Case Study on "Leethal Fashion Accessories and Outsourcing to India"

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Leethal Fashion Accessories and Outsourcing to India

The forces of globalization allowed economic agents to transcend boundaries and exploit the comparative advantages of other countries. The movement created a context in which the exchange of commodities, natural resources, capitals and even workforce became not only possible, but even natural. Given this state of events, economic agents would often outsource their manufacturing operation to more cost effective regions.

Outsourcing is generally understood as a situation in which a multinational organization opens a manufacturing plant, or contracts an already existent manufacturing plant, in a foreign region and produces its item here. The most common advantage is that of financial savings, but one could chose a foreign location due to its know how advantage, its skilled labor force and so on. Despite the benefits however, outsourcing is a delicate issue. It for instance creates dissatisfaction within the domestic market of the company, as the process is associated with incremental levels of national unemployment. Aside this however, outsourcing is in its essence a complex issue, especially when barriers are imposed. India is probably the most relevant example in this sense.

2. External Environment Factors

Take for instance the case of Leethal Fashion Accessories, an Australian apparel manufacturer and vendor, outsourcing its production operations to India. Upon penetration of this foreign industry, they must have been met with several factors. For once, there would have been the legislation, in the meaning that the Australian organization would have been faced with the necessity

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to comply with two sets of legislations -- the Austrian one and the Indian one. Additionally, while they appreciate the contribution of foreign investors to the economic development of the country, India remains rather enclosed. They also pose several conditions to the foreign investors, who would even at times have to go though bureaucratic hoops just so that they gain the right to operate in the state.

Somewhat still linked to the political climate is the fact that the levels of corruption in the south Asian country remain high. Corruption is here a way of living and it is present at all levels, starting with teachers demanding money from the students, continuing at the business level and ending at the state level where officials continually take bribes. While the national press is filled with stories of corruption, the international debate has been scarce as India has not, until recently, presented interest for the westerners (Natale and Fenton, 1997).

Another external factor would have been raised by the cultural barriers. The most relevant example in this sense would be given by the fact that the exporter and the worker speak different languages. They would generally try to communicate in English, but even this language is often misspoken and misunderstood in India. The direct result of this situation would have been a limitedly effective communication process, which would materialize in delayed deliveries and reduced control abilities.

Still linked to cultural barriers is the Indian belief that the cow is a sacred animal. The cow is here held and respected like a member of the family. This virtually means that the Australian company would have had to respect these believes by not speaking ill of the cows, not eating cows in the presence of Indians and so on. Making apparel, bags, purses, belts, wallets or any other accessories from cows' leather would have been out of the question.

3. Issues for all Australian Manufacturers

Aside the limitations before hand presented, fact remains that Australian organizations continue to outsource their manufacturing and otherwise operations to India. There are as such several reasons which make India a desirable outsourcing destination. A first reason is given by the fact that the costs associated with the labor force are significantly lower in India than they are in Australia. Within the domestic country for instance, the average annual income per capita is of $38,200, whereas the income per capita in India is less than $3,000. In manufacturing for instance, the average Indian workman is paid less than $1 per hour; in IT -- a major source of Indian outsourcing revenues -- the software developer is paid one fifth of the wage of an Australian developer (Online Opinion, 2009).

Aside costs, India offers the benefit of skilled labor force. The country is highly technologically developed, meaning then that its labor force is accustomed and able to operate even the most developed equipments. Additionally, they have the necessary expertise in this field. In terms of an actual technological infrastructure, this is best characterized by the fact that India is the 7th largest host of main telephone lines; Australia is only the 24th (China is the 1st; the top contains 231 countries and was documented and completed by the American Central Intelligence Agency).

India is the second largest owner of mobile telephones, with Australia being the 36th. There are 562 television broadcast stations in the south Asian state, 3.611 million internet hosts and 81 million internet users. In terms of internet users, the figure places India as the fourth largest country on the globe; Australia is only the 24th. What these numbers virtually mean is that the Australian outsourcers are highly able to communicate with the Indian offices, and that when breaches occur, these are generated by cultural differences, rather than technological limitations.

Another element appealing to the Australian organizations is the fact that, unlike the Chinese market, the Indian one is willing to manufacture small product batches, and even personalized and customized items. Furthermore, the country in itself is more easily reachable and geographically accessible than other outsourcing alternatives, such as China.

To the foreign investor, the impact is clear -- enhanced satisfaction and improved financial results, pegged to the ability to reduce operational costs. For overall Australia however, the impacts are combined. On the one hand, there is the positive impact that the consuming population in Australia gains an increased access to more cost effective products. On the other hand, there is the negative impact felt by the working Australian population, which loses its jobs to foreign workers. This could spiral into a socio-economic problem, as the unemployment rates could decrease, with the direct consequence of reduced purchasing power and decreasing living standards for the overall population.

4. Control Challenges

Like any other outsourcing operation, the benefits encountered are challenged by the loss of control. At the very beginning of the operations, the company, in this case the Leethal Fashion Accessories, has to recognize that it will soon lose the power to centralize its management of the manufacturing activities. Since these actions will take place in a foreign location, they will most likely be overseen by a foreign manager, who would implement control decisions as he sees fit. It is in this case possible that the strategies implemented differ from the strategies desired by the Australian offices.

The managers at Leethal Fashion Accessories will encounter additional challenges pegged to the cultural barriers that differentiate them form the workforce. This could for instance translate into communication breaches and a potential situation in which the Australian manager is unable to understand neither how the production of the apparel is going, nor how the merchandise has been shipped and so on.

