "friends" and acquaintances which changes over time and involves
only limited mutual obligations.
Role of Law Rules and Regulations
Chinese: More faith in personal relationships than in written rules and procedures for structuring
interactions.
Americans: Written rules presumably apply to everyone and are assumed to produce fair,
reasonable procedures and decisions.
http://china-nafsa.aief-usa.org/culture/differences.htm
Soem of the culture which is quite different than USA are Asian and Arab countries. For example, in
Arab country, they will not discuss business with women simply because of the cultural beliefs that
the women places are in the home and not an office setting. Cultural beliefs and views are key
aspects to how a company is run/operated. Again, this is why research on a foreign country must be
thorough before entering into their markets or getting into a outsourcing arrangement. To build a
lasting and reputable relationship, the company. must know what is accepted vs. not accepted and
what is considered as respectful vs. disrespectful in different countries.
A "region" with cultural difference is Italy. They have a much more laid back view on life and
business. They work 30-35 hour weeks and take a siesta in the afternoon. Not the most different
but a different "quality of life" instead of working 50-70 hours a week like many Americans. In
Italy, the businesses would open at 8:00am, close at 11:00am, re-open at 4:00pm, and close for
the day at 8:00pm. They do not have lunch meetings because they go home for lunch.
Can you expand on some of the differences in banking industry that may exist as we expand
overseas?
There are quite a few differences from a banking regulatory standpoint when doing business
domestically as opposed to overseas. First, in the US there are a myriad of different regulatory
bodies that may regulate your bank. If your bank belongs to the Federal Reserve System then you
would have to deal with the Board of Governors of the Federal Reserve who oversee state-chartered
banks and trust companies that belong to the Federal Reserve System. If the bank doesn't belong to
the Federal Reserve System then your banking activities might be regulated by the Federal Deposit
Insurance Corporation who regulates state-chartered banks that do not belong to the Federal
Reserve System. The Office of the Comptroller of the Currency regulates banks that have the word
"National" in or the letters "N.A." after their names. If your bank is a credit union, then they might
be regulated by the National Credit Union Administration who regulates federally charted credit
unions. CONFUSING!!!
Yet, let's take a look at banking in say a country like Japan. In Japan there is ONE single regulatory
body for banks -- the Financial Services Agency (FSA) serves as a regulatory authority of financial
institutions.
http://www.zenginkyo.or.jp/en/banks/banking_regulation/
ttp://www.sec.gov/answers/bankreg.htm
One thing to remember when banking overseas is that the deposit insurance that is offered by the
FDIC may not be found in developing countries. Another difference is that a lot of banks are owned
and regulated by the government. However, most multi-national banks are more financially stable
than U.S. banks. There is also more compliance and detailed documentations especially in Swiss and
German banks. One good thing is that you may experience lees exorbitant fees and faster service
than the U.S. banks.
http://www.davidtanzer.com/david_tanzer_articles.asp?article=offshore+banking+vs+us+banks
FDIC does not ensure currency in foreign accounts. If the bank folds, the assets may be lost. And, if
there is a profit made by "exchange rate" trading, that profit is Taxable in the US.
The FDIC only insures up to $100k anyway (it is temporary set to $25K in 2008 and 2009) so unless a
company spreads assets into many banks (and we don't have a major downfall where a large % of
them go down like we did in the late 80's) that is not much of insurance for a large company.
How often do you think companies fail to understand the business culture of the foreign countries
they work in?
I think for new companies expanding into foreign markets these issues are more of a problem.
Hopefully a company finds out before hand what the legal requirements are as well as the social
ones. Companies with many years of experience and big presence employee people from that
country to help them avoid issues.
Wal-Mart went to Mexico and London to expand their business in these countries, and they did not
have that much of a success like they had here in the US. Many of the factors that drove them to not
succeed in the first year, was the lack of knowledge in these countries culture, and life style.
These types of things would need to be understood especially in the services business. Fast food
chains would be a good example. Even though we love to eat big Macs and french fries these things
may not be well recieved in a foreign country. The culture would dictate the terms. In India I am sure
beef would not be a big seller as an example. If you did not know these types of things going in you
could be set for a big failure with a product that is highly successful in another area of the world.
Companies fail to understand the business culture of the foreign countries they work in because
the culture of many countries especially Asian, Arab and other East Asian countries are vastly
different than the rest of the countries. Culture affects the foreign negotiations and businesses.
Companies don't provide or invest in the cultural training aspects for their employees especially for
those who are dealing with their foreign business partners. Many cultures around the globe like to
build up a relationship and establish trust before they engage in the business contracts and other
activities which is missed by the companies going abroad as they ignore such thingS in their business
dealing and outsoucring agreement/contract. Knowledge about the foreign culture and people’s
characteristics is an extremely important issue.
I believe that at first many firms fail to understand the culture of the foreign countries that they
are contracting with - and vice versa. However, if a firm can weather through the initial learning
curve - and is OPEN to change - then contracting overseas can be a viable option. What are some
of the specific terms and conditions that you might want to include in a contract that you are
establishing with an international firm? How can you work some of the cultural issues into your
contract?
Within the general trend of globalization, worldwide economic cooperation and technology transfer
are common practice. International procurement and disparity are two of the major issues in global
business world. Conflict and disputes are causing major damage to all the parties that intend to have
business cooperation. When business parties want to work together, they will first establish a
contractual agreement. International contract involves multinational participants from different
political, legal, economic, and cultural backgrounds which is very complex. In an international
contract, cultural issues need to be addressed. Potential conflict causations need to be identified.
Selection of dispute resolution mechanisms need to be defined. And, the differences in business
management must be understood.
Do you feel that most other countries are as emphatic about using detailed contracts for
conducting business? How do you try to introduce a 60 page BPO contract to a foreign firm that
believes in doing business with a handshake?
