of 3 - Center for Global Outsourcings

2012 

Global Sourcing of Services: Bridging 

the Worldwide Economic Divide 

10 th Annual International Smart Sourcing Conference 

June 28 th and 29 th , 2012 

SolBridge International School of 

Business. Daejeon, Korea.

Special Thanks 

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Center for Global Outsourcing 

Tenth Annual 

International Smart-Sourcing 

Conference 

(ISSC-2012) 

Conference Proceedings 

Daejeon, South Korea, June 28-29, 2012 

SolBridge International 

School of Business 

Proceedings Editors 

Dr. Shailendra Palvia 

Niloufer Denise Pinto 

Tenth Annual International Daejeon, South Korea P a g e | 1 

Smart Sourcing Conference June 28-29, 2012


26 Berkley Blvd, Iselin, New Jersey 08830 (U.S.A.) 

MESSAGE FROM THE WORLD CONFERENCE CHAIRPERSON 

Dear participants of the Tenth Annual International Smart Sourcing Conference: 

Welcome to yet another annual Int’l Smart Sourcing Conference being in the fast developing 

nation of South Korea. Our last year’s conference was held in India – the primary destination 

for global sourcing of services. The theme of this year’s conference is – GLOBAL SOURCING 

OF SERVICES: BRIDGING THE WORLDWIDE ECONOMIC DIVIDE. 

Delegates to this conference, like the earlier ones, represent a diverse group comprising of 

researchers, vendors, clients, government officials, and media. Our delegates are from several 

countries –Germany, Iran, Netherlands, Mexico, South Africa, South Korea, Taiwan, and U.S.A. 

Our last nine conferences were held in Atlanta, GA; New York city, NY; Dallas, TX; Washington 

DC; Los Angeles, CA; Atlantic City, NJ; Hyderabad, India; Jersey City, NJ; and New Delhi, 

India. The papers being presented in this conference are high quality after having gone through 

double blind review process. The reviewers of the papers are from several countries: Australia, 

England, France, Hong Kong, Ireland, Liechtenstein, South Korea, Sweden, and USA. 

The highlights of this conference are: 

1. The venue is SolBridge International School of Business in Daejeon, South Korea. This 

is a brand new school established in 2007 and is known for its focus on both business 

(emphasis on Asia) and its implications for government and society. Daejeon is South Korea's 

fifth largest metropolis and is the science and technology capital of Korea with research 

institutes like Korea Advanced Institute of Science and Technology (KAIST). 

2. Top notch presentations on most current topics cover: conceptual and theoretical 

foundations; nation specific issues – Mexico, Latin America, Italy, Korea, Saudi Arabia, 

China, United Arab Emirates; Studies of Impact of – Managerial Anchoring, Sourcing 

Digital Publications, Organizational Culture; Healthcare Outsourcing; Software 

Development; Application Service Providers; and Vendor and Client Issues in Global 

Sourcing. 

3. We also have two panel sessions: Global Sourcing Opportunities and Challenges in 

Mexico; and Global Sourcing Opportunities and Challenges in South Korea. 

………………………..Continued on next page 





MESSAGE FROM THE WORLD CONFERENCE CHAIRPERSON 

4. World renowned MIS Scholar and Clemson University’s (USA) William S. Lee 

Distinguished Professor (endowed by Duke Energy) Dr. Varun Grover will be the 

keynote speaker on Thursday, June 27. Dr. Grover has published over 200 articles in 

Information Systems refereed journals. Ten recent articles have ranked him 1st, 2nd, or 

3rd in research productivity (among over 4000) researchers in the world in the top six 

Information Systems journals in the past decade. 

As the chairperson or the conference, I’m pleased to report that the Center for Global 

Outsourcing (CGO) continues to bring the diverse stakeholders of global sourcing together for 

“knowledge sharing” and “networking,” so that the mission of global competitiveness is 

promoted. CGO is now ten years old, and is doing well in terms of fulfilling its mission. Funds 

are always necessary to run any organization. In this context, CGO is thankful to the primary 

sponsor of this conference -- St. Mary’s University of San Antonio, TX (USA). I would also to 

thank SolBridge International School of Business for providing the state-of-the-art facilities for 

holding the conference and for also providing transportation facilities to the delegates. CGO is 

also thankful to Financetech Mexico Delivery for support in maintaining the conference website. 

Year after year, participants in the conferences, have appreciated: good programs mixing 

practitioners and researchers in different sessions; having CIO/CEO roundtables to get an 

insight into what is on the minds of CEOs and CIOs in regard to onshore and offshore 

outsourcing; participating in thought provoking paper presentations and panel sessions; learning 

from state of the art and visionary speeches from well known keynote speakers; enjoying 

educational and fun filled competitive Quiz Bowls; and last but not the least – relishing our 

selection of healthy food. 

The organizing committee, comprising of Academic Program Chairperson Dr. Prasad 

Padmanabhan, Industry Program Chairperson Mr. Gustavo Pares, and Local Arrangements 

Chairperson Dr. Chia-Hsing Huang have put in countless hours of effort in planning and 

organizing this conference. My heartfelt gratitude is to them. I would like to thank Ms. Niloufer 

Denise Pinto who worked meticulously towards editing and producing the final versions of 

conference papers for inclusion in the proceedings. A critical component of a conference’s 

success is the active and thought-provoking participation of its delegates in various sessions. 

Please attend all sessions starting from 8 AM on Thursday, June 28 to 5:00 PM on Friday, 

June 29. Please enjoy the conference to the fullest extent. I look forward to your participation 

in next year’s conference in New Jersey (USA). Please remain tuned. 

Sincerely 

Shailendra Palvia, Ph.D., World Conference Chairperson 

Professor at Long Island University, CW Post Campus 



Founding Editor, Journal of IT Case and Application Research (JITCAR) 

Dear Conference Participants: 

I would like to add my welcome to delegates from 

around the world who have come here to participate 

in the 10 th Annual Smart Sourcing Conference at the 

state of the art campus of SolBridge International 

School of Business in the beautiful city of Deajeon. 

We have diligently worked to promote the conference 

worldwide and have sought to attract the best 

academic papers for presentation at the conference. 

Papers cover a wide range of areas related to smart 

sourcing – from health care outsourcing to print 

media outsourcing; from outsourcing of financial risks 

to issues and problems related to outsourcing and smart sourcing. Please enjoy the 

papers and the local hospitality of SolBridge administration, faculty, staff, and 

students. Please also take time to take in the beautiful city of Daejeon and other 

sights in South Korea, if your schedule permits. 

Thanks to the many people who made this happen. Thanks to the Bill Greehey 

School of Business at St. Mary’s University and Dean Tanuja Singh for sponsoring 

this conference. Thanks are also due to SolBridge International School of Business 

for facilitating local arrangements. Thanks to all the reviewers for taking the time 

and effort to review submissions in a timely manner. Last but not least, thanks to 

you folks – the presenters, panelists, the chairs and the audience – you make this 

conference happen! Enjoy! 

Dr. Prasad Padmanabhan 

Academic Program Chairperson, 10 th Annual Smart Sourcing Conference, June 28- 

29, 2012. 

Professor of Finance, Myra Stafford Pryor Chair in Free Enterprise and Sam 

Walton Fellow 

Bill Greehey School of Business 

St. Mary’s University 

One Camino Santa Maria 

San Antonio, TX. 78228. USA. 



Dear Conference Participants: 

I would like to welcome you to a very exciting conference where we will have the 

opportunity to learn and discuss about the most important trends around the world 

related to Outsourcing of Services. Never before in the history of mankind, have 

we relished such a great opportunity to learn about ourselves from a global 

perspective, and from the vantage point of trade, research and collaboration. The 

world now offers a great deal of opportunities to countries such like Mexico, South 

Korea, India, Indonesia, Brazil, China and many others to bridge the worldwide 

economic gaps. To understand these trends, this conference provides all delegates a 

wonderful opportunity to learn, network, and work together to generate wealth, 

knowledge and welfare for our countries, companies and families. I strongly 

encourage you all to take the time to enjoy fully this opportunity to help us shape 

the world today for a better tomorrow. I would like to end by profusely thanking 

Dr. Shailendra Palvia for his continuous support and believing in Mexico and Latin 

America as a key players in the future of Outsourcing worldwide. 

MBA Gustavo R. Parés Arce 

Industry Chairperson, 10 th Annual Smartsourcing Conference, June 28-29, 2012. 

CEO Financetech Mexico Delivery. 

Reforma 2620, PH4, Miguel Hidalgo. 

México DF. Tel. +(52)55 59800700 

www.financetech.mx 



MESSAGE FROM THE KOREA CHAIRPERSON 

Welcome all participants of the Tenth Annual International Smart Sourcing Conference at the 

SolBridge International School, Korea. It is the first time that this conference brings professors 

and experts from many countries to Korea. Thanks to the Center for Global Outsourcing. 

SolBridge has this great opportunity to host the conference. It is a great honor of SolBridge to 

have this prestigious international conference in Daejeon, Korea. 

SolBridge International of Business is one of the top five business schools in Korea and is a 

member of the AACSB. SolBridge has an upscale Korean restaurant and a cafeteria on the 

ground floor and a sports complex which includes the health and fitness center, swimming pool, 

sauna, and a full-sized gymnasium. On upper floors reside conference rooms. The top two floors 

house a VIP lounge and the Sunshine hotel few meters away from Daejeon bus station for 

dignitaries who attend the conference. SolBridge is ten minutes walk from Daejeon KTX high 

speed rail station. Daejeon is fifty minutes from Seoul by KTX train. Daejeon is the Asia’s 

Silicon Valley with more than 7,500 citizens with PhD degrees in the applied sciences. Korea is 

the Asia’s fourth and the world’s thirteenth largest economy with semiconductors, chips, 

automobile, shipbuilding, logistics, communications, entertainment, animation, steel, 

construction, petrochemicals and satellite industries. 

This conference and related activities can strengthen the relationships among speakers, 

participants, sponsors, organizing committees of universities and industries in the world. Thanks 

to all committee members, speakers, sponsors, participants and Solbridge students, staff 

members and professors. I apologize for any inconvenience. A Daejeon city tour will be 

provided for you to enjoy the beautiful evening. Clean water, fresh air, beautiful mountain, 

wonderful beach, delicious food and friendly people are waiting for you in Korea. 

Sincerely, 

(Sing) Chia-Hsing Huang 

Associate Professor 

Conference Chairperson Korea 

MBA program director 

SolBridge International School of Business 

151-13 Samsung 1-dong, Dong-gu, Daejeon, 300-814, Korea 

www.solbridge.ac.kr 





Reviewers of Conference Papers (Page 1 of 2) 

NAME AFFILIATION 

Arora, Anshu Savanna State University, Savanna, GA, USA 

Astani, Marzie Winnona State University, MN, U.S.A. 

Cowan, Adrian St. Mary’s University, TX, USA 

Fernandez, Walter Australian National University, Australia 

Gupta, Manish M&T Bank, Buffalo, NY, USA 

Huang, Chia-Hsing SolBridge International School of Business, Daejeon, South Korea 

Joshi, Kailash University of Missouri, St. Louis, MO 63121-4499, USA 

Kelly, Séamas UCD School of Business, Ireland 

Kwok, Ron City University of Hong Kong, Hong Kong 

Lally, Laura Hofstra University, U.S.A. 

Licker, Paul Oakland University, Rochester, Michigan 48309 USA 

Manral, Lalit University of Oklahoma, OK, USA 

Muthita, Achita Wichita State University, U.S.A 

Olsson, Helena Holmström IT University, Sweden 

Padmanabhan, Prasad St. Mary’s University, San Antonio, TX 78228, USA 

Palvia, Prashant University of North Carolina, Greensboro, USA 



Passerini, Katia New Jersey Institute of Technology, NJ, USA 



Reviewers of Conference Papers (Page 2 of 2) 

NAME AFFILIATION 

Raisinghani, Mahesh S. Texas Woman’s University, Texas, USA 

Rosemann, Michael Queensland University of Technology, Australia 

Rosner, Rebecca Long Island University, Brookville, NY, USA 

Seidel, Stefan 

University of Liechtenstein, Liechtenstein 

Shaikh, Maha London School of Economics, London, UK 

Srivastava, Shirish C. HEC, France 

Vemuri, Vijay Hofstra University, Long Island, NY, USA 

Venkatachalam (Venky) 

A.R. 

University of New Hampshire, Durham, New Hampshire 03824-3593, 

USA 

Zhu, Ling Long Island University, Brookville, NY, USA 



2012 June 28 

8:00AM-5:30 PM Registration 

8:00-8:45 AM Breakfast 

Session #1 Welcome and Keynote Speech Session: 

Chaired by Dr. Shailendra Palvia 

8:50-9:00 AM Welcome Remarks by World Conference 

Chairperson 

9:00-9:05 AM Welcome Remarks by Local Arrangements 

Chairperson 

Presenter/Speaker/Coordinator 

Dr. Shailendra Palvia, 

Professor 

Dr. (Sing) Chia-Hsing Huang, 


9:05-9:10 AM Inaugural Comments by Vice Chancellor Dr. John Endicott 

9:10-9:15 AM Welcome Remarks by Academic Conference Dr. Prasad Padmanabhan, 

Chairperson 


9:10-9:20 AM Welcome Remarks by Institute of Asian 

Business Director 

Dr. Dilip Das, Professor 

9:20-10:10 AM Keynote Speech: Global Sourcing Issues and Dr. Varun Grover, 

Challenges that Lie Ahead 

Distinguished Professor 

10:10-10:15 AM Short Presentation by Sponsor Dr. Prasad Padmanabhan 

10:15-10:35 AM Tea/Coffee Break 

Session #2 Plenary Session: Conceptual Papers on Global Sourcing chaired by Dr. Prasad 

Padmanabhan 

Introductory Remarks by Session Chair Dr. Prasad Padmanabhan, 


10:35-11:00AM From Offshore Outsourcing to Totally Dr. Alexander Suetin 

Disaggregated Corporation 

11:00-11:25AM Low Cost Not Enough Anymore: A Sourcing 

Paradox 

Dr. Chia-Hsing Huang; Dr. 

Rajesh Rajaguru; Dr. Chung 

Yean Chiang; Dr. Wenqing 

Zhang 

Dr. Mohsen Rezai and Dr. 