The following lines present some other control problems that could be encountered:

the Australian and Indian party could have difficulties balancing their decision rights, with the Indian one demanding to be more empowered the leadership team in India could prove unable to organize and manage the manufacturing team in a means that best serves the interest of Leethal Fashion Accessories

the Australian team might prove unable to recognize Indian talent and could mistreat some of its most valuable employees despite the perceived adaptability of the Indian workforce, fact remains that the homogenous group within a work setting could prove resistant to change (McCray, 2008).

The best solution to addressing the control challenges raised by the Indian climate is that of sending an Australian delegate to the foreign country and ensuring that he oversees the means in which the manufacturing operations are being run. It is imperative that the delegate be extensively trained in the organizational behavior of Leethal Fashion Accessories so that he is best able to represent and decide in the name of the Australian entity. An adjacent solution is that of sending two delegates to the country. This would ensure higher levels of control and coordination of the Indian operations and managerial style with those in Australia. The endeavor would nevertheless increase the operational costs as the wages paid to the Australian delegates would have to cover their years of expertise, their training and ability to truthfully represent the entity, as well as the costs with their relocation, which could even include the relocation of their immediate family members -- children and spouse.

Another possible strategy to be used by the leaders at Leethal Fashion Accessories is that based on the model by Otley and Berry (1980) and quoted by Stephen Linstead and his co-editors (2004), which states the following four steps:… READ MORE

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ASSIGNMENT 2*****” CASE STUDY (2000-2,400 WORDS)

Present detailed answers, using academic references to support them, to the questions posed at the end of this case study in approximately 2000-2,500 words in total:

Read the following case study and answer all the questions.

Small players frock to India

India wants to be the Western world*****s sourcing hub. It*****s the country*****s cheap workforce that attracts business. But it seems there are some daunting challenges in doing business with the world*****s largest fast-growing economy.

The managing director of Melbourne*****s fashion retailer Leethal Fashion Accessories, Gail Lee, has experienced language and communication barriers, religious and cultural differences, corruption in business and government, and finds costly delivery delays are common hindrances for Australian importers.

*****˜India is a difficult place to do business*****, Lee says. *****˜It can really test your patience. But I havn*****t been turned off.***** She insist it is *****˜worth the extra effort***** to do business with India, suggesting it has been a *****˜saving grace***** for small businesses operating on tight margins.

For the past ten years, Lee has been sending designs to Delhi to be transformed into wearable items, as well as importing jewellery to be sold in major local department stores. Indian manufacturers may miss the occasional deadlines, misinterpret instructions and send the odd mouldy, delivery during the Monsoon months, but Lee argues that they offer a real alternative for Australia*****s abandoned textile and fashion industry. With the cost of labour being high in Australia, designers like Lee have had to source overseas for cheaper manufacturers of garments.

India*****s economy has grown at about 8 per cent a year with a middle class population of about 100 million people while the manufacturing sector has grown at a rate of about 10 per cent a year and services by a little under 9 per cent.

Lee started with about $200,000 capital and now has turnover of about $2 million, employing 11 staff, she would probably be considered a pioneer in business on the Indian frontier, as major retail giants clamour to break ground. She says there is a general reluctance in Australian business and the community to accept India as a source of good quality merchandise, but the flip side is that everyone wants to sell goods there.

In 2005-2006, Australia imported $1.2 billion of merchandise from India, but exported goods worth more than $7 billion.

Lee encourages Australian organisations not to fear doing business in India and that the differences in business practices, environments and culture can be overcome. Companies planning to do business in India need to be prepared for delays (mostly due to bad weather), varying degrees of quality and craftsmanship, a different style and manner of negotiation, and sometimes hard to understand English.

Lee reflects that Indian manufacturers might struggle to meet delivery dates and the finishing standards required in Australian retail. *****¦She also recommends giving a closely detailed time line for deliveries and understanding the supplier*****s capabilities and set very clear goals.

While Indian industry is catching up to Western standards and expectations, the country continues to grow its export markets and attract new business. Dealing with India is attractive to small business. As it enables them to get price points low enough to sell into department stores. India is good for small business because it still continues largely oif cottage industries. In accepting smaller orders and being willing to do development and custom work, if differs from china which has a mass production focus and is out of reach for smaller suppliers.

Source:Hatch, B. 2006. Small players frock to India. The Australian Financial Review, 5 December, p.50.

Answer all four questions

1. Identify the external environment factors that would have impacted on a business like Leethal Fashion Accessories when attempting to access the Indian manufacturing scene for its production.

2. What are the issues confronting all Australian manufacturing businesses that make India a desirable outsourcing destination? What effect do these factors have on Australia?

3. What types of control challenges face Leethal Fashion Accessories in outsourcing to India and how would they address them?

4. What types of controls would you implement at Leethal Fashion Accessories to ensure they perform to Australian standards and time lines.

The answers should be written in paragraph form using appropriate headings and sub-headings based on your reading of the case study and additional research. Please ensure that it is thoroughly and correctly referenced using the Harvard referencing system. It is expected that students would use a minimum of 7 different reference sources (excluding the text book) in the body of this assignment. Of the 6 reference sources, at least one should be an article from a scholarly journal. Where less than 7 references are used within the body of the assignment it would be difficult to achieve a grade higher than P2. Assignments that are not correctly referenced will incur heavy penalties.

Please conform to the following:

*****¢ use Font 12

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*****¢ reference list on a separate page after conclusion

*****¢ use Harvard Style of referencing ONLY

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*****¢ print word count at the end of your assignment (before the *****˜References***** section).

Occasionally assignments go missing during submission and return. It is expected that students will make copies of all assignments and be able to provide these if required.

Assessment of your assignments will take into account:

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*****¢ logical planning and sequence

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