I think that can be very tricky, in countries where that is the norm the introduction of a contract as
detailed and long as that could be considered an insult. A implication that the person is not to be
trusted and this would have a negative impact on the relationship. If the vendor has done much
business with the US at all they should be familiar with how US firms operate and the paperwork
requirements. If not try to build a personal connection before presenting the contract and be sure
to present that this is not a trust issue.
I do not feel that other countries are as emphatic about using detailed contracts for conducting
business. It would be extremely difficult to introduce a lengthy BPO contract to a foreign firm,
especially if they do not understand the reason or need for many of the items listed in the contract.
For example, stating that an employee will be entitled to time off for maternity leave when it is
customary for a woman to automatically be given time off to raise their children.
How do you enforce the terms of a contract in a country that has an unstable government or
where the laws contradict or as a minimum, do not support all the terms in your contract?
The actual contract between the parties you can specify what law governs the agreement and the
contract’s interpretation. If this is indeed in the contract then you should have an easier time but if
it is not you probably will spend a lot of time in court just trying to decide which government has the
ruling party. You can also in a contract; the parties can specify what courts or dispute resolution
organizations will have the power to decide future disputes. This would be your best option.
http://www.iplawforstartups.com/watch-out-when-contracting-with-foreign-companies/
The exercise of political power is the root cause of political risks in international business. How
political power is exercised determines whether government action threatens a firm's value. For
example, a dramatic political event may pose little risk to a multinational enterprise, while subtle
policy changes can greatly impact a firm's performance. A student-led protest for political change
may not change the investment climate at all, while a change in local tax law can erode a firm's
profits very quickly. It is the task of the risk manager or company CFO to identify whether a
government action poses a threat to a firm's financial well-being.
Firms may be able to reduce both the likelihood and impact of firm-specific risks by incorporating
strong arbitration language into a contract or by enhancing on-site security to protect against
terrorist attacks. By contrast, firms usually have little control over the impact of country-level
political risks on their operations. The only sure way to avoid country-level political risks is to stop
operating in the country in question.
Although there are a number of ways to protect your firm against political risks, proper planning and
due diligence are most important. Too many businesses begin operations in an unfamiliar country
without having taken the time and devoted the resources necessary to ensure a better-than-average
chance of success. Developing solid relations with relevant governing authorities is the preferred
approach, but this may not always be possible or even desirable.
Finally, don't underestimate the potential benefits of using Political Risk Insurance (PRI) to manage
your political risks. There are now more PRI providers with greater capabilities than ever before.
Whether you want to take out general coverage (against expropriation, currency inconvertibility, or
political violence) or create coverage tailored to your specific needs, chances are good that one or
more of the private-sector PRI providers can meet your needs. But remember to pursue coverage
before a problem occurs; after it happens, coverage will be difficult to obtain.
Is it advantageous for a firm to outsource to another firm who is evenly matched (i.e., revenues,
profit, organizational structure, etc.)? Can you think of a situation where this is true? Can you
think of a situation where this is not true?
I do not think it is a good idea to outsource to an evenly matched company. This is similar to
outsourcing your skilled employees to your competitor. The disadvantage is that transitioned
employees could compromise company’s secretes which could give the other organization a leg up. I
am sure that your competition will be glad to know what you are doing from your already
disgruntled employees.
In fact if both companies are evenly matched and one is outsourcing, than something is not quite
right with either one of them. I am sure that this is happening but I have not experienced it.
What are some of the ethical differences for conducting business in various countries? If you feel
comfortable doing so, pose a situation that would challenge ethical business behavior and how
you might “step up to the challenge”.
Some of the local languages, gestures, body languages in other countries could seem to be offensive
to the US business employees. Work ethics in that country's company could differ from the US work
ethics. This could result into potential conflict of interest for both the companies. I think the
resolution in this case would be to understand the local cultures and its intricacies for the US
employees and same need to be communicated to the vendor organization people too so that both
sides can iron out such differences over the period of time.
A company has the opportunity to make billions of dollars by building a natural gas pipeline in a
third world country. This pipeline is going to make the lives of the poor villagers better than ever
before. The problem, the military put in charge of the project by the government uses those
villagers as slaves to build the pipeline. Many villagers are killed, tortured and maimed along the
way. But if I complain to the government, they may pull out of the deal, the multi-billion dollar
deal.
What do I do? If I'm the CEO of this company, I would ask myself how I could let it go on for so
long, after all the pipeline is nearly complete. Perhaps I should have worked out a deal where the
villagers and military could be paid a nice wage to work together building my pipeline. Maybe
talking directly with those military leaders up front, working out some form of humanity deal with
them, they would not be so inclined to turn on their own.
http://www.moles.org/ProjectUnderground/motherlode/unocal.html
One thing that must be considered is the language barrier with each country in outsourcing services.
You must make sure that your exact meanings in the contract, mean the same for the company
overseas that will be doing the job. Another consideration is that of the local laws that may put
restrictions on, or change the process by which you want your company portrayed. THese are just a
few of the considerations.
Local project management experience, local management staffing, and partnering with local firms
are very good ways to at least understand the local customs, culture, and business practices.
The monetary issue is also important. That is why many U.S. firms require payment in American
dollars (to avoid the volatile exchange rates associated with many international markets).
However, contracting overseas, in general, is a very complex proposition that requires much legal
counsel to ensure that you, as a company are protected and that your risk is minimized as much as
possible. Needless to say, many companies and individuals overseas do not see the need or
believe in contracts as part of a business relationship. In fact, they may be viewed as a sign of
distrust, and thus considered an insult. They believe a handshake and his/her word is enough.
This is quite different to the structured approach business operations in America believe in (i.e.,
no contract, no services).