Mohammad Ebrahim Shiraqai 

Dr. Sam Bansal to be 

11:25-11:50AM Designing and Performing a Framework for 

Outsourcing 

11:50AM-12:15PM Secrets of Competitiveness-Executive 

Leadership, Vision and Outsourcing 

presented by Bob Graff 

12:15PM-12:30PM Journal Of IT Case and Application Research Dr. Shailendra Palvia, 

(JITCAR): History, Scope, and Opportunities Founding Editor 

12:30 PM-1:45PM LUNCH Center for Global Outsourcing 



Session #3 

2012 June 28 

Plenary Session: Nation Specific Issues, 

Opportunities, and Challenges chaired by 

Dr.Wenqing Zhang 


Introductory Remarks by Session Chair Dr. Wenqing Zhang, Professor 

1:45-2:15PM Global Sourcing Opportunities and 

Challenges in Mexico and Latin America 

2:15-2:45PM Entrepreneurship in Time of Crisis: The 

Outsourcing of Services through Franchise 

Arrangements in the Italian Food Service 

Industry 

2:45 -3:15PM Production Offshoring for a US Subsidiary 

Managed by a Saudi-Based Building 

Materials Distribution Company: An 

Economic Analysis Case Study 

3:15-3:30PM Tea/Coffee Break 

Moderator:Mr. Gustavo Pares 

Panelists: Raymundo Camara, 

Ricardo Pares, Miguel Garcia 

Dr. Giovanni Tamburrini 

Archana Shankarnarayanan, 

Gopalakrishnan Easwaran, 

Abdulwahab Fahad Anbar 

Session #4 Plenary Session: Global Sourcing Impact Studies chaired by Mr. Gustavo 

Pares, CEO of Financetech Mexico Delivery 

Introductory Remarks by Session Chair Mr. Gustavo Pares 

3:30-4:00PM Mitigating the Impact of Managerial 

Anchoring: The Case for Management by 

Committee for Off-shoring Decisions 

4:00-4:30PM Sourcing of Digital Publications: Its Impact 

on Users and San Antonio Public Library 

eMaterial Services 

4:30 -5:00PM The Impact of Organizational Culture on 

Outsourcing 

Dr. 

Chia-Hsing Huang, Dr. Prasad 

Padmanabhan, and Dr. 

Wenqing Zhang 

Dr. Pannaga Prasad 

Dr. Mohsen Rezai and Dr. 

Mohammad Ebrahim Shiraqai 

5:15-6:15 PM DINNER SolBridge International School 

of Business 

6:30-10:00PM Bus Tour of Great Locales in and Around 

Daejeon 

Dr. (Sing) Chia-Hsing Huang, 




2012 June 29 

8:00AM-12:00PM Registration 

8:00-8:45AM Breakfast 

Session #5 Plenary Session on Software Development, 

Customer Satisfaction, and Healthcare: 

Chaired by Dr. Yonghack Song 


8:50-9:00AM Introductory Remarks by Session Chair Dr. Yonghack Song, Professor 

9:00-9:30AM Choice of Agile Methodologies in Global R.Sriram and Saji K. Mathew 

Software Development 

presented by Hameed Tahir 

9:30-10:00AM Customer Satisfaction due to IT Outsourcing: Ms. Xiao Tang, Dr. Chung- 

Chinese SMEs Perspective 

Yean Chiang, Dr. Wenqing 

Zhang and Dr. Jianzong Lin 

10:00-10:30AM Healthcare Information Technology 

Offshoring: Is it on the Radar Screen in the 

U.S.? 

Prashant Palvia, Tim Jacks, 

Kevin Lowe, and Hamid 

Nemati 

10:30-10:45AM Tea/Coffee Break 

Session #6 Plenary Session: Nation Specific Issues, Opportunities, and Challenges chaired 

by Dr. Prashant Palvia, Endowed Professor at University of North Carolina, 

Greensboro, NC, USA 

Introductory Remarks by Session Chair Dr. Prashant Palvia, Endowed 

10:45 -11:30AM Panel Session on Global Sourcing 

Opportunities and Challenges in South Korea 

11:30AM-12:00PM Challenges of IT Adoption and Outsourcing in 

Supply Chain Framework: A Comparison of 

Service Firms in China and United Arab 

Emirates 


Moderator: Dr. William 

Patrick Leo, Vice Dean 

Panelists: Mr. Kyungah Lee, 

Mr. Gustavo Pares, Prof. Bob 

Graff, Dr. Jay Q Park 

Habib Ullah Khan, Shafiq 

Ahmad, and Mahmood A. 

Awan 

12:00-12:45PM Vendor and Client Issues in Global Sourcing Shailendra Palvia and Erik 

Den Ouden 

12:30-2:00PM Lunch on Your Own 



2012 June 29 

Session #7 Quiz Bowl Session: Chaired by Dr. Chia- 

Hsing Huang 


Introductory Remarks by Session Chair Dr. Chia-Hsing Hunag 

2:00-3:00PM Quiz Bowl on Global sourcing of Services: 

SolBridge Professors versus Non-SolBridge 

Professors 

Dr. Shailendra Palvia, 


3:00-3:20PM Tea/Coffee Break 

Session #8 Concluding Plenary Session: Outsourcing in Financial and Manufacturing 

Industry chaired by Dr. Wenqing Zhang 

Introductory Remarks by Session Chair Dr. Wenqing Zhang, Professor 

3:20-3:45PM Vertical Integration Outsourcing and Virtual 

Integration Outsourcing Financial Hedging in 

the in Taiwanese Integrated Circuit Industry 

3:45-4:10PM An Analysis of the Impact of Domestic and 

International Events on Stock Return 

Volatility of Outsourcing Firms in Vietnam 

4:10-4:35PM Financial Hedging in the Various Outsourcing 

Stages of the Taiwan Information Technology 

Industry 

4:35-5:00PM Issues and Challenges with Global 

Outsourcing of Manufacturing 

Kuang-Hsun Shih, Shu-Shian 

Lin, Yi-Hsien Wang , Ping- 

Hui Huang, Yu-Wei Hu 

Kuang-Hsun Shih, Fu-Ju 

Yang, Yi-Hsien Wang, Dao Le 

Minh 

Yi-Hsien Wang, Shu-Shian 

Lin, Kuang-Hsun Shih, Rui- 

Lin Tseng, Mei-Chi Wang 

Jenns Graff 



Contemporary Issues and Challenges in Outsourcing 

Varun Grover, Ph.D. 

William S. Lee (Duke Energy) Distinguished Professor of Information Systems 

Clemson University, South Carolina, USA 

This keynote presentation will discuss business cases that epitomize some of the 

contemporary issues in outsourcing, research being conducted in the Information 

Systems area on outsourcing, and directions for mitigating these issues. 

Biographical Sketch 

Varun Grover is the William S. Lee (Duke Energy) Distinguished Professor of 

Information Systems at Clemson University. He has published extensively in the 

information systems field, with over 200 publications in major refereed journals. Ten 

recent articles have ranked him among the top four researchers (out of 6,000) based on 

number of publications in the top Information Systems journals, as well as citation 

impact (h-index). Dr. Grover is Senior Editor (Emeritus) for MIS Quarterly, the Journal 

of the AIS and Database. He is currently working in the areas of IT value, interorganizational 

systems, and process transformation. Recently, he released his third 

book (with M. Lynne Markus) on process change. He is recipient of numerous awards 

from USC, Clemson, AIS, DSI, Anbar, PriceWaterhouse, etc. for outstanding research 

and teaching. He is a Fellow of the Association for Information Systems. 



From Offshore Outsourcing to Totally Disaggregated Corporation 

Abstract 

Alexander Suetin, Ph.D. 


SolBridge International School of Business 

151-13 Samsung 1-dong, Dong-gu 

Daejeon 300-814, South Korea 

Phone: +82 42 630 8565 

E-mail: suetin@solbridge.ac.kr 

Website: www.solbridge.ac.kr 

The purpose of this paper is to investigate offshore outsourcing as a way and a tool to 

the practical realization of the concept of totally disaggregated corporation.The paper 

revisits the notion and methodology of outsourcing with the special reference to the 

BFSI (Banking, Financial Services and Insurance).The process of outsourcing generally 

encompasses four stages. Big layoffs often accompany big outsourcing deals. Success 

in the Financial Economics lies in the ability to improve business agility and to alter 

working practices. Even though it is still facing uncertain times, one thing is very likely, 

important partnerships with outsourcers will soon become the de facto practice across 

the industry. 

The paper adds insight into offshore outsourcing. 

Keywords: Outsourcing, Offshoring, Strategic Thinking, Productivity, Financial 

Economics, Disaggregated Corporation, Business Agility. 

Alexander A Suetin is at SolBridge International School of Business since March 2010. 

As associate professor he is here to lecture and study in Economics (Micro- and 

Macro), International Financial Market, International economics, World Economy and 

International Foreign Exchange and Lending Relations. One semester – February - July 

2011 – Alexander Suetin was at Beijing Foreign Studies University (BFSU-SolBridge). 

Economist in the field of International Foreign Exchange and Lending Relations Mr 

Suetin graduated from Moscow State International Relations Institute (MGIMO) in 1974. 

His Ph.D. thesis related to Environmental economics with special reference to American 

industry. It was defended at Moscow State University (MGU), Russia in 1984. DScs. in 

Economics was conferred after the defense of dissertation at Moscow State University 

(MGU), Russia 1993.Academic title of Professor was obtained 1994. For the last 20 

years Mr Suetin was with Finance University under the Government of the Russian 

Federation. Among other things he used to be main advisor of eleven defended doctoral 

dissertations.He is Honorary Worker of Higher Vocational Education of the Russian 

Federation and Honorary Worker of the Finance Academy. Many years Alexander has 

been active in commercial banking in Russia. 



Introduction 

Outsourcing is contracting with another company or person to do a particular function. Almost 

every organization outsources in some way. Typically, the function being outsourced is 

considered non-core to the business. Outsourcing takes many forms. Organizations still hire 

service providers to handle distinct business processes, such as benefits management. But 

some organizations outsource whole operations. The last case could be considered as actual 

implementation of the concept of the totally disaggregated corporation. 

There is an abundance of literature on outsourcing, where many decision factors, benefits and 

impacts have been presented although the relationships, and perceptions existing to understand 

offshore outsourcing as a trend to the emergence of totally disaggregated corporations, viz. 

outsourcing the most or even all of its operations have not been investigated, which is the 

rationale and basis of this study. 

Literature review 

Findings from the literature suggest the issue of outsourcing has generated a great deal of 

debate. Amongst those broadly in favour of outsourcing as a strategic response to increased 

competition are Quinn and Hilmer (1994), who claim most organisations can substantially 

leverage their resources through strategic outsourcing. This view was shared by Jennings 

(1996) and Hinton (1996). 

Those opposed to outsourcing suggest organisations that rely on outsourcing invite a disastrous 

loss of competitiveness. Prahalad and Hamel (1990) suggest the skills that give rise to the next 

generation of core competencies cannot be ‘rented in’ by outsourcing, and accordingly 

organisational competitiveness may be seriously undermined. Flexibility can be a decisive factor 

in an organisation’s success, and an outsourcing manoeuvre can usually contribute to its 

internal and external flexibility (Bengt 2005). 

Outsourcing may also be seen as the strategic use of resources outside the buying 

organisation, performing activities that would otherwise have been carried out by in-house 

personnel using internal resources (Ray 2007). Bagranoff, Simkin and Strand (2005) state that 

advantages provided by outsourcing include; an attractive business solution, lower costs, avoids 

seasonal fluctuations, and affords greater flexibility. Kremic, Tukel and Rom (2006) state 

specialisations and economies of scale are mechanisms used to achieve these levels of 

efficiency and cost savings due to outsourcing can be quite significant. Many businesses are 

increasingly involved in outsourcing due to changes in technology, organisational structure, 

strategic planning and customer demands (Ray 2008). Outsourcing is a hierarchical sequence 

of decisions (Beaumont & Sohal 2004), with the fundamental decision being whether or not to 

outsource a business process or activity. In summary, outsourcing may be seen as a strategic 

or tactical initiative adopted by business to satisfy increasing demands of competitiveness and 

sustainability through increased cost savings and improved core activity focus. 

Hypotheses 

For studying the concept of disaggregated corporation, we test the following hypotheses: 

H1: The association between returns and comprehensive outsourcing is stronger in offshore 

context. 

H2: There is a significant association between outsourcing and human resources 

management. 

H3: There should be natural limits to outsourcing opportunities. 

H4: Outsourcing market should have positively growing trend. 



Research Method 

For the purpose of the research models for hypotheses testing first, a sample of companies for 

the last two decades is used. Then, similarly the models are estimated for sample companies in 

different industrial groups. Market research is done using specialized associations and company 

information sources. 

Hypotheses Testing 

H1: The association between returns and comprehensive outsourcing is stronger in offshore 

context. 

The most common outsourcing forms are information technology outsourcing (ITO) and 

business process outsourcing (BPO). Business process outsourcing encompasses call center 

outsourcing, human resources outsourcing (HRO), finance and accounting outsourcing, and 

claims processing outsourcing. Dominant outsourcing service providers in the information 

technology outsourcing and business process outsourcing fields include IBM, EDS, CSC, HP, 

ACS, Accenture and Capgemini. Some companies, such as start-up software publishers, apply 

multi-sourcing -- using both internal and service provider staff -- in order to speed up the time to 

launch. 

The process of outsourcing generally encompasses four stages: 1) strategic thinking, to develop 

the organization's philosophy about the role of outsourcing in its activities; 2) evaluation and 

selection, to decide on the appropriate outsourcing projects and potential locations for the work 

to be done and service providers to do it; 3) contract development, to work out the legal, pricing 

and service level agreement (SLA) terms; and 4) outsourcing management or governance, to 

refine the ongoing working relationship between the client and outsourcing service providers. In 

all cases, outsourcing success depends on three factors: executive-level support in the client 

organization for the outsourcing mission; ample communication to affected employees; and the 

client's ability to manage its service providers. 

The challenges of outsourcing become especially acute when the work is being done in a 

different country (offshored), since that involves language, cultural and time zone differences. 

The McKinsey Global Institute estimates $18.4 billion in global IT work and $11.4 billion in 

business-process services have been shifted abroad so far -- just one-tenth of the potential 

offshore market. Over the past few years, many banks are moving to this trend. For example, 

Barclays Bank, one of the world's top 25 banks, has expressed a commitment to offshoring over 

the past years. In 2009, it announced that it would cut almost 2,000 technology jobs, including 

high-level positions, in the U.K. and move them to Singapore, India and Hungary. 

However, achieving economies of scale is one of the most commonly over cited reasons for IT 

outsourcing. 

H2: There is a significant association between outsourcing and human resources 

management. 

The offshore shift of skilled work has been portrayed as the killer of good-paying jobs. Firms 

exploit the low wages of poor nations. College grads in India, China, and the Philippines are 

willing to work twice as hard for one-fifth the American pay. 

The changes are harsh and deep. But many executives are discovering offshoring is really 

about corporate growth, making better use of skilled U.S. staff, and even job creation in the 

U.S., not just cheap wages abroad. The new attitude is emerging in corporations across the 

U.S. and Europe in virtually every industry. 



In this way Big Business is on the cusp of a new burst of productivity growth, ignited in part by 

offshore outsourcing as a catalyst. 

Manufacturers and tech companies are learning to capitalize on global talent pools to rush 

products to market sooner at lower costs. To recruit a great engineer in Silicon Valley on 

average takes three months. With offshoring you pick up the phone and get somebody in two or 

three days. 

H3: There should be natural limits to outsourcing opportunities. 

Futurists have envisioned "hollow" and "virtual" corporations since the 1980s. It hasn't 

happened yet. Reengineering a company may make sense on paper, but it's extremely 

expensive and entails big risks if executed poorly. But as companies work out such kinks, the 

rise of the offshore option is dramatically changing the economics of reengineering. 

Natural limits to outsourcing are real but with the time being could become virtual ones. So, IT is 

the back-office process most commonly outsourced by financial services organisations, followed 

by call centres and then HR. Other industry specific processes commonly outsourced include 

claims, transaction (e.g., credit card, equity trading) and back office processing activities. Later 

further developments in IT industry would allow a full integration of local and outsourced activity. 

