Q1:The ethicality of offshoring is largely dependent on what services are being offshored. If these are services involving an increased risk in the confidentiality of patient and tax client information (Mintz, 2004), then, offshoring is unethical. Mintz mentioned a report on a Pakistani medical transcriber who threated a medical center in San Francisco unless she received more money for her services.However, when the issue is greater profitability of the company, even against potential long-term threat to the educational system, offshoring involves no ethical question but purely a business decision. There are many advantageous reasons for offshoring, such as taking advantage of foreign currency differences or lower labor costs (Schultz, 2006; Mintz, 2004). In fact, not deciding for offshoring, when doing so increases profits, would pose an ethical question to the top management for not defending the rights of the shareholders in maximizing return on investments potential, given the available opportunity to do so. At times, it can be a question of survival for a company (e.g. textile manufacturing) if it continues to operate at high labor costs at home (The Saylor Foundation [TSF], 2014: c7).
Q2:No, I do not expect. The primary motive of companies to go offshore is profit through savings out of lower production and labor costs. If the labor cost difference per employee in China is $1,000 a year vis-à-vis US compensation rate, closing a manufacturing plant for textile in Oregon and open a new plant in Taiwan with 1,000 employees translates into an annual profit of $1 million. That justifies the offshoring decision. Logically, decision to go reshoring depends highly on such amount cost savings to be available inshore. In general, until profitability of reshoring exceeds or, at least, equals (all other considerations being equal) the profitability of offshoring, companies will continue to outsource their services and production outside its home country.
Q3:Yes, I have. Some factors contribute to the slow realization of companies that their ads violate cultural norms in their host countries. First is language barrier. Unless the company hires locals to work in the company, especially officers that have inputs into the ads, English-speaking companies will have difficulty connecting with the locals and fail to discover the negative impact that the ad created. An ad that reads left to right (e.g. a detergent bar ad with photos of dirty to clean garments from left to right) will not be understood, in fact even misinterpreted, in a culture that reads right to left such as Hebrews and Jews (TSF, 2014: c7) .Second is cultural barrier. A refrigerator full of pork, which will receive favorable reactions from American consumers looking to buy a new refrigerator, will inspire rebuff from consumers in the Middle East who feel repulsed in the sight of pork. Third is inadequate marketing research. Risk-directed marketing research will be able to unearth cultural and linguistic issues as abovementioned if conducted.If, for instance, the company first conducted a marketing research in the refrigerator case about, either by showing first the proposed advertisement to Hebrews and Jews for comments, that misunderstanding of the ad’s meaning could have been avoided, and a more effective one created instead.
LA2
Q1:The American Airlines did not use backward integration. The executives avoided integration because of (a) the company’s profitability woes, (b) questionable ability of the executives to manage another business, and (c) the potential inter-cultural incompatibility. The weak airline industry often involves low profitability operations, which makes backward integration difficult to do due to cash constraints from the side of American Airlines and the unattractive financial picture in the company from the perspective of either Airbus or Boeing. Moreover, the profitability problems of American Airlines are signs of the executives’ inability to effectively manage the business for profit. This handicap raises doubts on their ability to profitably manage Boeing or Airbus. The latter company’s shareholders would oppose such integration. Lastly, the profitability problem of American Airlines is also symptomatic of cultural problems, which could worsen if backward integration occurs.
Q2:Another way a university can vertically integrate involves services that may provide training venues for its students (TSF, 2014: c8). For instance, a university that offers courses in medicine, clinical laboratory science, and nursing, to name a few, may vertically integrate by purchasing an existing tertiary hospital or by creating a new one. The hospital subsidiary becomes a valuable venue for the training of medical and paramedical students in their final years in their undergraduate studies. The new hospital will earn additional income through the training fees of students assigned as clinical interns. The university may keep a portion of the training fee as its own revenue and pay the hospital of the remaining portion. A research firm may be created or purchased for the exposure of students in medical, social sciences, and other disciplines. In the same manner, it may establish an accounting firm as venue for pre-graduation or post-graduation internship; or a surveying firm for its engineering department.
