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 multination operations and contracting
agreements. !et"s ta#e the various contracting considerations
presented in your text (and outlined in this $ee#"s slides), and discuss
ho$ they can a%ect &.'.based (rms see#ing a )P* or subcontracting
agreement $ith a foreign company on a regionbyregion basis,
including+ ,anada, -urope, Asia, 'outh.,entral America, ,anada, and
/exico. )ased on your understanding and.or experiences in these other
regions of the $orld, $hat do you thin# are contracting considerations
that should be considered and addressed in the )P* contract0
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) representaties from both the endor and the
customer should be included in the outsourcing teams as earl! as possible. "he
number of representaties will depend on the scope of the transaction and the
number of sites or locations that will be transitioning emplo!ees and ma! include
legal counsel with emplo!ment law or HR e#pertise. Some of the issues that
should be addressed are:
$ %ue diligence i.e.& preliminar! information gathering and anal!sis
$ "erms and conditions of emplo!ment
$ 'mplo!ee transitioning
$ (dministratie and )nancial responsibilities
$ *ontract$related issues (e.g.& warranties& indemnities& rights upon termination)
+) ,oernance
"his will inole determining how *ustomer will manage the contract globall!
and in each of the locations receiing serices. "he issues that would need be
considered as part of goernance are:
$ *ustomer-s internal organi.ational structure
$ /endor-s organi.ational structure
$ 0echanism pursuant to which the two structures will interact
$ 'scalation procedures locall! and centrall!
$ %ispute resolution procedures
$ %e)ne *hange *ontrol Procedures1Serices
References:
"e#tboo2
1hich region do you feel has a culture that is most di%erent from the
&.'.0 ,ite an example of ho$ it is di%erent.
(sian cultures are er! di3erent in traditional greetings and roles of men and
women. (lthough in toda!-s world& more things are oerloo2ed& 2nowing how to
greet others properl! could ma2e a di3erence in a business relationship& for
e#ample& if !ou insult the owner or e#ecutie during the )rst meeting.
0! guess would be the middle east or *hina. 4 2now that in 'urope the! hae
speci)c laws that protect emplo!ees rights when being transferred. "he! must
be gien the same contractual terms as is in the contract the! signed with their
preious emplo!er.
4 would hae said that either (sia has the greatest di3erences in culture. 4n
much of (sia there is still a stronger collectie ideal& or the idea of subsuming
ones self for the good of the group. the 5.S. still has the idea of Self$su6cienc!
and indiidual achieement and e#cellence. 4 remember reading that the idea of
rewarding indiidual wor2ers for e#cellent performance did not wor2 well in 7apan
and *hina because of the idea that is was the group that succeeded or failed.
(nd that to let !our group down was a great failure. 8hile there are di3erences
much of the (merican culture is still strongl! rooted in 8'estern 'uropean
foundations& that themseles go bac2 een further being strongl! in9uenced b!
the Roman catholic church and the roots in :udaism.
4t is important to consider the cultural mar2ers of what ma2es a situation ideal or
een unacceptable based on the cultural bac2ground. "he more diergent the
culture from our own the more important it is to loo2 at those di3erences and
ta2e them into account. a well crafted contract might contain clauses that are
perfectl! reasonable to another (merican& *anadian or 'uropean would be
insulting to some one from (sia and cause the contract to fall through.
4 will de)nitel! sa! (sia is most di3erent in culture compare to the 5.S. 4 will use
*hina as m! comparison& een though there ma! be other (sian countries that
are much closer than *hina. Here are a few comparisons:
*haracter
*hinese: *ollectiist: Higher alue placed on group cooperation and indiidual
modest!.
(mericans: 4ndiidualist: Higher alue placed on self$reliance. Self$promotion is
more accepted. High alue placed on ;freedom; from e#ternall! imposed
constraints.
<riendship
*hinese: Small numbers of close& lifelong friends who feel deepl! obligated to
gie each other whateer help might seem re=uired.
(mericans: >arge collection of ;friends; and ac=uaintances which changes oer
time and inoles onl! limited mutual obligations.
Role of >aw Rules and Regulations
*hinese: 0ore faith in personal relationships than in written rules and procedures
for structuring interactions.
(mericans: 8ritten rules presumabl! appl! to eer!one and are assumed to
produce fair& reasonable procedures and decisions.
http:??china$nafsa.aief$usa.org?culture?di3erences.htm
Soem of the culture which is =uite di3erent than 5S( are (sian and (rab
countries. <or e#ample& in (rab countr!& the! will not discuss business with
women simpl! because of the cultural beliefs that the women places are in the
home and not an o6ce setting. *ultural beliefs and iews are 2e! aspects to
how a compan! is run?operated. (gain& this is wh! research on a foreign countr!
must be thorough before entering into their mar2ets or getting into a outsourcing
arrangement. "o build a lasting and reputable relationship& the compan!. must
2now what is accepted s. not accepted and what is considered as respectful s.
disrespectful in di3erent countries.