Success in the Financial Services (FS) industry lies in the ability to improve business agility and 

to alter working practices. Even though FS is still facing uncertain times, one thing is very likely, 

important partnerships with outsourcers will soon become the de facto practice across the 

industry. 

H4: Outsourcing market should have positively growing trend. 

Creative new companies can exploit the possibilities of offshoring even faster than established 

players. Some aggressive outsourcers are using their low-cost, superefficient business models 

to challenge incumbents. Still smart use of offshoring can juice the performance of established 

players, too. 

Financial service outsourcing deals increased 24% from Q4 2010 to Q1 2011. This increase 

across all segments of the BFSI (Banking, Financial Services and Insurance) industry is due to 

a decrease in restructuring activity and enhanced focus on implementation of growth strategies. 

Outsourcing activity has been upbeat in 2011. The insurance sector experienced a significant 

surge in outsourcing deals, with a 57 increase from 14 in Q4 2010 to 22 in Q1 2011. Life and 

health insurance and property insurance accounted for approximately 70 of these deals. 

The capital markets sector registered a 37% growth in outsourcing deals after having suffered a 

46% drop in Q3 2010. More than half of the deals within capital markets occurred within 

investment and wealth management firms and stock exchanges. Deals within the banking 

segment rebounded to Q3 3010 levels. Overall deals within the banking sector increased by 

13% in Q1 2011. 

The Results of Testing Hypotheses and Concluding Remarks 

Collectively, our results provide some evidence confirming the association between returns 

increase and intensity of outsourcing especially in offshore context. Association between 

outsourcing and human resources management in most cases shows reduced needs in local 

staff. Outsourcing opportunities of a company in most cases are not limitless. Still in some 

cases the existence of a totally disaggregated corporation, viz. outsourcing the most of its 

operations is quite possible. Outsourcing market is growing dramatically. 

References will be available on request. 



Low Cost Not Enough Anymore: A Sourcing Paradox 

Chia-Hsing Huang 

Chung Yean Chiang 

Rajesh Rajaguru 

Wenqing Zhang 

SolBridge International School of Business, Daejeon, Korea 

{koreasing, cchiang, rajeshrajaguru, wzhang}@solbridge.ac.kr 

In a mature consumer market, the price and quality of a certain product are not the only 

considerations for a successful purchase. The social image of a company plays, as well, a 

more and more important role in developing or maintaining the competitive edge. In 

response to this call for social responsibility, companies should reconsider their sourcing 

decisions. This paper studies the pricing and sourcing choices in a two-echelon supply 

chain selling a procure-to-stock product to a price-sensitive and social welfare conscious 

market. We assume that the manufacturer can decide between two different sourcing 

options, i.e., insourcing and outsourcing, without friction costs. The demand is uncertain in 

the way that consumers purchase with the consideration of social image, along with 

others, but the perception of the social image is heterogeneous. We illustrate the 

significance of the social image in a company's sourcing decision. Our results explain, 

from a managerial point of view, whether or why, if applicable, low manpower cost 

countries are losing their competitive advantages. 

Key Words: Global Sourcing Decision, Social Image, Logit 

Dr. Chia-Hsing Huang is an Associate Professor of Finance at SolBridge International School 

of Business, Daejeon, South Korea. He earned his Ph.D from the University of Pennsylvania. 

He has taught and worked in the US, Taiwan, and Thailand. He has published extensively in 

many leading international journals. 

Dr. Chung-Yean Chiang obtained his Ph.D. in Operations Management from University at 

Buffalo, The State University of New York His research interests include supply chain 

management, supply chain inventory management, strategic sourcing, and the business value 

of IT. His works has been published in high quality journals. 

Dr Rajesh Rajaguru is an Assistant Professor at SolBridge International School of Business, 

Daejeon, South Korea. He has his PhD in Marketing from Monash University, Australia. His 

research interests include Inter-organisational Integration and Supply Chain Management of 

Retailing Firms, Global Competitiveness and Supply Chain 

Dr. Wenqing Zhang is an Assistant Professor in Management Science at SolBridge 

International School of Business, Daejeon, South Korea. He earned his Ph.D at McGill 

University. His research interests include OM and marketing interface, firm's decision making 

with CSR considerations, and game theory. 



Introduction and Literature Review 

When it comes to global sourcing, low-cost, especially low labor cost, is the ‘must-bementioned’ 

drive with which companies make their following decisions: Which products or 

categories of products are best suited to global sourcing? And what approaches exist for 

structuring global sourcing activities? (Byrne, 2005). Labor-intensive products-items geared to 

leveraging a country's abundance of lower-cost labor-used to represent the bulk of products 

sourced from lower-cost countries. In China, for example, consumer goods, clothing, and 

textiles were long the largest export categories. However, Strategic sourcing demands that 

companies align what the customer wants, what's best for the business, and what's needed to 

get the supply (Mickey, 2007). Many companies have successful experience in global sourcing. 

US technology giant Apple, for example, assembles its products in massive factory complexes 

in China, run by Foxconn, which also handles the production of consumer electronics for many 

other large players in the industry. While Apple's been phenomenally successful by making 

products people love, Foxconn has also been criticized for poor working conditions and lack of 

working relationships at the company, which climaxed with a series of suicides. The serial 

accidents at Foxconn, its largest supplier, undermined Apple’s reputation. Even though we do 

not have any evidence that Apple actually suffered financially from the negativities, Apple itself 

has already realized the potential harm for the company and took remedial actions, for example, 

releasing its annual Supplier Responsibility Progress Report, detailing its commitment to 

improving working conditions in the international network of factories that produce its products. 

In a mature consumer market, the price and quality of a certain product are not the only 

considerations for a successful purchase. The social image of a company plays, as well, a more 

and more important role in developing or maintaining the competitive edge. In response to this 

call for social responsibility, companies should reconsider their global sourcing decisions. 

Model Framework 

Assume a company is making its global sourcing decision in face of many options (outsourcing 

companies in different countries) with (different) multi-attribute. We formulate the outsourcing 

options as a multi-attribute model, similar to economic theory of consumer discrete choice 

advanced by (Lancaster, 1966). We represent the value of option i, , by 

( ) ∑ , 

where is the amount of price advantage of option i, is the amount of corporate’s 

social image, is the amount of the social image of the country in which the option i is located, 

is the amount of all other attributes not known with certainty. 

The exponential was selected to give the following form for how a decision company 

allows for uncertainty in his preference function, ̃ : 

( ̃ ) 

̃ 

where ( ̃ ) is the utility after allowing for the uncertainty of the value, ̃ . r represents 

the consumer's risk aversion. r is assumed to be positive and constant. and are scaling 

constants( > 0). 

If we assume the consumer's uncertainty about the measurable value of option i, 


Smart Sourcing Conference June 28-29, 2012 

̃ may be 

characterized by a normal distribution, mean and variance , then it is possible to calculate 

the expected utility that a consumer will derive from i. 

( ( ̃ )) (∑ 

)

The multinomial probit model maybe used to estimate the probability of choosing option i. In 

practice, because the number of options considered may be large, the logit approximation to the 

probit model may prove more tractable. (Domencich & McFadden, 1975) demonstrate the 

closeness of the double exponential and normal error distribution assumptions. Under the logit 

formulation, the conditional probability of selecting option i becomes 



(∑ 

∑ (∑ 

Hence the outsourcing option (company) i’s profit is denoted by 

( ) 

where is the unit price that the outsourcing company could offer, is the variable 

cost, is the fixed cost. 

Option I maximize his profit with regards to price advantage and corporate social image. 

Conclusion 

With our preliminary results, we illustrate the significance of the social image in a company's 

sourcing decision. Our results explain, from a managerial point of view, whether or why, if 

applicable, low manpower cost countries are losing their competitive advantages. 

Bibliography 

1. Byrne, P. M. (2005). Global sourcing: Opportunities and approaches for the 21st century. 

Logistics Management , 44 (1), 27-28. 

2. Domencich, T., & McFadden, D. (1975). Urban Travel Demand: A Behavioral Analysis. 

Amsterdam: North-Hollan. 

3. Lancaster, K. (1966). A New Approach to Consumer Theory. Journal of Political Economy , 132- 

157. 

4. Mickey, N. R. (2007). Driving value with global sourcing. Supply Chain Management Review , 11 

(7), 13-13. 

) 

)

DESIGNING AND IMPLEMENTING A FRAMEWORK FOR OUTSOURCING 

Mohammad Ebrahim Shiraqai, me.shiraqai@gmail.com 

Iran heavy dies manufacturing company (IHDM) 

Mohsen Rezai , ihdm.rezai@gmail.com 

Iran heavy dies manufacturing company (IHDM) 

Abstract 

Deciding on whether make in house or outsource activities and processes of a company has always been a 

vital question for the managers. In this paper, we are interested in investigating the influence of elements 

which affect outsourcing, regards the recent studies. So it is offered to a framework for outsourcing activities & 

processes. 

The framework consists of three main parts; How to select an activity/ a process to outsource, how to 

implement outsourcing and how to review outsourcing process. Each part includes a number of stages, which 

are holding a method through models. For example in third stage of first part of the framework we used AHP 

(analytical hierarchy process) method for developing a decision making model to know which one is better for 

an activity / a process in a company: make in house or outsource it. 

Then we introduce our designed forecasting model to forecast outsourcing satisfaction. We used regression 

method to forecast suppliers’ and vendors’ outsourcing satisfaction by data collection and analyzing in Iranian 

automobile’s parts production companies. 

Finally we offer a case study in IHDM (Iran heavy dies manufacturing) Company to analyze our framework and 

forecasting model. 

. 

Key words: outsourcing, decision making, satisfaction forecasting model, outsourcing 

framework 

Mohammad Ebrahim shiraqai is the head of suppliers’ evaluation department in Iran 

heavy dies manufacturing company (IHDM). He has master degree in Industrial 

Engineering from Mazandaran University of science and technology in Iran. He is teaching 

in “Elmi va Karbordi” University in Iran. He has carried out several researches in the area of 

outsourcing, supply chain management and scheduling. His papers selected in a number of 

national and international conferences as a top paper, such as CIE conference in France. 

Mohsen Rezai is Manager of purchasing and supplying department in Iran heavy dies 

manufacturing company (IHDM). He has MBA degree from Kempten University in 

Germany. He has carried out several researches in the area of outsourcing and supply 

chain management. His work has been published in a number of national and international 

journals. 



Introduction 

Studying the scientific texts and articles published in recent years shows that outsourcing has 

been more widely and increasingly used by organizations in different activities as an effective 

response to the environment. Activities which were otherwise done by the organization itself are 

now carried out by contractors from outside the organization [1]. Introducing the influential 

factors that determine which activities/ processes could be outsourced, providing a practical 

framework for managers to decide and implement outsourcing, and forecasting organization’s 

outsourcing satisfaction is the main goals of this research. 

In this paper, first, we designed and developed a structural framework for outsourcing 

activities/processes. This framework is comprised of 3 parts and 8 stages: 

� Selecting part (stages: 1.Designing and setting the suitable supplying strategy, 

2.Primary selecting activity/ process, 3.Clarifying the situation of suppliers & rivals, and 

4.Decision making about outsourcing or insoursing (make in house) activity / process) 

� Implementing part (stages: 5.Evaluating & selecting suppliers, 6.Negotiations & 

making contracts, and 7.Monitoring and controlling) 

� Review part (stage: 8.Reviewing and revising) 

And then we introduce our forecasting organization’s outsourcing satisfaction model. 

Using the findings of these studies and the author’s experience in this regard, it has been 

attempted to design and present a model or method for each stage so that all users could carry 

it out in a better and more structured way. The framework and models proposed and introduced 

in this study is based on Strategic Outsourcing Decision Guidebook [2] and the ideas developed 

by Probert [3,4], Platts et al. [5], Yang.C [6], Water.H et al. [7] and McIvor [8,9,10] as well as the 

existing decision making models presented in outsourcing studies. 

Introducing Framework 

This framework is comprised of 3 parts and 8 stages: 

The first stage deals with designing and setting a proper supply strategy. We designed a new 

model for this stage. This model consists of four main parts and helps the supply strategy 

designers make a proper strategy based on a step by step procedure. Environmental factors, 

main strategies, three strategic principles, and limitations/triggers are four main parts. 

The second stage is Primary selecting activity/process. The prerequisite for preliminary 

selection of the activity/process is to take the following factors into account: Preliminary 

managerial decisions, determining the strategic reasons and their compatibility with the supply 

strategy, establishing an evaluation team, and having a list made by the evaluation team of the 

activities/processes in line with the supply strategy. 

The third stage is identifying the competitors and suppliers. For using this framework, the user 

should have comprehensive information about the competitors and suppliers. In order to identify 

the competitors’ conditions, different methods could be used such as benchmarking, asking for 

the customers’ opinions, and analyzing the market. In order to identify the suppliers, one could 

also use the method introduced in the section related to the evaluation stage of the outsourcing 

executive model.Forth stage is decision making to outsource activities/processes. One of the 

main decisions, is deciding on Make or Buy, i.e. outsourcing versus insourcing (make in house) 

[5]. We designed a new decision making model by using AHP (analytical hierarchy process). 

This model gives a score for each activity/ process between 0-100 that we named it 

“outsourcing score” in this paper. Lower score means make in house is better for under 

deciding activity/ process, and higher score means outsourcing the activity/ process is better 

decision. 

Fifth stage is evaluating & selecting suppliers. Evaluating the suppliers often follows a structured 

auditing approach. We suggest that a step by step evaluation process. This process consist of: 

determining the key criteria, giving weight to each criterion of the evaluation, identifying and 



giving weight to the sub criteria, defining the scoring system used for the criteria and sub 

criteria, and visiting site of supplier. 

The sixth stage is negotiations & making contracts. There are different pricing methods used in 

outsourcing contracts such as: Fixed price, unit pricing, cost-Plus pricing (based on the cost 

price), variable pricing, risk and reward sharing, and performance based pricing (based on the 

incentives). In this stage, the time and conditions of using each of these methods are important. 

The seventh stage is monitoring and controlling. Since the suppliers are outside the 

administrative and managerial circle of the organization, it is necessary to control and manage 

the relations with them using different appropriate methods and mechanisms in a way that the 

organization’s expectations are fulfilled in regard to the outsourced activity or service. For so 

doing, controlling five factors namely time, costs, quality, changes, and information leak is of 

great importance. There are different controlling methods used in outsourcing contracts such as; 

market-based controlling model, bureaucracy-based controlling model, and trust-based 

controlling model. For each type of mentioned models, should be determined which and how we 

can control each supplier about these factors; cost, quality, time, information leak and changes. 

The last stage is reviewing and revising. This stage includes methods and criteria used for 

gathering and analyzing the information related to the measurement and grading of the 

supplier’s actual performance in a continuous time span. In this stage, the buyer organization 

must answer to two important following questions: what should be measured? And how often 

should measurements be carried out and reports be prepared? 

Research Design and Approach 

We measured “outsourcing score” by designed decision making model (AHP method) for 32 

activities (which have already been outsourced) in four Iranian automobile and automobile parts 

producer companies (information about these companies is in. We designed and distributed 

questionnaires about outsourcing satisfaction (by Likret method) in these four companies. 

