1. Good Hopes For Global Outsourcing
Case Analysis

2. Global Sourcing
Global sourcing is the procurement of products or services from foreign suppliers
Global sourcing has become a major international business activity.
A firm can outsourc from independent suppliers, company-owned subsidiaries and affilates, or a combination of both.

3. Drivers of Global Sourcing
Technological advances, particularly Internet connectivity and broadband availability
Decrease in transportation and communication costs
Increased access to information and a rise in connectivity between suppliers and their customers
Entrepreneurship and rapid economic changes in emerging markets.

4. Characteristics of Global Sourcing
Services are more difficult to outsource than manufacturing
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

5. 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:
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.

6. 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
Recommended BangSource, a supplier in India
Claimed that Good Hope would save $1.4 million annually
25% annual employee turnover rate

7. Problem #1 Financial costs of outsourcing were higher than expected
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

8. Problem #2
Outsourcing has decreased customer satisfaction, putting Good Hope’s reputation on the line.
Customer complaints about hard-to-understand accents
Poor infrastructure, partly due to new contracts
Late in performing promised services due to shortage of workers.

9. Alternative #1: Captive Operation in Mexico
Good Hope would own its offshore facility in Mexico
Criteria for choosing Mexico:
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.

10. Alternative #1: Captive Operation in Mexico
Benefits
Complete control of outsourced activity
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

11. 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.

12. 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

13. 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

14. 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.

15. 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

16. 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
Faster responsiveness to evolving customer needs
Shedding unnecessary overhead

17. 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

18. Recommendations Alternative #1, Captive Operations in Mexico,
preserves reputation and increasing customer service quality
However, increase costs – lay-off some employees.
Alternative # 3, Maintaining Status Quo with an Enhanced Relationship,
Risky: May or may not work.
Good Hope and BangSource have different priorities
Alternative #4, Terminate All Outsourcing Activities
Better customer service
However costs would increase once again – lay-off employees
Alternative #2, Outsource only Backoffice Activities to BangSource
Best option.
Reduce costs and preserves customer service
Lay-off some employees This option would preserve customer service quality and Good Hope’s reputation.