Monthly Archives: January 2010

Cross-Cultural Risk Factors in Offshore Outsourcing

SourcingMag.com recently ran a decent article on “Cross-Cultural Risk Factors in Offshore Outsourcing” that overviewed three risk factors that can have a serious impact on the success of an offshore outsourcing relationship that are worth a review.

  1. Corporate Culture Differences
    There’s a chance the client’s corporate culture and the vendor’s corporate culture could be at opposite poles. One could be bureaucratic and the other entrepreneurial; one could make decisions top-down and the other on consensus; one could encourage employees to step-up while the other beats them down; etc. A lack of alignment will present serious obstacles in interactions and have significant bottom-line impacts for both organizations.
  2. National Culture Differences
    Cultural conditioning runs deep, especially in countries like China where the roots of their culture stretches back millenniums. Your people could be autonomous while the vendor’s people are group-oriented. Your people could be absolutist in their ethics and conduct and your vendor’s could be situational. You could want results while they want to save face. If you don’t understand these risks, you won’t be ready for the inevitable pitfalls you will encounter.
  3. Cross-Cultural Competencies of Key Players
    A wide range of players is involved in your organization and that of your supplier. Some will work from their domestic base of operations while others will travel or go on expatriate assignments. But all will be neck deep in the challenge of trying to achieve business objectives in a culturally diverse global environment. In addition to the technical, managerial, leadership and interpersonal skills required for their jobs, the people occupying these roles need to have cross-cultural competence if they are to be successful and not put their company at risk.

Thus, before you enter into any outsourcing agreement, you should perform a cross-cultural due diligence. For more on how to carry one out, see the “Cross-Cultural Risk Factors in Offshore Outsourcing” article. For more on the types of cultural differences you may encounter in China, Germany, India, Japan, Korea, Mexico, and Thailand, see the SI series on Overcoming Cultural Differences in International Trade.

Overcoming Cultural Differences in Trade with …

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Supply Chain Risks: Barriers to Manufacturing in Emerging and Developing Markets

Recently, The Center for Supply Chain Research at the Penn State SMEAL College of Business published a report on “Supply Chain Risks: Barriers to Manufacturing in Emerging and Developing Markets”
that reiterated what we’ve known for a while; that 73% of U.S. companies with revenue exceeding $1 Billion experienced supply chain disruptions in the past five years, that 70,000 companies went bankrupt in China in 2008, and that the average American company operating procurement in Asia found that the average company lost 8.2 Million over a three year time span due to illegal bribes and kickbacks.

It also told us that the five main categories of risk are trade, political, geophysical, economic indicator, and operational — and that all of these risks are prominent in emerging and developing markets, which we already knew. It also re-iterated the common mitigation strategies of:

  • Building Mitigation into the System via
    • Better Network Design
    • Supplier Financing
    • Multiple Manufacturing Locations
    • Monitoring of Public Source Risk Data
    • Contingency Plans
  • Use Technology Solutions such as
    • Scenario Planning
    • Visibility and RFID
    • Early Warning & Event Monitoring
  • Contract Outside Risk Experts

However, in addition to providing a detailed risk analysis of Africa, Asia and the Middle East, China, Latin America, and Eastern Europe, with risk scores for almost 40 individual countries that you should definitely review if you are sourcing from, or planning to source from, any of these areas, it made two very good points that I rarely see in discussions of risk and mitigation.

1. Rank your Risk on probability and significance of the loss.

Face it, unless a low probability risk is associated with a very significant loss, it’s not worth addressing if there are higher probability risks that are more likely to happen.

2. Dollarize the Risk.

Not only will associated hard dollar losses bring about the severity of relative risks, but if you know a risk is pretty much guaranteed to happen in a certain time-frame (for example, a hurricane or earthquake has a 95% probability of affecting your operations in a given 25 year period), you can amortize the cost associated with the impending loss and build a business case for investing in contingency planning and more expensive mitigations that, while costly up front, are guaranteed to significantly reduce your losses over the long term. And, while this is a topic for another post, if you dollarize the risks, the mitigation costs, and the expected loss reductions from the mitigations, you can optimize the application of your limited risk management budget.

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Getting Your Fair Share of Pizza … or Not

Not that long ago, I pointed out how you could have yourself a mathematically correct breakfast. Now I’m going to point out a recent paper from American Mathematical Monthly, “Of Cheese and Crust”, that provides a proof of the pizza conjecture. That’s right, it seems a couple of mathematicians have had nothing better to do for the past two decades or so than prove that if a pizza is cut into an odd number of pieces through a point of concurrency that is not the centre, then whomever gets the centre gets the most pizza (when the pieces are divided up in an alternating fashion).

It was already known that if the pizza was cut into an even number of pieces than it could be divided equally between two people if each person took an alternating slice. But we definitely needed this proof!

Happy New Year from the Sourcing Maniacs

[Wakko, Yakko, & Dot] It’s time for Sourcing-Maniacs

And we’re zany to the max

So just sit back and relax

You’ll laugh ’til you collapse

We’re sourcing-maniacs!
[Wakko & Yakko] Come join the ‘Riba Brothers
[Dot] And the ‘Riba Sister, Dot
[Wakko, Yakko, & Dot] Just for fun we like to give out sourcing booster shots

You’d lock us in the boardroom if ever we got caught

But we’d break loose and then vamoose

And now you know the plot!
[Wakko, Yakko, & Dot] We’re sourcing-maniacs!
[Wakko] Dot is cute and Yakko yaks
[Yakko] Wakko packs away the snacks
[Wakko, Yakko, & Dot] We’re sourcing-maniacs!
[Yakko] There’s Pinky and the Brain who want to rule the sourcing-verse
[Dot] But our goals are more mundane
[Wakko]   we just want to be immersed
[Yakko] Part of the game,
[Dot]   for that we will traverse
[Wakko] the sourcing space
[Dot]     with style and grace
[Yakko, Wakko, & Dot] Why bother to rehearse?
[Wakko, Yakko, & Dot] We’re sourcing-maniacs!

Free of pay-to-play contracts

We’re zany to the max
[Wakko] There’s baloney in our slacks
[Wakko, Yakko, & Dot] We’re sourcing-manie,

Totally insaney,

Sourcing-on-the-brainy,

Sourcing-maniacs.
[Dot] These are the facts!
[Yakko] That’s right folks! We’re sorry we’ve been slack since our 2008 vendor tour, but after all that rejection in our job search, we just had to get away for a while and take a vacation
[Dot] and do some shopping
[Wakko] and some digging in the Congo!
[Yakko] But we’re ready to get back in the game!
[Dot] And ensure that the entire Sourcing-Verse never forgets our name!
[Wakko] Even when they hear the irresistible beat of the Bongo!
[Yakko] So we’re back …
[Dot] in shiny black …
[Wakko] and dancing to the beat!
[Yakko] We’re ready for action …
[Dot] so stay tuned for the coming attraction …
[Wakko] because we’re going to help the doctor turn up the heat!
[Yakko, Wakko, & Dot] Happy New Year! We hope you survive it intact!