We implemented designed framework in IHDM (Iran heavy dies manufacturing) company in 

order to make dies and fixtures for TIBA automobile (TIBA is an Iranian automobile that 

designed and produced by SAIPA Company). This project consisted of 10 activities/processes 

which can outsource or make in house. We measured the rate of outsourcing satisfaction by 

designed questionnaire for this project. And we measured the rate of satisfaction for the 

previous project in IHDM (making dies and fixtures of SAIPA 132 automobile) too. We should 

remind both of these projects in IHDM had same activities. But there was difference about 

decision making to outsource/insource activities and how to implement outsourcing. Finally we 

measured the customer’s complaint and the rate of outsourcing satisfaction for suppliers 

companies in both project by another designed questionnaire. 

Results 

The relationship between outsourcing scores and the rate of outsourcing satisfaction: 

There was direct relationship between model’s scores and the percentage of outsourcing 

satisfaction. The relationship between outsourcing’s score and the percentage of outsourcing 

satisfaction will be determined through regression method (chart 1).The result of regression was 

below forecasting formula: 

The percentage of satisfaction with the outsourcing = the score in the model *1.085 



Chart 1. Regression between outsourcing score and rate of outsourcing satisfaction 

100 

y = 1.085x 

50 

R² = 0.910 

0 

0 20 40 60 80 100 

Implementing framework and outsourcing satisfaction 

All stages of introduced framework were implemented for TIBA project in IHDM. We measured 

“outsourcing score” and “outsourcing satisfaction” as was explained. First I compared results 

with other companies and second I compared results with previous project in IHDM. Finally I 

compared suppliers’ outsourcing satisfaction and customers’ complaints in the two projects. 

Implementing designed framework led to: Increasing the buyer company’s outsourcing 

satisfaction (compared with 4 other companies and same projects in IHDM) (char2 and 3), 

reducing Percentage of customer’s complaints, and increasing supplier’s satisfaction. 

Chart2. Rate of outsourcing satisfaction in different companies 

71.4 73.3 74.0 79.6 86.4 

SAIPA AZIN SAIPA PRESS MEGA 

MOTOR 

Chart3. Rate of outsourcing satisfaction in two different projects in IHDM 

86.4 

73 

SIAPA 132 TIBA 

SAIPA IHDM 

Strengths of designed framework: Our decision making model could forecast the rate of 

outsourcing satisfaction. Suggestive framework considers to all the factors which influence 

outsourcing decision making and implementing. In order to apply framework more easily and 

more applicable a model/ method has been designed for each stage. 

References 

1. McIvor, R., 2000. A practical framework for understanding the outsourcing process. Supply Chain 

Management: An International Journal 5 (1), 22–36. 

2. Phelps. T., Fleischer. F., 2002. Strategic outsourcing decision Guidebook. Altarum institute , [on 

line]. Available: www2.umist.ac.uk/construction/interanet. 

3. Probert, D.R., 1996. The practical development of a make or buy strategy: the issue of process 

positioning. Integrated Manufacturing Systems 7 (2), 44–51. 

4. Probert, D., 1997. Developing a Make or Buy Strategy for Manufacturing Business. IET, London. 

5. Platts, K.W., Probert, D.R., Canez, L., 2000. Make Versus Buy Decisions: A Process and A Case. 

University Engineering Department, Cambridge. 

More references will be available on request. 



Abstract 

Secrets of Competitiveness- 

Executive Leadership, Vision and Outsourcing 

Dr. Sam Bansal 

Wiley Author, Strategy Consultant, Global Program Manager 

President, Strategic International Services, SIS 

drsambansal@gmail.com 

This paper is based on my long practice of Business Value Creation ie improving the 

enterprise competitiveness at the premier corporations of USA & Asia. Drawing upon my 

C level experience I will explore how the executives used their Leadership skills, 

establishing their Vision to improve their Competitiveness. In huge many cases it involved 

Outsourcing. 

Executive leadership and vision is not a mere abstract topic. I will demonstrate that it is a 

rigorous activity that involves strategy formulation to create a new value chain. Execution 

if followed leads to improving the competitiveness. 

Further facts will be drawn from the case examples of the venerable corporations such 

as, IBM, Legend/Lenovo, Fairchild Semiconductor, Alcoa Electronic Packaging and 

Apple. 

Key Words 

Leadership, Vision, Outsourcing, Deterministic Methodology, Case Examples 

Biography 

Dr. Sam Bansal has 40+ years of consistent senior level experience in value creation & 

value capture, working with Fortune's 100 companies. He has held roles of CIO, 

President & MD in Asia & Americas. He is presently CMD of a boutique Business 

Consulting company which focuses on delivering value through Business Process 

Optimization through Innovative solutions. Sam is a world class expert at Diagnosis, 

Prescription and Solution Architecting Business Performance Improvement through 

Supply Chain Optimization & Product Life Cycle Management of High Tech, Automotive, 

Biotech, Oil and Gas and Aerospace and Defense verticals. Sam is outsourcing strategist 

and tactician, has advised and worked to improve cost of the top contract manufacturers 

of Asia such TSMC, UMC, Charter etc. to outsource manufacturing business processes. 

He advised outsourcing model to one of the largest PC manufacturers of US 

(confidential), contributing significant (confidential) value. Dr Bansal has PhD in 

Management Science and BS & MS in Chemical Engineering. He has Published over 94 

papers in refereed international journals and has been a frequent invited key note 

speaker. His most recent book “Technology Scorecards- Aligning IT Investments to 

Business Performance” was published on Apr 27, 2009 by John Wiley. 



Introduction 

Executive leadership & vision is the fundamental key to the success of any initiative, be it 

outsourcing or any other program, that is division wide or the enterprise wide. And of 

course anything you do must deliver lower cost, better sales and in the end improve your 

competitiveness. Examples of such leadership and vision, involving outsourcing leading 

to the increased business competitiveness are the focus of this paper. Here the Visioning 

leading to the Business Solution & Realization will be discussed. Fundamental to this 

methodology is the leadership and continued sponsorship of the concerned executive. 

Emphasized is my deterministic methodology that calculates and puts forward bottom 

lines. Not much is written in this paper on Leadership and vision as the literature is awash 

with this but without it success cannot be achieved. 

Leadership And Vision 

Executive leadership is essential to any program's success. The methodology that I used 

in my practice of Value Engineering has at its core a grand vision or a blurred vision of the 

CEO who could either articulate it himself or will hire some outside consultants to do so. It 

involves him in getting the Vision defined and detailed so that a successful execution can 

be done. If practiced fully it will create value for the enterprise. The strategy formulation, 

or synchronization of it with the enterprise strategy, is based upon business goals and 

SWOT analysis. Based on the conclusions of SWOT analysis KPIs are constructed from 

which Business Strategies are developed. These in turn deliver a Business Solution. 

Details of this methodology are given elsewhere 1 . In these engagements it was found that 

if the leaders' skills and support was not available the entire effort will not pass through 

successful realization. And which CEO will not want his business to be more competitive. 

A previously published book 1 has a whole chapter on Vision to Competitiveness titled 

Strategy. 

While greater details on this can be found elsewhere 1 , given below are the usual goals 

and objectives some or many of which have become the part of the executive vision: 

• Prospect of higher profits and returns 

• Reduced risk through additional markets and customer groups 

• Extensive use of existing production capacities 

• Use and protection of existing raw material 

• Benefit from cost advantages 

• Outsourcing alternatives 

• Closeness to markets and customers 

• International linking alliances, coalitions, joint ventures 

• Favorable currency relations and advantages 

• From strategy to competitiveness 

• Procurement and use of new know-how 

• Avoidance of import restrictions 

• Use of state and international support measures 

• Use of support measures of host countries 

Value Chain 

Detailed value chains along with causal effects are available in Chapters 2 & 3 of my 

Wiley book, Technology Score Card 1 . 

If through the SWOT analysis it is evaluated and vetted by the executive in charge that 



outsourcing some or major function of the company is going to impact the business value 

greatly, careful attention has to be paid to Score Carding. This will provide the necessary 

KPIs to track and measure the performance. Incidentally Outsourcing is affected by the 

following value drivers: 

• Prospect of higher profits and returns 

• Reduced risk through additional markets and customer groups 

• Use and protection of existing raw material 

• Benefit from cost advantages 

• Closeness to newer markets and customers 

• International linking alliances, coalitions, joint ventures 

• Favorable currency relations and advantages 

• Procurement and use of new know-how 

• Use of state and international support measures 

• Use of support measures of host countries 

While there are large number of drivers to the creation of value and hence 

competitiveness, as will be seen latter via case examples, nothing matters more than 

increased Operating Income. This can in most cases be handled by reduced Cost of 

Goods Sold (COGS). In older companies legacy costs, SG&A have been found to be a 

great culprit. In some cases it meant to move the business elsewhere out to a region 

where these costs will not become bothersome. In other cases it is simply Outsourcing 

because then your Contract Manufacturer will have control of all kinds of cost such as 

Wages and SG&A related to the manufacturing processes. 

Case Example � IBM 

While at SAP Americas I was hired to develop the next generation architecture for IBM at 

their PC division. While I deployed part of my team to deal with architectural issues of the 

As Is and To Be scenarios, I concentrated on creating the new business value for this 

enterprise. This involved SWOT analyses and extensive meetings with the Sr execs of 

this division. Detailed work done under this engagement will be out of the scope for this 

paper. But salient conclusions can be drawn. Fig 1 provides a comparison of Best in 

Class, Average in Class and IBM itself. Here one sees that IBM never exceeded the Bet 

in Class competitor but was some times better than the Average in Class competitor. 

Their Supply Chain and Inventory costs were far worse than the Best in Class competitor. 

Fig 1- IBM's Cost Structure Comparison 

120 

100 

80 

60 

40 

20 

0 



Best 

Avg 

IBM

So I got suspicious of their SG&A costs (details not given here) and sure enough that was 

found to be the case. IBM's SG&A was very high and could not be reduced due to its 

legacy nature, unless some radical strategy was adopted, which will get somebody else to 

do major part of the work IBM used to do. The model considered was that IBM will 

continue to do Order Management, Design and Servicing. The outsourced company will 

do Manufacturing based on Downloaded Orders, Management of the entire Supply Chain, 

Distribution, Invoicing and Payment back to IBM. The final transfer price will become the 

COGS for IBM. Of course this final price will have to negotiated and contracted. IBM's 

cost structure could look like what is given in Table-1 below: 

Table-1. IBM's Competitiveness After Outsourcing 

IBM 

IBM 

w 

OEM 

IBM 

w 

OEM 

IBM 

w 

OEM 

As Is Alt 1 Alt 2 Alt 3 

COGS 80.8 75 80 85 

SG&A 16.6 5.6 5.6 5.6 

Op Inc 2.7 19.4 14.4 9.4 

Inv Days 14.5 0 0 0 

Cash to Cash ?? -11 -11 -11 

When I presented above and all other details of our due diligence work to IBMs Sr Execs 

they did not approve or disapprove my conclusions but said that their internal teams had 

to study the same as I had done. And soon enough they did exactly what I had 

recommended. They outsourced to Legend of Beijing which began to operate under the 

name Lenovo. I myself could not have suggested a better Outsourcee than Lenovo. 

Because I had done similar consulting for Lenovo while in Singapore. Next I will present 

the high lights from Legend/Lenovo engagement. 

As I look at the page count, I realize that I am exceeding the allowed page limit. So all the 

rest of the discussion will be short narratives. While I will focus to make the major themes, 

tables and figures will not be given. 

Case Example � Legend/Lenovo 

We were engaged from SAP Asia Pacific to suggest ways by which Legend an Upstart of 

Beijing could become much more prosperous than they were. We carried out our usual 

activities that we did in similar cases. Our conclusions were that they operated an 

extremely low cost supply chain. Where they could cut costs they refused to do so, 

because they unlike their counterparts in US auto industry, did not want to squeeze their 

parts suppliers. They had no interest costs because they used to get all the money from 

the Govt. But they could increase their market share every year by 7%. Their technical 

and management staff was extremely competent and they could build new make lines 

very fast. So the recommendation was add Business Value by increasing market share. 

The vision and leadership of their Sr execs was almost infallible. They followed the 



prescription to grow not only organically but by getting the IBM PC Division's 

manufacturing offloaded. 

Case Example �Fairchild Semiconductor 

Long time ago when Fairchild Semiconductor was looking for cheaper resources, they 

new they had to go to the East. They set the history of Outsourcing by getting the labor 

intensive visual inspection done in Singapore. The center point of this initiative was Cost 

Reduction. The initiative was huge and could not have been accomplished without the 

executive leadership and vision of the lead team. The improved competitiveness of 

Fairchild kept them in business forever which without such leaders many companies went 

out of existance. 

Case Example �Alcoa Electronic Packaging 

I too faced the same problem when I was CIO of Alcoa Electronic Packaging. Here my 

optimization of cost studies found that no matter how much efficiency of our operations 

was improved we would not be able to compete against Kyocera. The solution if the 

company wanted to stay in business was to outsource the final visual inspection of our 

multi layered cofired ceramic packages. This would make us competitive with Kyocera. 

Case Example �Apple 

Apple probably is the best example of Executive Leadership and Vision It does not 

manufacture anything in the developed world. All is done at the Foxconn factories in 

China. Is Apple competitive? Who is responsible for Apple's whole sale outsourcing of 

their manufacturing. It has got to be the leadership and vision of Tim Cook who now is 

CEO but who in his early career at Apple championed their Supply Chain Management & 

outsourcing of manufacturing. These facts are well know but what I want to emphasize is 

that their Supply Chain costs are the lowest and they reflect that in their pricing. Is Apple's 

competitiveness due to pricing. Probably not because they are the high end dealer of 

items that consumers adore. Their competitiveness comes as much from outsourcing as 

much it I driven by their Sr Management's leadership and vision. Prior to Cook's time they 

manufactured all in their Cupertino factories but not since he championed and optimized 

their Supply Chains by outsourcing. When Steve Jobs 2 was asked by Obama, when will 

you bring your manufacturing back to USA. His simple answer was never. Without giving 

further details let me only say that if it were to be the case Apple's operating income will 

not be what it is. 

Conclusions 

Through the above discussions and case examples I hope that it is established that 

leadership, vision and in most cases outsourcing are the foundations of enterprises' 

competitiveness. This paper has also discussed how executive leadership can become 

the foundation for the rigorous development of vision that is used to develop the 

strategies and planning for execution to create additional business value and hence 

competitiveness. 

References 

1. Sam Bansal- Technology Scor Cards- Aligning Investments with Business 

Performance, Wiley April 2009. 

2. Kasper- Apple's overseas manufacturing operations offer flexibility, not just 

savings,Apple Insider- Jan 2012. 



GLOBAL SOURCING OPPORTUNITIES AND CHALLENGES FOR 

MEXICO AND LATIN AMERICA 

ABSTRACT 

Moderator: 

Gustavo Parés, CEO Financetech Mexico Delivery, Mexico, 

gpares@financetech.mx, +52155-2686-3696. 

Panelists: 

Raymundo Camara, CEO ITESECC, Mexico, 

rcamara@itesecc.com, +52155-9875-640750. 

Ricardo Parés, Sales VP and Partner Financetech Mexico Delivery, Mexico, 

rpares@plafinal.mx, +52155-2563-3620. 

