Abstract:
Many multinational enterprises (MNEs) are under pressure to offer more value to their consumers, as well as, make profits while facing steep competition. The cost of operations and productions of any organization directly determines the organization’s success. Offshoring or moving headquarters overseas allows organizations to move its business operations and functions to a different country (DiMattia, 2004). Many major MNE are often underutilized even though they have incredible knowledge resources. The main reason is that often the knowledge required within one part of the organization exists within that organization but the access to that information by those who need is difficult. This is because there is no system in place that allows identification and obtaining those knowledge resources. This paper will examine the purpose, advantages, and disadvantages of off shoring. It will also examine the factors to consider as well as the role played by the government in reducing offshoring.
Moving an MNE overseas may aid in creating the much-needed systems that will enable resource sharing through new information and technology innovations. An organization such as Avon, which is moving its headquarters to U.K, claim that the bulk of its operations is in the U.K. therefore, its following its market; this way they can offer quicker problem resolution, and offer appropriate products and services to its regional market (Sharon, 2016). However, Avon will still maintain its New York office. Moving its headquarters is a way to recover the already struggling company by cutting down on labor costs and returning to its core-base administrative offices (Sharon, 2016).
Moving headquarters offers Avon support personnel native to the new location, who have a better understanding of the new locations’ regional preferences, customer needs, market requirements, and the regulatory compliances that will directly affect the organization’s success (Benito, Lunnan, & Tomassen, 2011). However, any organization planning on moving overseas, should carryout proper research on strategic and growth planning, putting into considerations all the different factors that relate to moving overseas such as labor and production cost reduction, legal and regulatory matters, training costs, quality control measures, and implementation, business continuity planning, and communication barriers.
Benefits:
The benefits of moving a business unit and corporate HQ to another country include but are not limited to the outlined following.
Reduce effects of time-differences through provision of a 24/7 remote support to its global consumers. This allows the focus to shift from production operations to providing more value to the consumers.
Moving an organization overseas increases flexibility in terms of organization operations. This way, resource availability and accessibility are easier, opening up new avenues of increasing production.
Lower labor costs have directly brought about higher profits. Many organizations, through offshoring have increased output, as the productivity of the in-house professionals is directed to other important issues.
Moving to a new location comes with the advantage of acquiring personnel that are native to the organization’s new location, who have better knowledge for the market; its regulations and its needs.
Drawbacks:
The drawbacks to moving overseas are as follows.
Moving overseas would definitely lead to Job cuts in the present location, while low-earning services and product provided by the organization may end up discontinued or phased out.
There are hidden costs such as a fluctuating exchange rate and/or legal costs, and other offshoring risks such as the political atmosphere in the country targeted for the move, as well as its social-economic status.
If not properly executed, such a move for any organization would definitely lead to major losses. This is because focusing only on cost reduction as the main reason to move will turn out to be an unwanted expense. The organization should consider, legal and regulatory matters, training the new employees, quality control, business continuity planning, and eliminating the communication barriers.
Factors to consider:
As the CEO of an organization, there are some factors to consider while moving the headquarters overseas. These include gaining competitive advantage, as the organization will be expanding its reach globally. Strategically placing the organization globally means that the organization is able to create its own niche as well as place itself strategically in the prime business regions. This will help the organization grow. When the organization requires boosting production while reducing production costs, the CEO may consider moving its headquarters (Berry, 2006). Moving headquarters should be highly considered if there is more to gain than lose. For example, boost in production, low labor costs, reduced production costs, and improved flexibility are great reasons.
The government’s role in discouraging offshoring:
For organizations that are primarily moving to cut tax costs, the government has made an effort to discourage offshoring and outsourcing by coming up with tax incentives. These tax incentives and tax relief aim to encourage organizations to create jobs while investing in their businesses at home. However, tax evasions and the foreign tax credits abuse have been made illegal. Therefore, any organization that moves its headquarters overseas in a bit to evade tax will be prosecuted for tax evasion. With knowledge concerning offshoring and the effects it is having on the organization’s home country, the government should be able to create an awareness of its effects such as major job losses and a high unemployment rates. The government can ultimately create regulations that discourage MNEs relocations overseas. This way companies create and maintain more jobs, which will improve the economy in the home country.
References:
Benito, G. R. G., Lunnan, R., & Tomassen, S. (March 01, 2011). Distant Encounters of the Third Kind: Multinational Companies Locating Divisional Headquarters Abroad. Journal of Management Studies, 48, 2, 373-394.
Berry, J. (2006). Offshoring opportunities: Strategies and tactics for global competitiveness. Hoboken, N.J: Wiley.
DiMattia, S. S. (2004). Offshoring hits home; some companies are moving research overseas--a threat and an opportunity. Library Journal, (6). 42.
Sharon T., (2016). Avon to Cut Jobs, Move Headquarters; Retrieved: 4/4/2016 from: http://www.wsj.com/articles/avon-moving-its-headquarters-to-the-u-k-1457992541