A 2region2 $ith cultural di%erence is 3taly. 4hey have a much more laid
bac# vie$ on life and business. 4hey $or# 5657 hour $ee#s and ta#e a
siesta in the afternoon. 8ot the most di%erent but a di%erent 29uality
of life2 instead of $or#ing 76:6 hours a $ee# li#e many Americans. 3n
3taly, the businesses $ould open at ;+66am, close at <<+66am, reopen
at =+66pm, and close for the day at ;+66pm. 4hey do not have lunch
meetings because they go home for lunch.
,an you expand on some of the di%erences in ban#ing industry that
may exist as $e expand overseas0
"here are =uite a few di3erences from a ban2ing regulator! standpoint when
doing business domesticall! as opposed to oerseas. <irst& in the 5S there are a
m!riad of di3erent regulator! bodies that ma! regulate !our ban2. 4f !our ban2
belongs to the <ederal Resere S!stem then !ou would hae to deal with the
Board of ,oernors of the <ederal Resere who oersee state$chartered ban2s
and trust companies that belong to the <ederal Resere S!stem. 4f the ban2
doesn-t belong to the <ederal Resere S!stem then !our ban2ing actiities might
be regulated b! the <ederal %eposit 4nsurance *orporation who regulates state$
chartered ban2s that do not belong to the <ederal Resere S!stem. "he O6ce of
the *omptroller of the *urrenc! regulates ban2s that hae the word ;@ational; in
or the letters ;@.(.; after their names. 4f !our ban2 is a credit union& then the!
might be regulated b! the @ational *redit 5nion (dministration who regulates
federall! charted credit unions. *O@<5S4@,AAA
Bet& let-s ta2e a loo2 at ban2ing in sa! a countr! li2e :apan. 4n :apan there is O@'
single regulator! bod! for ban2s $$ the <inancial Serices (genc! (<S() seres as
a regulator! authorit! of )nancial institutions.
http:??www..engin2!o.or.7p?en?ban2s?ban2ingCregulation?
ttp:??www.sec.go?answers?ban2reg.htm
One thing to remember when ban2ing oerseas is that the deposit insurance that
is o3ered b! the <%4* ma! not be found in deeloping countries. (nother
di3erence is that a lot of ban2s are owned and regulated b! the goernment.
Howeer& most multi$national ban2s are more )nanciall! stable than 5.S. ban2s.
"here is also more compliance and detailed documentations especiall! in Swiss
and ,erman ban2s. One good thing is that !ou ma! e#perience lees e#orbitant
fees and faster serice than the 5.S. ban2s.
http:??www.daidtan.er.com?daidCtan.erCarticles.aspD
articleEo3shoreFban2ingFsFusFban2s
<%4* does not ensure currenc! in foreign accounts. 4f the ban2 folds& the assets
ma! be lost. (nd& if there is a pro)t made b! ;e#change rate; trading& that pro)t
is "a#able in the 5S.
"he <%4* onl! insures up to G1HH2 an!wa! (it is temporar! set to G+IJ in +HHK
and +HHL) so unless a compan! spreads assets into man! ban2s (and we don-t
hae a ma7or downfall where a large M of them go down li2e we did in the late
KH-s) that is not much of insurance for a large compan!.
>o$ often do you thin# companies fail to understand the business
culture of the foreign countries they $or# in0
4 thin2 for new companies e#panding into foreign mar2ets these issues are more
of a problem. Hopefull! a compan! )nds out before hand what the legal
re=uirements are as well as the social ones. *ompanies with man! !ears of
e#perience and big presence emplo!ee people from that countr! to help them
aoid issues.
8al$0art went to 0e#ico and >ondon to e#pand their business in these countries&
and the! did not hae that much of a success li2e the! had here in the 5S. 0an!
of the factors that droe them to not succeed in the )rst !ear& was the lac2 of
2nowledge in these countries culture& and life st!le.
"hese t!pes of things would need to be understood especiall! in the serices
business. <ast food chains would be a good e#ample. 'en though we loe to eat
big 0acs and french fries these things ma! not be well recieed in a foreign
countr!. "he culture would dictate the terms. 4n 4ndia 4 am sure beef would not be
a big seller as an e#ample. 4f !ou did not 2now these t!pes of things going in !ou
could be set for a big failure with a product that is highl! successful in another
area of the world.