Miguel García, Sales VP and Partner Financetech Mexico Delivery, Mexico, 

mgarciamadrazo@plafinal.mx, +5255-5980-0700. 

The purpose of this panel is to discuss the main challenges and opportunities in the ITC 

Outsourcing Industry in order to provide near shore services to the main markets in world such 

as USA and Canada and far shore services to the rest of the world. Large corporations and 

SMEs around the world are facing great challenges to exploit IT to help them improve their 

productivity and geographical reach. These companies are also striving to reinvent or 

complement their existing business models. Those companies that are not capable of using 

technology in order to become more competitive will face new threats because nowadays they 

need to compete with companies not only in the same geographic area, but also need to 

compete with new products and services that change business rules faster than ever. That is 

why the ITC Outsourcing industry will present an important growth industry that will create jobs, 

and help innovations for Mexico and the Latin American region. This panel will present relevant 

facts about the challenges and opportunities of this industry in this region so that rest of the 

world can launch joint ventures and alliances with companies in this region for mutual benefit. 

Key words: Global Sourcing, Mexico, Latin America, IT, Sourcing Challenges, Sourcing 

Opportunities. 

Gustavo R. Pares Is the CEO of one of the top Consulting firms in Mexico and active advocate 

for the use of IT outsourcing as a strategy for the development of Latin America. Gustavo has 

worked on several projects for public and private industries such as American Express, ING, 

Nestlé and L’Oréal. He has worked as advisor and led as a contractor several projects for the 

Mexican Government at Federal and State level. He has developed programs in Latin America 

to promote the use of IT in small and medium sized companies – this resulted in more than 345 

companies in Mexico, Chile, Peru, Venezuela and Argentina implementing free ERP systems to 

improve their competitiveness. He is professor and researcher at the Tech of Monterrey. 

Professor Parés has published more than 50 articles and research papers in well-known 

magazines, websites and newspapers around the world published by IGI Global, MSDN, Code 

Guru, Information Week, El Economista, Consultoría Empresarial, Microermpesa Mexicana, 

Netmedia, El Financiero among others. He is also a contributing author for the book Software 

Process Improvement for Small and Medium Sized Enterprises, edited by Hanna Oktaba in 

2008. 



ENTREPRENEURSHIP IN TIME OF CRISIS: THE OUTSOURCING OF SERVICES THROUGH 

FRANCHISE ARRANGEMENTS IN THE ITALIAN FOOD SERVICE INDUSTRY 

Giovanni Tamburrini, Solbridge International School of Business 

giovanni@solbridge.ac.kr 

ABSTRACT 

Entrepreneurial spirit of individuals might be strongly affected by macroeconomic factors such 

as the world-wide financial crisis. On the one hand, economic uncertainties might lead 

individuals to choose to skip their startup projects; on the other hand, the economic 

uncertainties are such that the unprofessional implementation of startup projects might bring 

consequences which are much tougher than those that would occur in a healthy economic 

environment. Moreover, startups are also influenced by the availability of the funds to 

accomplish the first investment. In the biennium 2010-2011 many Italians, after having lost their 

jobs, decided to launch themselves in the food service industry. Because of the improvised 

choice to be entrepreneurs, most of the ventures experienced bankruptcies soon after their 

establishment. On the basis of a qualitative and quantitative discussion on the factors which 

positively influence the startup and the successfulness rate of the firms, this paper aims first of 

all at identifying which aspects should certain business models, formulas and solutions present 

in order to address those factors. The analysis therefore demonstrates that the identified 

aspects, among which the outsourcing of managerial services is considered to be the most 

important, perfectly fit within the franchising arrangements. Despite its general crisis-proof look, 

the successfulness of franchising scheme as business strategy needs to be tested in relation to 

a specific industry sector. Accordingly, the second part of the paper studies the relationship 

between franchising and the Italian Food Service Industry with the purpose of comprehending 

for which subsectors – restaurants, cafeterias, bakery industry – the outsourcing of certain 

managerial services might turn out the winning choice for prospective entrepreneurs. 

In particular, the analysis, considering: 

a) the changed and changing Italian consumer preferences, either in terms of gastronomic 

culture and in terms of lowered purchasing power brought by the economic crisis; 

b) the assumption according to which franchise arrangements in the food service industry 

better work when marketing “non-complex” products, 

concludes that the bakery industry might well represent a suboptimal equilibrium that 

international franchisors, especially the South Korean ones, should consider whereas they 

decide to expand their business overseas. 

Key words: Franchising, Entrepreneurship, Food Service Industry, Business Strategy, 

Giovanni Tamburrini earned his Ph.D. in Commercial and Uniform Comparative Law (2010) and his 

bachelor degree in Private Comparative Law at Sapienza University of Rome (2006). He also has an LLM 

in Corporate Governance and Public Policy from the Queen’s University of Belfast (2008). During his 

academic career he participated in several international programs through which he had the chance to 

study for one year in Brazil, Finland and at the Rome Law Summer School of the Temple University of 

Philadelphia. In 2011 he has worked as legal consultant at the Swiss Institute of Comparative Law, 

Lausanne. He is currently external adviser of the Serbian Institute of Comparative Law. His research 

focuses on corporate governance and international economic law. 



INTRODUCTION 

The current world-wide economic crisis is exerting a strong pressure on business actors, hence 

affecting their behavior. Public authorities, as for example Governments, are approving austerity 

programs and increasing taxes; large and small firms are cutting costs through the dismissal of 

employees 1 ; financial institutions are requesting more and more warranties for issuing loans; 

when acting as entrepreneurs, individuals are demonstrating both frustration and incapacity to 

select and manage good projects; when acting as consumers, they are showing a tendency to 

choose the less expensive deal.The attention of this paper is focused on the behavior of the 

individuals, both as entrepreneurs and as consumers. 

As concerns individuals as entrepreneurs, the idea which underpins the discussion is that a high 

start up rate is very dangerous – for the macro-economic context – if not accompanied by the 

success of the new established firms. Assumed this, the study is concerned with a 

specific market area – Italy – and a specific industry sector – Food Service Industry –: two 

arenas where the mentioned problem has actually occurred. 

Accordingly, in the first part of the discussion, the author examines certain factors – drawn from 

the interpretation of well-established entrepreneurial theories – which, in times of crisis, affect 

either the startup rate or the prospective of success of the firm. In particular, the analysis is 

concerned with: individuals’ belief on the convenience working for one’s own instead of working 

for somebody else; the availability of funds necessary to accomplish the startup investment; the 

predictability of good performance of the startup venture; and, finally, the familiarity that 

individuals have with the product/service supposed to be the object of their startup venture. 

To begin with, factors 1,2 and 3 are analyzed and explained, first separately and hence in 

combination. Both the analysis and the explanations are supported by graphics and 

mathematical functions, which are constructed only for descriptive purposes and for possible 

development of quantitative researches. 

Such preliminary study avails not only to appreciate the positive relationship between the factors 

themselves and the startup rate – higher firm’s successfulness, but also to establish the starting 

point of the discussion that shall be developed throughout the paper. 

In fact, by presenting as hypothesis said positive relationships, it follows that the aim of the 

paper becomes to understand which business models, formulas and solutions specifically 

address those three factors. 

It is true, the preliminary study of the hypothesis does not lead to the direct identification of the 

business models, formulas and solutions. Rather, it discloses which aspects, in times of crisis, 

these must present in order to convince individuals that is more convenient to work for their 

own, to facilitate the access to the funds necessary to make the startup investment and to 

render good performances predictable. 

1 

See Soble, J. [2012]. Sony to cut global workforce by 10,000. Financial Time, available at 

http://www.ft.com/intl/cms/s/0/d9fccb94-8240-11e1-9242-00144feab49a.html#axzz1seU6MTm3 



GENERAL ASPECTS 

A 

B 

... 

X 

Y 

W 

Z 

Aspects which address the three factors 

The analysis demonstrates how the most important of these aspects turns out to be the 

outsourcing of managerial services. 

Theoretically, many business models, formulas and solutions might present such aspect. 

BUSINESS MODELS, FORMULAS, SOLUTIONS 

1 

2 

... 

4 

… 

10 

Aspects which address the three factors 

Yet, that does not mean all of them “universally” succeed to address with the three factors. The 

success hinges on macro-factors just like the market area – Italy – and the industry sector – 

Food Service Industry. Hence, the identification of the business models, formulas and solutions 

shall be the result of the intersection between “outsourcing of services” and the mentioned 

macro-factors. To put it differently, whereas intersected with other macro-factors (one can 

imagine Spain and Tourism), the “outsourcing of services” might suggest other business 

models, formulas and solutions. 

Anyways, as it shall be seen, although the intersection “outsourcing of services” and the 

mentioned macro-factors shall lead to the identification of a business model, formula and 

solution, that shall not ensure the successfulness of the latter as business strategy. 

The “intersection” approach requires the brief presentation of the Italian economic situation and 

the pointing out of some important issues related to the Food Service Industry; these 

observations rely on the qualitative and quantitative data mainly drawn from documentation 

provided by the national Italian statistic office (ISTAT), the national associations of 

entrepreneurs (Confimprese) and the Sole 24ORE, that is the most notorious Italian financial 

journal. 

The examination of such data suggests that the reasons of many startup failures (especially 

those referring to the biennium 2010-2011) have been connected to the lack of professionalism 

of the entrepreneurs. 



A 

B 

...

It is true, if the business model, formula and solution should be therefore worked out from the 

intersection of “outsourcing of services” and “lack of professionalism”, then the franchising – 

mainly characterized by the outsourcing of services to experienced and established central 

administrative offices – seems to be the fittest arrangement for the compliance with: 

a) the three mentioned factors; 

b) the fourth factor: the “familiarity with the product” whose positive relationship with the 

startup rate has meanwhile also been demonstrated . 

Although franchising arrangement seems theoretically very suitable to address all the four 

factors, it does not mean that it practically and automatically shall represent a successful 

business strategy for all the market areas and industry sector. 

In other words, despite franchising is thought to: 

a) Strengthen the B1 (factor 1). This is true especially for IAF (factor 4). These WBE, in 

fact, can count on the support of well established and proven business practices which 

increase the feeling of stability in relation to the commercial activity to be launched; 

b) Allow to predict good performances. It is clear how this (new) component is strictly 

connected to B1: the feeling of stability in fact is conferred, other than the professional 

support of franchisor managers, also by the positive data concerning franchised units; 

c) Facilitating the AF. Financial institutions can be more easily convinced when taking into 

consideration both the professional support and the prospective performances of the 

new business; 

Still its successfulness as business strategy must be studied within the peculiar Italian Food 

Service Industry. That is to say, it is necessary to make another intersection. Accordingly, part II 

of the study sets out with a deeper analysis of the Italian Food Service Industry. After a general 

introduction, the analysis moves towards the relevant single sub-sectors: Restaurants (including 

all the sub-subsectors), Cafeterias and Bakery Industry. 

Being rather concerned with individuals as consumers, the discussion reveals how the 

relationship between Franchising and Italian Food Service Industry is quite different from the 

relationship between the former and Food Service Industry of other countries such as South 

Korea and United States. The weak success of franchising in the Italian Food Service Industry 

can be explained by the existence of a well rooted gastronomic culture which still prefers and 

pays attention to the artisanal dimension of the product rather than on other side aspects which 

franchised units are used to emphasize. 

Despite such general observation, the paper demonstrates how macroeconomic factors such as 

the financial crisis as well as cultural ones – included a progressive weakening of the mentioned 

gastronomic culture – are creating certain suboptimal equilibriums that can be successfully filled 

up by franchising agreements. In particular, a special interest is expressed in relation to the 

bakery industry- a sector of stores which is still not very developed in Italy, but very developed 

in South Korea, US and Australia through franchising schemes. The author, in fact, provides 

some observations underscoring business opportunities of South Korean bakery house 

franchisors in the Italian market. 

The qualitative and quantitative data that have rendered feasible Part II analysis have been 

drawn out from documentation provided by the national association of entrepreneurs in the 

Food Service Industry (FIPE), the Sole 24ORE, the Italian franchising association as well as 

other academic and scientific journals. 

References will be available upon request. 



PRODUCTION OFFSHORING FOR A US SUBSIDIARY MANAGED BY A 

SAUDI-BASED BUILDING MATERIALS DISTRIBUTION COMPANY: AN 

ECONOMIC ANALYSIS CASE STUDY 

Archana Shankarnarayanan, Gopalakrishnan Easwaran, Abdulwahab F. Anbar 

St. Mary’s University, One Camino Santa Maria, San Antonio, TX 78228-8534 

Email: geaswaran@stmarytx.edu 

ABSTRACT 

We consider a distribution subsidiary (DS) in Texas that is managed by a family-owned parent 

company located in Saudi Arabia. The DS sells and distributes building materials such as 

wooden doors and cabinets. The production of doors and cabinets is contracted to 

manufacturers located within Texas. However, a significant decline in revenue due to the recent 

crash in the US housing market forced the management to engage in desperate cost cutting 

measures that included offshoring of production activities to a low cost manufacturer located in 

Saudi Arabia. We perform economic analysis for this setting involving the US-based subsidiary 

and the Saudi-based parent companies by estimating the relevant cost components and 

incorporating factors such as the corporate and import/export taxes, international shipment 

costs, inflation rates and currency exchange rates. Based on the results of our analysis, we infer 

that offshoring of production activities is an economically viable alternative for the company. We 

further present our views on the impact of the offshoring strategy on the performance of the 

company’s supply chain. 

Keywords: production, distribution, off-shoring strategy, economic analysis, supply chain 

management, international business, logistics, international tax, and financial statements. 

Archana Shankarnarayanan is a post baccalaureate student in accounting at St. Mary’s 

University. She has a bachelors and a master’s degree in commerce from R. A. Podar College 

of Commerce and Economics. Shankarnarayanan’s research interests include transfer pricing in 

supply chains, business taxation, auditing and corporate governance. 

Gopalakrishnan Easwaran, Ph.D., is an assistant professor of industrial engineering at St. 

Mary’s University. His research interests include supply chain management, applied 

optimization, ERP & business intelligence systems, scheduling and sequencing. Easwaran has 

industry experience from consultancy research projects for a variety of firms including Hindustan 

Aeronautics Limited (India), Defense Research and Development Lab (India), Master Halco, 

Frito-Lay, PepsiCo, Solid Waste Management Department of San Antonio, and Laredo 

Development Foundation. He has published papers in journals such as Applied Mathematics 

and Computation, IIE Transactions, Interfaces, Naval Research Logistics, and Transportation 

Science. 

Abdulwahab F. Anbar is a graduate student in the engineering systems management program 

at St. Mary’s University. Anbar’s interest includes international supply chain management, 

corporate finance and lean production. He will be joining Puba Insurance Company in Saudi 

Arabia as a manager after his graduation. 



INTRODUCTION 

The aftermath of the recent economic meltdown has created tremendous opportunities for firms to 

realign their core competencies to the newly evolving customer needs and reevaluate their business 

strategies to reduce sourcing expenditure. To reduce offshoring expenses, companies have nearshored 

their manufacturing operations. This shift is primarily due to inflation in offshore wages, 

shipping costs and incremental costs owing to supply chain disruption offsetting the previously 

realized gains from higher economies of scale [1]. 