Q3: The top executives have a critical role in the diversification decisions, particularly in the deployment of corporate resources (Pablo, 1994). The members of Board of Directors, the legally authorized managers of a corporation, decide on whether to pursue or not the diversification. Although the final approval of the acquisition or merger rests upon the majority of the convened shareholders, the Board members still holds the key of influence and authority in deciding whether any proposal for diversification may reach the stage of submission for approval to the shareholders in a special or annual meeting. This means that it is in the interest of top executives to enlarge their companies as this potentially increases their compensation packages. Diversification is one method of enlarging the company based on its assets, which simultaneously provide opportunities for higher revenues. Thus, top executives tend to favor mergers and acquisitions than otherwise from the perspective of higher pay; at times even to the disadvantage of the shareholders.
Q4: In July, bromide-derivatives producer Albemarle Corp. (2014) presented its planned purchase of #1 lithium salts producer Rockwood Holdings Inc. The merger diversifies Albemarle’s into the “growth” market of lithium, which Rockwell is #1. It was expected to grow Albemarle’s 2013 free cash flow of $275 million to $500 million in 2015 and by 9% in 3 to 5 years. On its face value, bringing two market leaders together can create synergies in their operations and potential enhancement of their market strength. It is convincing.
Q5: Virtual integration, as described by Vadim Kotelnikov (2014), is essentially a value-chain-system restructuring using electronic and internet platforms as its central integration point. This idea is, however, not new because companies ahead of their peers in systems integration with suppliers and customers, such as General Electric (GE) and Wal-Mart, have used a similar system a decade ago. In that system, for instance, GE (as supplier to retailers) will know when inventory in certain items run low in specific suppliers, and was able to fill in the needed inventory based on the online data obtained and all transactions performed online without face-to-face mediation of personnel from either company.
Being essentially an innovative value-chain system, virtual integration has efficiency advantages over vertical integration, particularly in the removal of the need to create or purchase specialized service or product units (e.g. “contractor-subcontractor” integration) and go through the challenges inherent in cultural integration between two essentially incompatible organizational cultures. However, it is erroneous to say that the value of vertical integration rests primarily on value-chain-system efficiency. Organizations that vertically integrated in the past did so not only for increased efficiency and continued assurance of stable supply, but also to remove potential threats that growing dependence on a strengthening supplier or customer pose to the organization. A very strong supplier may threaten an organization with the withdrawal of steady source of supplies unless the organization accede to the supplier’s demands, for instance, on higher prices of products or services or the use of supplier software to integrate order-refill systems that handles information exchange on products or services at a high licensing cost. Larger organizations that face this kind of threats from strong but smaller suppliers may wisely opt to take over the supplier instead. Before this kind of threat, virtual integration has limited use.
It is correct for Kotelnikov to say that virtual integration is “culturally different,” and that is primarily due to the unique innovative culture that virtual integration demands from organizations in order to implement such a virtual system. However, it cannot adequately compare itself from vertical integration because again it is essentially an innovative supply-chain system and only resembles the supply-chain aspect of vertical integration, not the profit-generation of a vertically integrated business unit or the full control a company exerts on the products or services provided in these integrated units. In short, virtual integration need not replace fully vertical integration.
References
Albermarle (2014, July 15). Albermarle Acquisition of Rockwood. Albermarle Corp.
Retrieved from: http://www.rockwoodspecialties.com/rock_english/media/pdf_files/albermarle_rockwood_merger-joint_presentation.PDF [Search first the phrase “Albermarle Acquisition of Rockwood” in the Yahoo! Browser. Then click the linked phrase.]
Kotelnikov, Vadim (2014). Virtual integration. E-Coach.com. Retrieved (on 3 November
2014) from: http://www.1000ventures.com/business_guide/im_value_chain_virtual%20integration.html
Mintz, S.M. (2004, August 6). The ethical problems of outsource. The San Diego Union-
Tribune.Retrieved from: http://www.utsandiego.com/uniontrib/20040806/news_1z1e6mintz.html[Search “The ethical problems of outsource. The San Diego Union-Tribune” from the Yahoo! Browser. Then click the linked article title.]
Pablo, A.L. (1994, August). Determinants of acquisition integration level: A decision-making perspective. The Academy of Management Journal, 37(4). Retrieved from: http://www.jstor.org/discover/10.2307/256601?uid=3738824&uid=2129&uid=2&uid=70&uid=4&sid=21104406828071
Schultz, R.A. (2006). Offshoring as an ethical issue. Contemporary Issues in Ethics and Information Technology. DOI: 10.4018/978-1-59140-779-9.ch007
The Saylor Foundation (2014). Chapter 7: Competing International Market. Mastering Strategic Management.
The Saylor Foundation (2014). Chapter 8: Selecting Corporate Level Strategies. Mastering Strategic Management.