*ompanies fail to understand the business culture of the foreign countries the!
wor2 in because the culture of man! countries especiall! (sian& (rab and other
'ast (sian countries are astl! di3erent than the rest of the countries. *ulture
a3ects the foreign negotiations and businesses. *ompanies don-t proide or
inest in the cultural training aspects for their emplo!ees especiall! for those
who are dealing with their foreign business partners. 0an! cultures around the
globe li2e to build up a relationship and establish trust before the! engage in the
business contracts and other actiities which is missed b! the companies going
abroad as the! ignore such thingS in their business dealing and outsoucring
agreement?contract. Jnowledge about the foreign culture and peopleNs
characteristics is an e#tremel! important issue.
3 believe that at (rst many (rms fail to understand the culture of the
foreign countries that they are contracting $ith and vice versa.
>o$ever, if a (rm can $eather through the initial learning curve and
is *P-8 to change then contracting overseas can be a viable option.
1hat are some of the speci(c terms and conditions that you might $ant
to include in a contract that you are establishing $ith an international
(rm0 >o$ can you $or# some of the cultural issues into your contract0
8ithin the general trend of globali.ation& worldwide economic cooperation and
technolog! transfer are common practice. 4nternational procurement and
disparit! are two of the ma7or issues in global business world. *on9ict and
disputes are causing ma7or damage to all the parties that intend to hae
business cooperation. 8hen business parties want to wor2 together& the! will
)rst establish a contractual agreement. 4nternational contract inoles
multinational participants from di3erent political& legal& economic& and cultural
bac2grounds which is er! comple#. 4n an international contract& cultural issues
need to be addressed. Potential con9ict causations need to be identi)ed.
Selection of dispute resolution mechanisms need to be de)ned. (nd& the
di3erences in business management must be understood.
?o you feel that most other countries are as emphatic about using
detailed contracts for conducting business0 >o$ do you try to
introduce a @6 page )P* contract to a foreign (rm that believes in
doing business $ith a handsha#e0
4 thin2 that can be er! tric2!& in countries where that is the norm the
introduction of a contract as detailed and long as that could be considered an
insult. ( implication that the person is not to be trusted and this would hae a
negatie impact on the relationship. 4f the endor has done much business with
the 5S at all the! should be familiar with how 5S )rms operate and the
paperwor2 re=uirements. 4f not tr! to build a personal connection before
presenting the contract and be sure to present that this is not a trust issue.
4 do not feel that other countries are as emphatic about using detailed contracts
for conducting business. 4t would be e#tremel! di6cult to introduce a length!
BPO contract to a foreign )rm& especiall! if the! do not understand the reason or
need for man! of the items listed in the contract. <or e#ample& stating that an
emplo!ee will be entitled to time o3 for maternit! leae when it is customar! for
a woman to automaticall! be gien time o3 to raise their children.
>o$ do you enforce the terms of a contract in a country that has an
unstable government or $here the la$s contradict or as a minimum, do
not support all the terms in your contract0
"he actual contract between the parties !ou can specif! what law goerns the
agreement and the contractNs interpretation. 4f this is indeed in the contract then
!ou should hae an easier time but if it is not !ou probabl! will spend a lot of
time in court 7ust tr!ing to decide which goernment has the ruling part!. Bou
can also in a contractO the parties can specif! what courts or dispute resolution
organi.ations will hae the power to decide future disputes. "his would be !our
best option.
http:??www.iplawforstartups.com?watch$out$when$contracting$with$foreign$
companies?
"he e#ercise of political power is the root cause of political ris2s in international
business. How political power is e#ercised determines whether goernment
action threatens a )rm-s alue. <or e#ample& a dramatic political eent ma! pose
little ris2 to a multinational enterprise& while subtle polic! changes can greatl!
impact a )rm-s performance. ( student$led protest for political change ma! not
change the inestment climate at all& while a change in local ta# law can erode a
)rm-s pro)ts er! =uic2l!. 4t is the tas2 of the ris2 manager or compan! *<O to
identif! whether a goernment action poses a threat to a )rm-s )nancial well$
being.
<irms ma! be able to reduce both the li2elihood and impact of )rm$speci)c ris2s
b! incorporating strong arbitration language into a contract or b! enhancing on$
site securit! to protect against terrorist attac2s. B! contrast& )rms usuall! hae
little control oer the impact of countr!$leel political ris2s on their operations.
"he onl! sure wa! to aoid countr!$leel political ris2s is to stop operating in the
countr! in =uestion.