In this paper, we consider a distribution subsidiary (DS) established in Texas by a family-owned 

parent company located in Saudi Arabia. The DS is involved with distribution of building materials 

such as wooden doors for interior and exterior installations and cabinets for kitchen and bathrooms. 

These products are assembled with relatively inexpensive, durable and lightweight components. 

Presently, the DS has contracted the production of wooden doors and cabinets to manufacturers 

located within its geographic proximity. 

When the market conditions were favorable, the business enjoyed commendable return on its 

investment. However, the recent global recession fueled by the US housing market crash and the 

resulting sluggish recovery of the housing market has resulted in a formidable decline in residential 

housing construction in the US. This in turn yielded a steady downfall in DS’s revenue and inevitably 

generated negative return on investment for the Saudi parent company during the last four years. If 

losses persisted, the parent was willing to liquidate the assets and windup its operation from the US. 

Hence, the DS’s management was under tremendous pressure to return the business to profitability. 

In a declining market for its product, the only recourse for DS was to engage in desperate cost 

cutting measures that included evaluation of sourcing expenses due to contract manufacturing. 

Renegotiating the production cost with the local manufacturers was not viable. Furthermore, the 

management was unwilling to consider outsourcing to Mexican manufacturers due to security 

concerns. As a viable alternative to onshore production, the parent company was willing to 

coordinate offshore production of products by employing a low cost manufacturer located in its home 

country. 

The production offshoring alternative, although has the potential for cost savings, incorporates 

additional expenses in the form of international shipment costs, export/import taxes, and currency 

exchange rates. To quantify the trade-offs, we perform economic analysis for this setting involving 

the US-based subsidiary and the Saudi-based parent by estimating the relevant cost components 

and incorporating factors such as the corporate and import/export taxes, international shipment 

costs, inflation rates, and currency exchange rates. Furthermore, the offshoring strategy will 

necessitate the expansion of the existing domestic supply chain network to a geographically 

dispersed international network of flow of products and information, which has inherent disadvantage 

of supply disruptions. We present our views on the potential impact of the offshoring strategy on the 

company’s supply chain performance. 

CRITICAL PARAMETERS CONSIDERED FOR ANALYSIS 

The decision pertaining to production offshoring involves numerous factors contributing to production 

and operational expenses. More specifically, factors such as product specification, raw materials or 

component supplies, production requirements, human capital availability, labor rates, taxes, 

international trade laws, and the configuration of the supply chain network impact the overall 

profitability of business expansion strategy. In this study, we classify the critical factors that 

significantly affect the profitability into categories namely, the product specification, supply chain 

configuration, and market characteristics. Following this classification of the critical factors, we 

analyze the cash flows by incorporating international business factors such as currency exchange, 

international taxes, and international shipping costs. The management can embrace our results to 

evaluate the return on investment for their offshoring strategy. 

The underlying supply chain of the DS represents a coordinated set of business partners that 

includes the US-based DS, Saudi-based parent company, Saudi-based offshore vendor, and 

logistics service provider for international shipments from Jeddah Islamic Port, Saudi Arabia to Port 

of Houston, TX and US-based customers. These business partners are directly or indirectly involved 



in production, distribution and transportation of products in a dynamic environment characterized by 

three kinds of flows, namely, the information, material and financial flows. 

The supply chain coordination starts with the flow of information in the form of sales forecast based 

on the expected sales at the DS. If the offshore strategy is implemented, then the DS shall place 

orders to the offshore vendor through the parent company. The information flow to the vendor will 

trigger the material flow through production and shipment of products to the DS. The material flow 

out of the offshore production site will trigger a financial flow causing the parent company in Saudi 

Arabia to settle the required payments to the offshore vendor in the local currency, SAR. The 

payment will cover the cost of production, international shipments, insurance and export fee incurred 

by the vendor. 

On the other stage of the supply chain, the DS will receive the shipments after customs clearance at 

the Port of Houston, TX. The DS will transport the products to its warehouse for storage. The 

warehouse acts as a break bulk and storage location to facilitate economies of scale benefits to the 

DS. Following this, the DS will ship appropriate quantities of products to its customer location based 

on their requirements. The flow of material to customers will trigger a financial flow resulting in sales 

revenue for the DS. Based on the working capital requirements, licensing (or franchise) fee, profit 

sharing percentage for dividend payments and the payments made to the offshore vendor, the DS 

will make annual payments to the parent company. 

In addition, the three kinds of flow in the supply chain is impacted by factors such as export/import 

fee, currency exchange rates, inflation rates in the US and Saudi Arabia, trade laws governing 

pricing and global trade, and disruptions due to delayed or damaged shipments. These factors 

contribute to incremental cost and/or risk in the supply chains. 

The market characteristics include the sales forecast and price per unit of product for year 2012 at 

the DS location. For the purpose of analysis, we assumed a projected growth of 6% per year in 

sales, increase in selling price to be 4% per year for an analysis period from 2012 to 2016. We use 

3% and 5.2% inflation rate values for the US and Saudi Arabia, respectively [2]. We assume 5% per 

year increase in production and delivery costs for imports from the offshore vendor and 4% premium 

for the parent company to process the offshore operations. The parent company charges a licensing 

fee (franchise fee) to an amount of 5% of the sales revenue. 

The DS pays up to 4% of its NEAT as dividend to the parent company. Based on the historical data, 

the general, sales and administrative expenses including the payroll expenses amounted to 8% of 

the sales revenue. The plant and equipment depreciation based on the straight line depreciation 

method was estimated for the next four years. We assume 40% and 20% corporate tax rates for the 

US and Saudi Arabia, respectively. In addition to the corporate tax of 20%, corporates in Saudi 

Arabia pay an additional 2.5% in Zakat (an Islamic direct tax on property and income). Furthermore, 

there are no tax credits [3]. Next, we present our economic analysis based on the framework 

described in [4]. 

ECONOMIC ANALYSIS 

First, we analyze the income statement for the DS from year 2012 to 2016. Next, we use the NEAT 

values from the income statement to compute the free cash flows. Using the free cash flows and a 

risk adjusted hurdle rate (MARR) of 15%, we compute the net present value of the proposed 

offshore strategy. We infer that the internal return is approximately 21% surpassing the expected 

MARR at the DS. Following the NPV analysis for the DS, we performed the same for the parent 

company. We used a MARR of 30% for the parent. The return surpassed the expected profits by 

yielding an 84% internal return for the parent company. For brevity, we do not detail the analyses. 

Thus, the offshore production strategy is economically viable and attractive for both the DS and the 

parent company. However, the supply chain expansion bestows inherent challenges in the 

management materials, information and finance. 

VIEWS ON POTENTIAL IMPACT ON THE COMPANY’S SUPPLY CHAIN 

Presently, the DS directly communicates with the contract manufacturer for placing procurement 

orders. The proposed offshoring strategy will necessitate the parent company to be an intermediary 



partner for facilitating information exchange between the DS and the offshore vendor. This may 

deter the timely and effective resolution of issues pertaining to quality, on-time delivery, order 

completeness between the vendor and the DS due to inclusion of the parent company as an 

intermediary partner. 

Evidently, the geographic proximity of the manufacturer locations is compromised in the proposed 

production offshoring strategy. As a consequence, the procurement lead time will be elevated, 

demanding an increased level of in-transit inventory. In addition to a high lead time, delays due to 

port congestions and uncertain wait times for clearing customs instill significant variability on the lead 

time. The DS may have to reserve safety stock to mitigate the risk of stock outs that may be caused 

by increased variability. 

The cost of production and value of actual sales revenue may vary due to the difference in the 

inflation rates between the US and Saudi Arabia. Besides inflation, the import/export taxes play a 

significant role in global supply chains and it impacts the overall profitability of the business. 

Incentives for globalization like tax holidays and property tax allowances may reduce cost of global 

business transactions. These taxes may change based on favorable trade agreements that between 

the US and Saudi Arabia. Presently, Saudi corporations earning income from foreign sources cannot 

claim a tax credit, unlike the case of those in the US. 

Similar to taxes, currency exchange rates can significantly influence the costs of firms with global 

business functions. However, currency exchange rate is not an issue for the DS or the parent 

company since the Government of Saudi Arabia has pegged SAR to the US dollar. 

While operating a business on a global scale, corporations may have to deal with governments on 

various issues. Trade laws and policies of one country may pose a barrier because of being 

inconsistent with or antithetic to practices in the other country. Companies cannot initiate a business 

without the consideration of domestic rules and regulations. 

CONCLUSION 

In this paper, we considered a distribution subsidiary (DS) in Texas that is managed by a familyowned 

parent company located in Saudi Arabia in selling wooden doors and cabinets. The 

production of doors and cabinets was contracted to manufacturers located within Texas. 

However, a significant decline in revenue because of the recent crash in the US housing market 

forced the management to solicit offshoring of production activities to a low cost manufacturer 

located in Saudi Arabia. We performed an economic analysis for a scenario involving the USbased 

subsidiary and the Saudi-based parent. Based on the results of our analysis, we inferred 

that offshoring of production activities is an economically attractive alternative to manufacturing 

in the US. We summarized our views on the impact of the offshoring strategy on the 

performance of the supply chain. 

REFERENCES 

[1] Fortune, "CNN Money - Fortune," (2011). Available at http://finance.fortune.cnn.com/ 

2011/06/29/return-of-American-manufacturing/. Accessed on 30 Apr 2012. 

[2] Trading Economics, "Trading Economics," (2011). Available at 

http://www.tradingeconomics.com. Accessed on 30 Apr 2012. 

[3] Tax Rates, (2009). Available at http://www.taxrates.cc/html/saudi-arabia-tax-rates.html 

Accessed on 30 Apr 2012. 

[4] P. G. Keat and P. K. Y. Young, Managerial Economics: Economic Tools for Today's 

Decision Makers, Sixth ed., New Jersey: Prentice Hall, 2009. 

[5] Google Finance, (2012). Available: http://www.google.com/finance?q=SARUSD. 

Accessed on 30 Apr 2012. 



Mitigating the Impact of Managerial Anchoring: The Case for 

Management by Committee for Off-shoring Decisions 

Chia-Hsing Huang, SolBridge International School of Business, Daejeon, Korea 

koreasing@solbbridge.ac.kr 

Prasad Padmanabhan, Bill Greehey School of Business, St. Mary’s University, USA 

ppadmanabhan1@stmarytx.edu 

Wenqing Zhang, SolBridge International School of Business, Daejeon, Korea 

wzhang@solbridge.ac.kr 

Firm level off-shoring decisions have assumed greater importance in today’s competitive 

environment. If the firm relies on a single manager when making off-shoring decisions, it 

can incur significant losses if the manager anchors and makes erroneous decisions. Here, 

we develop simulation results where two or more managers together make off-shoring 

decisions. We show that management by committee can increase incremental hiring 

costs, offset by decreased anchoring costs if managers anchor in different directions. 

Firms should hire additional managers if the incremental costs of hiring additional 

managers are offset by the decreased anchoring costs. 

Key Words: Off-shoring decision, management by committee, anchoring 

Dr. Chia-Hsing Huang is an Associate Professor of Finance at SolBridge International School 

of Business, Daejeon, South Korea. He earned his Ph.D from the University of Pennsylvania. 

He has taught and worked in the US, Taiwan, and Thailand. He has published extensively in 

many leading international journals. 

Dr. Prasad Padmanabhan is Professor of Finance, Myra Stafford Pryor Chair in Free 

Enterprise, and Sam Walton Fellow at the Bill Greehey School of Business, St, Mary’s 

University in San Antonio, TX. He earned his Ph.D at McGill University. A prolific researcher, his 

articles have been published over 25 articles in several prominent professional and academic 

journals in a variety of areas in international finance and international business. 

Dr. Wenqing Zhang is an Assistant Professor in Management Science at SolBridge 

International School of Business, Daejeon, South Korea. He earned his Ph.D at McGill 

University. His research interests include OM and marketing interface, firm's decision making 

with CSR considerations, and game theory. 



Introduction 

Outsourcing/off-shoring of non-core activities has been recognized as a strategy for 

direct/indirect cost reduction (Madison & Padmanabhan, 2005). Manager off-shoring prediction 

errors can impact firm value. To date, few have examined the impact on firm value of manager 

optimism/pessimism (anchoring) related to off-shoring decisions. Huang and Padmanabhan 

(2011) (henceforth HP2011) show that firms can lose value if managers anchor. However, they 

only examine the case where only one decision making manager is involved. In this paper, we 

argue that if managers anchor in opposite directions, firms can offset the costs associated with 

hiring the additional manager(s) by reducing off-shoring costs (management by committee). 

Formally, we extend the single manager HP2011 theoretical model to include multiple decision 

makers. Using simulation, we show that management by committee is preferable when offshoring 

costs increase and managers prone to anchoring, do so in opposite directions. 

We examine the impact of manager anchoring on firm value when two or more managers make 

decisions by committee. We also address the issue of high (low) costs associated with loss of 

technology, data security, and cash flow uncertainties, influence firm value when anchoring by 

committee is present. Managerial anchoring increases firm level costs (HP2011). Here, we 

show that management by committee will mitigate such costs to the firm. Using simulation 

results, we conclude that firms must elect management by committee so long as the expected 

cost savings from decreased total costs associated with mitigated managerial anchoring is 

larger than the higher marginal costs of hiring the second manager. These cost savings are 

found to be increasing functions of the off-shoring cost/total firm level cost ratio. In addition, as 

loss of technology costs (or other monitoring costs) increases as a function of total costs, 

management by committee becomes less important. 

Literature Review and Rationale for the Study 

The vast literature on outsourcing/off-shoring attests to the strategic importance of this task to 

the firm. Benefits/costs of off-shoring are well documented (Madison & Padmanabhan 2006, 

Levina & Ross 2003, and others). Off-shoring reduces labor/production costs, but increases 

monitoring and loss of technology costs. 

The Methodology and Model: Maximizing Shareholders’ Value with Off-shoring 

We utilize the methodology of HP2011. Managers maximize the expected PVe,t (manager’s 

expected value at time t) of free cash flows (FCF); the manager’s expected probability pe,t at any 

time t (t>1) is a function of the same period breakeven probability pbe,t and the previous one 

period expected probability pe,t-1. PVe,t is modeled as a an independent random variable with a 

systematic component ηe,t and a random component εi,t: 2 

PVe,t =ηe,t + εi,t = pe,t Cu+(1-pe,t) Cd+εi,t (1) 

where : pe,t = β pbe,t+(1-β) pe,t-1, 

, and εi,t=L (1-pe,t). (2) 

where C0 = Initial cash flows associated with off-shoring, 3 Cu(Cd) = the PV of expected period 1 

cash flows, with the subscript u (d) denoting high (low) cash flows. Cu>C0>Cd , and C 

Cd . captures the ratio of cash flows at time 1 to the cash flow at time 0. 4 It is 

assumed that the actual probability that free cash flow will increase at time 1 is p; L represents 

PV of costs of possible loss of technology, managerial skill and data security, and expressed as 

2 We assume that L is constant for this part of the analysis. 

3 In addition, all costs are assumed to be expressed as a percentage of revenues of the firm. 

4 α is assumed constant (period 1 and 2). Also, higher α implies higher volatility of expected cash flows 



a proportion of initial cash flows; . A small β indicates that managers rely more on their 

own beliefs, and less on realized objective information when estimates are updated (HP2011). 

