Good Hopes For
Global Outsourcing
Case Analysis
Global Sourcing

Global sourcing is the procurement of
products or services from foreign suppliers

Global sourcing has become
international business activity.

A firm can outsourc from independent
suppliers, company-owned subsidiaries
and affilates, or a combination of both.
a
major
Drivers of Global Sourcing
1)
Technological advances, particularly
connectivity and broadband availability
Internet
2)
Decrease in transportation and communication
costs
3)
Increased access to information and a rise in
connectivity between suppliers and their
customers
4)
Entrepreneurship and rapid economic changes in
emerging markets.
Characteristics of Global Sourcing

Services are more difficult to outsource than
manufacturing
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Difficult to judge quality of services
Need to develop a trusting relationship
Location decision

Eastern Europe, India, China & Latin America

Main motive of outsourcing is to cut costs,
however it often is more costly than planned

International laws do not fully protect
confidentiality of customer information
The Firm: Good Hope Hospitals

Chain of nine hospitals in California

Needs to significantly cut operational
costs. To avoid laying-off workers,
management wants to outsource certain
business processes.

Outsourcing goals:

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Reduce labor costs
Allow Good Hope to focus on activities that are
most critical to their value offerings.
Increase organizational efficiency, revenues
and the quality of service offerings.
Background

Good Hope

Wants to outsource data processing for
accounts receivable and accounts payable,
some customer service applications,
transcription of medical records, and some
data processing

Researched the risks of global outsourcing

Consulted with an outsourcing broker

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Recommended BangSource, a supplier in India
Claimed that Good Hope would save $1.4 million
annually
25% annual employee turnover rate
Problem #1

Financial costs of outsourcing were higher
than expected
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Processing of accounting and other data more
complicated than expected.
BangSource is less efficient in answering
customer inquiries, which resulted in more
telephone time and phone calls to address
customer needs
Fluctuations in the rupee and dollar exchange
rate inflated the cost of BangSource
Problem #2

Outsourcing has decreased customer
satisfaction, putting Good Hope’s
reputation on the line.

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Customer complaints about hard-tounderstand accents
Poor infrastructure, partly due to new
contracts
Late in performing promised services due to
shortage of workers.
Alternative #1: Captive Operation in
Mexico


Good Hope would own its offshore facility in Mexico
Criteria for choosing Mexico:
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Financial structure of Mexico
Availability and skills of people
Nature of the business environment
Proximity to California
Costs
 High initial costs
 Bureaucracy and regulation increases with FDI
 Higher energy and transportation costs
 Quality of infrastructure is low, which will increase
costs.
Alternative #1: Captive Operation in
Mexico
Benefits
 Complete control of outsourced activity

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Control over reputation, brand equity and customer service
Control of key technologies and processes
Protection of intellectual property
Enhanced customer service for Spanish-speaking customers
Enhanced communication between Head office in California and
outsource facility because Mexico is close to the US, and it is in
the same time zone
Labor costs are low
Access to qualified personnel abroad
Enhanced employee morale and commitment among
employees in Mexico.
Faster corporate growth because outsourcing allows Good Hope
to focus on key activities.
Increase production efficiency, maximize resource utilization
Possibility of access to new markets
Alternative #2: Outsource only
Backoffice Activities to BangSource

Customer service affects reputation and
brand equity, especially in the service
industry.

If customer service is considered an
important key activity it should not be
outsourced.
Alternative #2: Outsource only
Backoffice Activities to BangSource
Costs
 Savings will not be as substantial
 BangSource lacks quality workers
 BangSource has a high turnover rate of skilled employees,
 Absence of strong protection of intellectual property in India
 Exchange rate fluctuations between the rupee and the dollar
 Higher energy and transportation costs
 Quality of infrastructure is poor
 Conflicts and misunderstandings between Good Hope and
BangSource due to cultural differences
 Process of accounting and other data is still complex
 Bureaucracy, legalities and regulation is still complex
Alternative #2: Outsource only
Backoffice Activities to BangSource
Benefits
 Control of most customer service
activities, which preserves reputation
 Faster corporate growth because allows
Good Hope to focus on key activities, such
as customer service.
 Sheds unnecessary overhead.
 Increases production efficiency
Alternative # 3: Maintaining Status
Quo with an Enhanced Relationship

Outsourcing fails because focal firm and
the supplier do not spend enough time in
the beginning establishing a relationship
and setting boundries

Good Hope needs to collaborate closely
with BangSource in co-development and
co-design activities.
Alternative # 3: Maintaining Status
Quo with an Enhanced Relationship
Costs
 Lack of quality workers with adequate
knowledge.
 Regulation and bureaucracy is complex, however
by maintaing a close relationship with
BangSource, Good Hope will have an easier time.
 Exchange rate fluctuations between rupee and
dollar
 Higher energy and transportation costs
 Quality of infrastructure is poor, resulting in
electricity blackouts
Alternative # 3: Maintaining Status
Quo with an Enhanced Relationship
Benefits
 Less conflicts/misunderstandings
 Enhanced employee morale and commitment
among employees
 Good Hope will gain negociating power and better
control of the value chain
 Faster corporate growth because outsourcing
allows Good Hope to focus on key activities
 Productivity and service improvement
 Production efficiency due to giving BangService
specialized tasks

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Faster responsiveness to evolving customer needs
Shedding unnecessary overhead
Alternative #4: Terminate All
Outsourcing Activities
Costs
 Lay off workers, which may lead to eroding employee
morale
 Reduction in competitiveness
 Cost effieciency reduction
 Not focused on key activities
 Spending unneccessary overhead
Benefits
 Control over value chain
 Maintain reputation, brand equity, and customer service
 Protection of intellectual property
 Good infrastructure
Recommendations

Alternative #1, Captive Operations in Mexico,
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Alternative # 3, Maintaining Status Quo with an
Enhanced Relationship,
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Risky: May or may not work.
Good Hope and BangSource have different priorities
Alternative #4, Terminate All Outsourcing Activities
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preserves reputation and increasing customer service quality
However, increase costs – lay-off some employees.
Better customer service
However costs would increase once again – lay-off employees
Alternative #2, Outsource only Backoffice Activities
to BangSource
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Best option.
Reduce costs and preserves customer service
Lay-off some employees This option would preserve customer
service quality and Good Hope’s reputation.