(lthough there are a number of wa!s to protect !our )rm against political ris2s&
proper planning and due diligence are most important. "oo man! businesses
begin operations in an unfamiliar countr! without haing ta2en the time and
deoted the resources necessar! to ensure a better$than$aerage chance of
success. %eeloping solid relations with releant goerning authorities is the
preferred approach& but this ma! not alwa!s be possible or een desirable.
<inall!& don-t underestimate the potential bene)ts of using Political Ris2
4nsurance (PR4) to manage !our political ris2s. "here are now more PR4 proiders
with greater capabilities than eer before. 8hether !ou want to ta2e out general
coerage (against e#propriation& currenc! inconertibilit!& or political iolence) or
create coerage tailored to !our speci)c needs& chances are good that one or
more of the priate$sector PR4 proiders can meet !our needs. But remember to
pursue coerage before a problem occursO after it happens& coerage will be
di6cult to obtain.
3s it advantageous for a (rm to outsource to another (rm $ho is evenly
matched (i.e., revenues, pro(t, organizational structure, etc.)0 ,an you
thin# of a situation $here this is true0 ,an you thin# of a situation
$here this is not true0
4 do not thin2 it is a good idea to outsource to an eenl! matched compan!. "his
is similar to outsourcing !our s2illed emplo!ees to !our competitor. "he
disadantage is that transitioned emplo!ees could compromise compan!Ns
secretes which could gie the other organi.ation a leg up. 4 am sure that !our
competition will be glad to 2now what !ou are doing from !our alread!
disgruntled emplo!ees.
4n fact if both companies are eenl! matched and one is outsourcing& than
something is not =uite right with either one of them. 4 am sure that this is
happening but 4 hae not e#perienced it.
1hat are some of the ethical di%erences for conducting business in
various countries0 3f you feel comfortable doing so, pose a situation
that $ould challenge ethical business behavior and ho$ you might
Astep up to the challengeB.
Some of the local languages& gestures& bod! languages in other countries could
seem to be o3ensie to the 5S business emplo!ees. 8or2 ethics in that countr!-s
compan! could di3er from the 5S wor2 ethics. "his could result into potential
con9ict of interest for both the companies. 4 thin2 the resolution in this case
would be to understand the local cultures and its intricacies for the 5S
emplo!ees and same need to be communicated to the endor organi.ation
people too so that both sides can iron out such di3erences oer the period of
time.
A company has the opportunity to ma#e billions of dollars by building a
natural gas pipeline in a third $orld country. 4his pipeline is going to
ma#e the lives of the poor villagers better than ever before. 4he
problem, the military put in charge of the proCect by the government
uses those villagers as slaves to build the pipeline. /any villagers are
#illed, tortured and maimed along the $ay. )ut if 3 complain to the
government, they may pull out of the deal, the multibillion dollar deal.
1hat do 3 do0 3f 3"m the ,-* of this company, 3 $ould as# myself ho$ 3
could let it go on for so long, after all the pipeline is nearly complete.
Perhaps 3 should have $or#ed out a deal $here the villagers and
military could be paid a nice $age to $or# together building my
pipeline. /aybe tal#ing directly $ith those military leaders up front,
$or#ing out some form of humanity deal $ith them, they $ould not be
so inclined to turn on their o$n.
http+..$$$.moles.org.ProCect&nderground.motherlode.unocal.html
One thing that must be considered is the language barrier with each countr! in
outsourcing serices. Bou must ma2e sure that !our e#act meanings in the
contract& mean the same for the compan! oerseas that will be doing the 7ob.
(nother consideration is that of the local laws that ma! put restrictions on& or
change the process b! which !ou want !our compan! portra!ed. "Hese are 7ust a
few of the considerations.
!ocal proCect management experience, local management staDng, and
partnering $ith local (rms are very good $ays to at least understand
the local customs, culture, and business practices.
4he monetary issue is also important. 4hat is $hy many &.'. (rms
re9uire payment in American dollars (to avoid the volatile exchange
rates associated $ith many international mar#ets).
>o$ever, contracting overseas, in general, is a very complex
proposition that re9uires much legal counsel to ensure that you, as a
company are protected and that your ris# is minimized as much as
possible. 8eedless to say, many companies and individuals overseas do
not see the need or believe in contracts as part of a business
relationship. 3n fact, they may be vie$ed as a sign of distrust, and thus
considered an insult. 4hey believe a handsha#e and his.her $ord is
enough.
4his is 9uite di%erent to the structured approach business operations in
America believe in (i.e., no contract, no services).