This paper considers overestimation/ underestimation errors (equations 3 &4) over two periods: 

5 

( )( ) 

( )( ) 

( ) (( ) 

( ) (( ) 



( 

( 

) 

), (3) 

) 

), (4) 

where denotes optimistic forecasting errors, and ,pessimistic errors. 

(a). Optimistic 

Forecasting Errors, 

α=1.25 

(e). Pessimistic 


α=1.25 

(b). Optimistic 


α=1. 5 

(f). Pessimistic 


α=1. 5 

(c). Optimistic 


α=1.75 

(g). Pessimistic 


α=1.75 

(d). Optimistic 

Forecasting Errors, α=2 

(h). Pessimistic 

Forecasting Errors, α=2 

Figure 1: Impact of Manager’s Anchoring and Loss of Technology On Off-shoring Decisions 

When both β and | | are small, optimistic forecasting errors increases dramatically. If | | stays 

large, managerial anchoring contributes less to the overall decision. If | | is small, managerial 

anchoring effect dominates other effects dramatically, especially when α is small. 

Decision Making By Committee (n decision makers) 

( ) ( )( ) 

( ) 

( )( ) 

( ) , 

( ) , 

where is the magnitude of managerial anchoring effect for the decision maker , 

If all decision makers are overly optimistic, then the final estimation is given by: 

. 

∑ 

∑ ( ( ) ( )( ) 

( ) ) . 

Similarly the final estimation for all decision makers being overly pessimistic is determined by 

the following: ∑ 

∑ ( ( ) ( )( ) 

( ) ) . 

5 Detailed derivations of all equations can be obtained on demand from the authors.

If n increases, the forecasting errors converge, but also increase costs of hiring additional 

managers. The optimal n depends on the firm and/or industry. If q percent are optimistic and (1q) 

are pessimistic, the joint forecasted probability is: ( ) (∑ 

∑ 

( ) 

). For a given q, error converges to a stable point with increase in n. Also, higher q 

results in a smaller error (i.e. | | , before q=1) (Figure 2a). 

Figure 2a Forecasting Errors Given q Known (left) and Figure 2b (q random), right figure 

If q is randomly generated, the net forecasting errors diverge (Figure 2b). 

Summary and Conclusions 

Firms can reduce managerial anchoring costs if a committee approach is adopted (if managers 

anchor in different directions), and/or when future cash flows are volatile. However, higher 

marginal costs of hiring can offset lower anchoring costs. Future research can remove model 

assumptions and can consider sequential ‘learning’ by manager committee members. 



Sourcing of Digital Content: Its Impact on Users 

& 

San Antonio Public Library Services 

PANNAGA PRASAD Reference Librarian 

Central Library, City of San Antonio, Texas pannaga.prasad@sanantonio.gov 

ABSTRACT 

Currently the outsourcing of library content and materials to the digital format has presented 

tremendous benefits and challenges to modern day libraries. Today, many different electronic 

formats and devices are available for library patrons to access materials. These formats include 

eBooks, audio books, video, music etc., and devices like iPhones, iPads, iPods, tablets, 

androids, laptops, etc. The history related to this gradual outsourcing of formats and devices is 

traced here. Various types of E-Materials, eReaders, etc., are explored. The San Antonio Public 

Library’s service changes in response to this outsourcing are also discussed. 

KEYWORDS: eBooks, E-Material, library services, eDevice, Eusers, outsourcing. 

Pannaga Prasad is a Reference Librarian at the City of San Antonio Public Library for the past 

seven years. She has also worked as a reference librarian in academic Libraries in San Diego, 

California and in San Antonio, Texas. Pannaga Prasad holds a master’s degree in Library and 

Information science from San Jose State University, California. 



INTRODUCTION 

In keeping with the new era of emerging electronic resources, libraries vision of offering the public 

service has changed. Library users are now seeking materials in electronic formats and public 

libraries are responding to the demand by purchasing materials in a variety of electronic formats. 

This paper argues that this is tantamount to an outsourcing of library services to the electronic 

format and has changed the library experience for users/library professionals. The user’s 

perception/experience in accessing library E-Materials is discussed here, followed by some ideas 

related to the future for libraries with possible solutions to cope up with the changes. 

HISTORY OF E- MATERIALS 

The trend of emerging E-Materials coincides with a new generation of users who prefer/experiment 

to read/download materials using electronic devices. Forty percent of the people in the U.S. read 

one book or less last year. According to a poll, only 57% of Americans read a book, 4% less than in 

the previous decade. (National Endowment for the Arts, 2002). Houchin (2011) argues that literary 

reading or reading for pleasure has been increasingly in decline in the past decade. Library patrons 

now demand E-materials, and libraries need to offer these materials to the public to keep their 

relevancy. EBook sales have climbed rapidly while print sales have remained flat, over the last few 

years (eReader Sales Figure, 2012). 

The personal computers, laptops, the internet, home theater systems, cellular phones, smart 

phones, iPods, face book, the increasing popularity in text messaging, etc., are all advancements of 

the past 20 years. These devices are more widely available in the market, and can be used to 

download E-Materials online directly to their devices (Stanford University 2009). Starting in 1998, 

libraries throughout the United States saw these dedicated devices as an opportunity to offer new 

technology to the public while offering a new format for accessing E-materials. In this process, they 

have outsourced much of the content decisions to outsiders. Today, people can access electronic 

materials from anywhere. Ironically, libraries may have also outsourced patrons to these devices. 

DIFFERENT KINDS OF E- READERS 

Products 

The two main products, the leaders with the eBooks reader market are: 

Amazon’s Kindle and Sony’s Sony eBook Reader. Besides Amazon and Sony, there are also 

other eBook Readers and products that have entered the marketplace such as: 

Plastic Logic has advanced features such as touch screen capabilities, a simple design, and a 

larger size for ease in both holding and reading. 

Papyrus FirstPaper is an eBook Reader which is a size of a tablet. 

E-Notebooks/Laptops, SmartPhones are used heavily by the users these days. 

To summarize, as the level of sophistication of these devices has increased considerably, 

libraries have been forced to in-source materials to incorporate with 

eReaders into the physical library environment. 

Providers 

OverDrive a leading full-service digital distributor of eBooks, audio books, and other digital content. 

They provide services for publishers, libraries, schools serving millions of end users globally. 

(OverDrive, 2012). 

Amazon currently has the largest titles available in its eBook library in a Kindle format; Google has 

a collection of around 7 million scanned books with an average of 8.2 million users per month at 

Google Book. 

Barnes&Noble the largest bookseller chain in the United States is on the eBook distribution market. 

eBook Library (EBL) has a large collection of eBooks. 

Project Gutenberg provides eBooks for little or no cost. (Stanford University School of Engineering, 

2009). 



Penguin eBooks Penguin titles available to read on eReader or compatible digital devices. 

These developments on the provider side imply that the advent of e-books has allowed patrons to 

access contents from an electronic mini-library in the comforts of their homes. They have to embrace 

these developments, and develop the virtual library environment. 

E- MATERIALS: POSITIVE VIEW 

E-Materials advantage to users, publishers, authors, and advertisers are tremendous and operate 

well in a virtual library environment. 

To Users 

Users find it valuable in terms of space usage The eBook reader has the ability to hold large 

number of eMaterials in a small device. 

Low cost and longer battery life the eBook reader does not require fast processors or powerful 

operating systems. With very little power consumption (resulting in a longer battery life), eReader 

users can enjoy low overall operating costs. 

Right there with you where you are and save you a trip Since users can access E-Materials 

without going to the library. E-Materials can be transmitted anywhere users desire to download – be 

it another location, or to their e-devices. 

To Authors, Publishers, and Advertisers 

The eBook model does not require the presence of retailers and wholesalers, unlike traditional print 

books. As a result, more profits are shared by the authors and publishers. It also provides a good 

medium for advertisers – they can now embed advertisements, further reducing the final sales price 

to customers. (Stanford University School of Engineering, 2009). 

To Employees 

Whether they are reporters, programmers, developers, etc., they will benefit from the adoption of 

portable computing devices. Many employees, who work from home or who travel for work, will also 

benefit. 

E-MATERIAL- NEGATIVE ASPECTS 

Although, there has been increased usage of E-Materials and is a popular trend to use these days, 

these devices have some negative attributes. Some of these are listed below: 

Transfer of ownership 

eBooks cannot be transferred to another individual (as with physical materials). eBooks read on 

electronic devices has to be channeled through Digital Rights Management (DRM) techniques to 

limit copying, printing and sharing of eBooks. 

Device crash 

DRMs can enable devices to loss of date if they crash. 

eReader Equipment 

eBook reader devices are expensive ($300 - $600); Seniors/disabled users may find it stressful on 

the eyes, and may become frustrated with the devices. 

Acceptance to cope up with the change in accessing E-Materials 

Users have to be willing to accept/learn new trends. In addition, many users may lack competency 

towards new technologies. 

E-MATERIAL SERVICES AT SAN ANTONIO PUBLIC LIBRARY (SAPL) 



At the San Antonio Public Library (SAPL), the number of electronic resources has increased 

exponentially over the last few years. To educate users in the use of emerging technology, SAPL 

provides the following services as indicated below: 

Instruction/Training classes 

SAPL training regimen includes an eReader clinic that library professionals teach patrons on how to 

choose between different types of eReaders and how to download the library’s free eBooks to the 

patron’s mobile device including nook and kindle. (San Antonio Public Library 2011). 

Public Relation (PR) skills 

SAPL uses marketing techniques such as poster displays/flyers/newsletter inserts/etc., and offers a 

library resource guide created by SAPL library professionals. SAPL’s eResources website aids users 

access eMaterials easily (SAPL website, 2012). 

SAPL’s variety of E-Materials 

SAPL's eLibrary offers a wide variety of online services to users, available 24/7 using their SAPL 

card. A eLibrary resources offered in the SAPL are listed below: 

eBook, an electronic book where an eUser can download books to read on any computer or a 

portable device that includes kindles, such as eReaders, Apple devices, and smartphones, etc. 

eAudiobooks, where an eUser can download audio books to listen to material on their personal 

computers, MP3 players, iPhones, iPods, iTouch, iPads, Androids, etc. 

eVideo, where users can download and watch a documentary, mystery, drama, action & adventure, 

children's materials, and more, on their personal computers, portable devices, or Windows Mobile 

devices. 

eMusic, where users can listen to classical music, jazz, blues, folk music, world music, etc.., on their 

personal computers, and other devices listed earlier. 

Databases, where users can electronically access magazine/newspaper articles, car repair 

information, health resources, biographies, business and residential directory information, etc. 

Language Learning eUsers can download the Pimsleur language audio books from OneClickDigital 

and other language learning related audio books. 

Test Preparation/Online Tutors eUser can access academic, career practice tests and online 

tutors for math, science, English, and social studies. (SAPL’s eLibrary 2012c). 

FUTURE LIBRARY 

Today’s libraries need to ensure adequate management of its digital and non-digital collections. As 

Gapen (1992) states, “…Librarians have developed libraries into a sophisticated form of information 

control mechanism in the sense that the library has to face two dimensions in a way of providing 

services namely: the way it has to provide the physical library and the way in which it can provide the 

virtual library as a user driven model…” Library professionals may now work from a variety of 

locations. As Ronan (2003) states, the Boeing company’s “Ask a Librarian” service moves to 

different locations during the day. 

CONCLUSION 

In the 21 st century, libraries cannot maintain flexibility if it means reduced value to patrons. 

Libraries should continue to offer print materials if users request them. Libraries will need to continue 

to offer library internet services, children/teens/adults educational, entertaining/informational 

programs that new technologies cannot replace. The libraries can be compared to other internet 

based search engines, although they offer products that search engines cannot. Herring (2007) 

advocate that libraries must maintain “tones of flexibility” in their offerings. The threat from 

outsourcing of materials and content has forced libraries to make themselves relevant again to the 

discriminating public. Ironically, they are in-sourcing new technologies to accommodate the new 

generation of patrons. They are also outsourcing themselves into patron homes! Patrons can now 

receive reference questions from anywhere. The library is as close as the Internet connection. 

REFERENCES ARE AVAIALABLE UPON REQUEST 



The Impacts of Organizational Culture on Outsourcing 

Mohsen Rezai , ihdm.rezai@gmail.com 

Mohammad Ebrahim Shiraqai, me.shiraqai@gmail.com 

Abstract 

Managing the outsourcing relationship is the area where the greatest effort is required, 

because it is here that problems are most likely to occur. 

In this paper is tried to analyze the influence of organizational culture as a factor influencing 

the formation and development of working relationships and communications in 

outsourcing; first, to be determined the influence various types of organizational culture on 

the companies' tendency for outsource their activities. Second, to be determined the impact 

of cultural congruence on satisfaction of outsourcing in constructional companies. 

In this study the survey sample consisted of 10 constructional companies and 75 vendors 

companies (suppliers) in Iran. This quantitative and descriptive study investigated the 

impact of perceived differences in culture between client and vendor on outsourcing in an 

organization. All collected data are analyzed in statistical examinations. 

Key words: outsourcing, organizational culture, organizational culture assessment, cultural 

congruence 

Mohsen Rezai is Manager of purchasing and supplying department in Iran heavy dies 

manufacturing company (IHDM). He has MBA degree from Kempten University in 

Germany. He has carried out several researches in the area of outsourcing and supply 

chain management. His work has been published in a number of national and international 

journals. 

Mohammad Ebrahim shiraqai is the head of suppliers’ evaluation department in Iran 

heavy dies manufacturing company (IHDM). He has master degree in Industrial 

Engineering from Mazandaran University of science and technology in Iran. He is teaching 

in “Elmi va Karbordi” University in Iran. He has carried out several researches in the area of 

outsourcing, supply chain management and scheduling. His papers selected in a number of 

national and international conferences as a top paper, such as CIE conference in France. 



Introduction 

The drive for greater efficiencies and cost reductions has forced many organizations to specialize in 

a limited number of key areas [1]. Outsourcing has moved on from focusing on peripheral activities 

such as cleaning, catering and security, to encompass more critical business activities such as 

design, manufacture, marketing, human resource management and logistics. Many organizations 

are increasingly considering outsourcing as a critical element of their organizational strategy [2]. 

Outsourcing was seen as primarily a cost-reduction strategy in the past, organizations now see cost 

reduction as just one of several reasons to outsource. Deloitte [3] Consulting finds that outsourcing 

is still highly driven by cost savings objectives a finding supported by Kakabadse and Kakabadse's 

[4] research. In addition, organizations outsource in order to access needed expertise and 

capabilities. Organizations believe that costs savings can be delivered primarily through vendors' 

economies of scale [3], however the literature abounds with warnings that this objective is not 

always easily achieved. Many books and articles on outsourcing begin by highlighting the failure 

rate [5]. Bellou [6] notes researchers are divided as to the underlying reasons for failure: some 

suggest "that paying the wrong price, buying for the wrong reason, selecting the wrong partner, and 

buying at the wrong time are some of the most prominent ones" (pp. 69- 70). Lacity et al. [7] studied 

the reasons outsourcing deals often failed to produce the anticipated results, noting that many 

outsourcing deals were undertaken based upon the vendor's proclaimed ability to provide 

outstanding reliability, outstanding customer service, and outstanding access to outsourcing 

activities, but that this tactic could easily backfire when the product did not meet the unrealistic 

expectation produced by such hyperbole. Enlow and Ertel [8] find the majority of outsource buyers 

and service providers have at least 30% of their annual contract value at stake based on how well 

their relationships are managed. Both parties are required to work together effectively to produce 

optimum results. Differences between organizational cultures are exacerbated without effective 

communication [9]. Sengupta [10] stated that if the cultural and communications fit was wrong, or if 

support strategies differed, or if sales teams competed for the same clients, revenues and 

relationships would suffer. Cultural compatibility is a vital component in selecting the correct partner. 

Edwards and Langford [11] note the significance of consultative, contributory and collaborative 

relationships. A cooperative attitude, expressed through behavior and communication is critical. In 

available researches, the relationship between vendor and client’s cultural congruence of and 

satisfaction of outsourcing has not been identified clearly. If cultural congruence effected on 

satisfaction of outsourcing, it would be effective in outsourcing decision making. Also, the 

relationship between the culture of an organization and its outsourcing rate hasn’t been studied so 

far. 

In this paper, three hypotheses are discussed and studied in Iran’s constructional companies. 

Research Design and Approach 

Descriptive research involves gathering data that describe features such as client and vendor 

culture and client’s satisfaction. In the present case, data were organized, tabulated, and analyzed. 

A structured questionnaire was used to gather data from the managers and employees regarding 

client, satisfaction. In order to answer this question, whether there is relationship between 

organizational culture and tendency to outsourcing, first we measured organizational culture of client 

companies (by OCAI) and the percentage of outsourced activities/processes in under investigated 

companies. The OCAI instrument and framework recognizes four dominant culture types (i.e., clan, 

adhocracy, market, and hierarchy). [12] Then we examined the meaningful coordination between 

each type of organizational culture (clan, adhocracy, hierarchy and market) and tendency to 

outsourcing by using SPSS statistical software. In order to answer this question, whether there is 

relationship between cultural congruence and the rate of satisfaction of outsourcing, first client and 

vendor’s cultural congruence have been measured (by designed formula). Then the rate of client’s 

satisfaction of outsourcing has been measured (by questionnaire). These questionnaires have 



included 15 questions which have 1 – 5 scores. Finally the meaningful relationship between these 

two above mentioned issues was measured by using SPSS statistical software. 

Measuring cultural congruence of vendors and clients companies (designed formula) 

In order to measure cultural congruence, we did reversely. It means that we measured cultural 

confliction between vendors and clients companies by OCAI. The fewer gaps between the 

organizational culture’s scores of two (client and vendor) companies the more congruent their 

cultures are. So the cultural gap between two companies will be measured through following 

formula: 

ConflictionCi,Vj=|clanCi –clanVj|+|adhocracyCi – adhocracyVj|+|hierarchyCi – hierarchyVj|+|marketCi – 

marketVj| Which: 

Ci: i th Client Company. 

Vj: j th vendor Company. 

Clan Ci/Vj , adhocracy Ci/Vj , hierarchy Ci/Vj and market Ci/Vj : are achieved scores by OCAI instrument for 

i th client/ j th vendor. 

Investigating hypotheses 1and 2 

Is there any meaningful relationship between organizational culture and tendency to outsourcing in 

companies? Do all types of an organizational culture effect on outsourcing equally or they have 

different impact or they don’t have any effect? In order to analyze these hypotheses first 

organizational culture of clients companies should be measured, and then the rate of outsourcing 

should be calculated in these companies. Finally pairs of numbers for these data should be formed 

(the rate of outsourcing in i th company, the score of organizational culture in j th type) and the 

correlation of these pairs should be analyzed by SPSS software. It is important to mentioned that i 

refers to the number of clients companies which can be from 1 – 10 and j shows organizational 

culture type such as clan, adhocracy, hierarchy, and market. The result of these exams is shown in 

table1. 

Table 1. Relationship between cultural types and approach to outsourcing 

Cultural types Outsourcing Relationship’s type 

Company’s clan Approach to outsourcing Inverse 

Company’s adhocracy Approach to outsourcing Direct 

Company’s market Approach to outsourcing Direct 

Company’s hierarchy Approach to outsourcing No relationship 

Investigating hypotheses 3 

There is a meaningful relationship between organizational culture and satisfaction of outsourcing in 

clients companies. In order to study this hypothesis, first the organizational culture of 5 clients 

companies and 75 vendors companies should be measured. Then the cultural confliction of these 

companies should be calculated and the rate of clients’ satisfaction of outsourcing for their vendors 

should be calculated too. Finally 75 pairs of numbers will be created which consist of the score of 

cultural confliction and the rate of satisfaction of outsourcing for each client-vendor. 

Pairs of numbers for correlation testing 

Cultural confliction and satisfaction of outsourcing make 75 pairs of numbers. These 75 pairs have 

been correlation tested by SPSS software (table 6) to analyze their correlation. 



Table 6. Correlation between cultural confliction and Satisfaction of outsourcing 

Correlations 

Cultural 

Confliction 

Satisfaction of 

outsourcing 

Cultural Confliction Satisfaction of outsourcing 

Pearson Correlation 1 -.691 ** 

Sig. (2-tailed) .012 

N 75 75 

Pearson Correlation -.691** 1 

Sig. (2-tailed) .000 

N 75 75 

**. Correlation is significant at the 0.01 level (2-tailed). 

Conclusion 

This study shows that in Iranian constructional companies, organizational culture effects on 

outsourcing. There is need to mention there is not a meaningful relationship between all 4 types of 

organizational culture together and approach to outsourcing, but each of these types separately has 

meaningful relationship with approach to outsourcing as we see in table 1.Meanwhile according to 

achieved results, if cultural congruence between client and vendor increases, the satisfaction of 

outsourcing in clients companies increase too. Since outsourcing strategy as a supply strategy is 

very important in companies, if a company decide to adopt this strategy, it should change those 

types of organizational culture which effect on outsourcing by the use of organizational culture 

changing instruments. Since cultural congruence increases satisfaction of outsourcing, clients 

companies should select vendors companies which have the same culture. These results infer that 

organizational culture effects on quantity and quality of outsourcing. 

References 

1. Aron, R., Singh, J.V. (2005). Getting offshoring right. Harvard Business Review December, 135– 

143. 

2. Holcomb, T.R., Hitt, M.A. (2007). Toward a model of strategic outsourcing. Journal of Operations 

Management 25 (2), 464–481. 

3. Deloitte Consulting. (2005). Calling a change in the outsourcing market: The realities for the 

world's largest organizations. Retrieved July 5, 2008, from 

4. Kakabadse, N., & Kakabadse, A. (2000) Outsourcing: A paradigm shift. Journal of 

Management Development, 19(8), 670-728. 

5. Shiraqai, ME. (2009). Designing and performing a new framework for outsourcing., master thesis, 

Oloom va Fonoon university, Iran. 

6. Bellou, V. (2007). Psychological contract assessment after a major organizational change: 

The case of mergers and acquisitions. Employee Relations, 29(1), 68-88. 

7. Lacity, M. and Hirschheim. (1993). Information systems outsourcing: Myths, metaphors, and 

realities. Chichester, New York: Wiley. 

8. Enlow, S., & Ertel, D. (2006). Achieving outsourcing success: Effective relationship 

management. Compensation and Benefits Review, 38(3), 50-55. 

More references will be provided on request. 



Choice of Agile Methodologies in Global Software Development 

R.Sriram, PhD Research Scholar 

Department of Management Studies 

Indian Institute of Technology Madras, Chennai, TN 600 036, INDIA, 

Email: ms12d006@smail.iitm.ac.in, Phone: +91 9840922862 (M) 

Saji K Mathew, PhD 

Assistant Professor, Department of Management Studies 

Indian Institute of Technology Madras, Chennai, TN 600 036, INDIA, 

Email: saji@iitm.ac.in, Phone: +91 44 2257 4573 (O) 

Abstract 

Although both agile and global software development are apparently incompatible in 

many respects, some recent studies have shown a growing interest in the adoption of 

agile methods in globally distributed software development projects. Further analysis of 

literature on agile methods and GSD showed agile methods could be tailored to 

produce optimal performance in the context of GSD. Following multiple case study 

approach, this research seeks to address the determinants of fit between agile methods 

and global software development and how the fit impacts project governance. 

Keywords – Agile, distributed software development, global software development, 

project governance, fit. 

R. Sriram is currently pursuing his PhD from Department of Management Studies, 

Indian Institute of Technology Madras. He has 14 years of work experience in Indian 

Software industry and has played roles of Project Manager, Delivery Manager and 

Delivery head. His areas of academic interest are Global sourcing, Performance of 

Global software development and his present work is on Using Agile Methodologies in 

Global software development. 

Saji K. Mathew is currently an Assistant Professor at the Department of Management 

Studies, Indian Institute of Technology Madras. His PhD work and subsequent 

academic engagements focused on the role of Information Technology in Management. 

As a Fulbright Scholar, he studied risk mitigation in offshore IT outsourcing in the Indo- 

US context at the Goizueta Business School of Emory University, Atlanta (USA). His 

present research interest covers risks and their mitigation strategies in offshore IT 

outsourcing, issues in IT infrastructure management services and data mining and 

business intelligence in retail industry. His teaches courses such as Management 

Information Systems, Data Warehousing and Data Mining, IT Services & Outsourcing 

and Information Systems Development. He has also worked in manufacturing firms in 

the private and public sector for about 10 years. He has provided industrial training and 

consulting for companies such as Exxon Mobile, Genpact, HP Globalsoft, Oracle India 

and Primus Retail. 



Choice of Agile Methodologies in Global Software Development 

Introduction 

Global software development (GSD) is a recent phenomenon where IT service providers utilize 

global resources and round the clock development practice to achieve higher levels of 

efficiency. Juyun Cho (2007) describes the transformation from traditional to global software 

development as the scenario where information systems are developed by co-located teams of 

outsourced organizations in different locations crossing the temporal, geographic, socio and 

cultural distance barriers. 

During early stages of outsourced software development, information system development 

typically involved single software vendor operating at the client site. For clients, this approach 

resulted in high dependency on one service vendor. Vendors faced issues like frequent attrition 

and increased resource cost leading to high development cost. In the back drop of these 

growing challenges, globalization and subsequent world-wide adoption of Internet opened new 

opportunities to address the issues in outsourced software development (Friedman, 2004). 

Simultaneously there were new collaboration technologies able to connect groups spanning 

different geographies and a subsequent fall in telecommunication costs leading to cheaper and 

accessible global communication. IT industry leveraged this new opportunity and adopted global 

distribution of software development as a new approach to offshore outsourcing (Carmel & Tjia, 

2005). This resulted in global development with multisite vendors, collaborative management 

and faster time to market. 

In the back drop of the methodological challenges involved in GSD, agile as a development 

methodology, has received growing attention (Shrivastava and Date, 2010). Agile 

methodologies like SCRUM, XP, Dynamic Systems Development Method promise to be more 

adaptive to changes and stress upon short time goal and incremental delivery. Although both 

agile and global software development promises benefits to business, the principles of agile 

methodology and the principles of global software development are apparently contradictory in 

many areas. This research seeks to understand the fit between agile methodologies and global 

software development and thus contribute to the growing body of knowledge in GSD. 

Literature Review 

Global software development as a concept evolved during late 1990s and has gained immense 

importance in the last 10 years. There has also been a growing research attention in the recent 

past on issues pertaining to global software development. While the global distribution of 

software development has generated economic benefits, it has created new challenges as 

reported in various studies. The key issues identified in previous studies can be broadly 

classified into three themes 

(i) Performance of global software development - Success of GSD is analyzed on 3 factors 

– social ties (trust and rapport), knowledge sharing (transactive memory and collective 

knowledge) and successful collaboration (Kotlarsky and Oshri, 2005). Experimental 

study showed that trust and communication effectiveness have positive and significant 

correlation with project performance (Sridhar and Paul, 2006). 

(ii) Governance related issues - Centralization or formal structure negatively influences 

knowledge sharing and informal social interactions have positive influence on knowledge 

sharing in GSD (Tsai, 2002). Based on 9 GSD projects of Siemens, key issues like 

Management and Control - Business and personal incentives, Project planning and 

tracking, Process compatibility, Process maturity are discussed (Herbsleb, Paulish and 

Bass, 2005). 

(iii) Software engineering process issues - Reported factors like cultural difference, trust has 

created positive impact on the practices of global software process development (Vanzin 

et al., 2005). In some of the studies, improper software configuration management and 



lack of knowledge within the team were identified as important factors related to process 

(Pilatti et al., 2006). 

Although some studies have reported challenges pertaining to sources of data, statistical 

generalizability is not reported in most studies due to the qualitative nature of the work, 

especially in studies pertaining to development methodologies in GSD. As such current 

literature is scanty to provide recommendations to overcome the governance and process 

issues which can directly influence the performance of global projects are much less. 

Agile Methodologies in Software Development 

Agile methodology defines disciplined processes and provides tailored practices for software 

projects in specific environments though their implementation is perceived to follow some 

extreme approaches unlike traditional methodologies. Austin (2007) has summarized key 

principles of the agile manifesto as individual and interactions over process, working software 

over extensive documentation, customer collaboration over contract negotiation and responding 

to change over following a monotonous plan. While agile manifesto stresses less on 

documentation, any large organization is bound and governed by process related capability for 

which agile requires more changes (Lindvall, 2004). All quality processes like testing, validation 

and verification occur much early in agile methods owing to its iterative nature and the 

development process then progresses through multiple sprints. Agile methods also improve the 

final output quality through periodic reviews (Michael Coram & Shawn Bohner, 2005). 

Agile Methodologies in Global Software Development 

Global software development and agile methodology signify two important developments in 

software development today with respect to geographical scope and development process, 

intended to deliver cost efficiency and improved customer satisfaction. Global software 

development reduces cost by offshoring development to remote locations where resource pool 

is available at low cost but comes with inherent challenges of communication and coordination. 

Traditional agile methods recommend entire team working in single location closer to customers 

improving communication and coordination. Research in this area has analyzed the outcome of 

combining global software development and agile methodology. Although it tends to minimize 

the issues of either of them, new challenges tend to arise, which will require efficient process to 

minimize the issues and maximize the benefits (Shrivastava and Date, 2010). 

Some of the benefits achieved by combining both agile and distributed / global software 

development – continuous integration, configuration management, improved communication, 

sprint reviews, increased trust. Challenges of combining the 2 principles – documentation, pair 

programming, time-zone difference, work distribution and it can be overcome by improved 

communication, use contact visits, team coaching, optimal usage of tools (Shrivastava and 

Date, 2010; Ivcek and Galinak, 2009). Scrum practices are strongly recommended to be used 

for distributed offshore teams to achieve hyperproductivity - productivity increases by an order 

of magnitude over industry averages and details sample scrum teams across geographies to 

overcome communication and coordination issues and strongly recommends using agile to 

achieve benefits of outsourcing (Sutherland et al., 2008). Scrum is an approach of delivering 

project, which have self-organized process, in iterations and it has planning, black-box 

engineering process (sprint) and review or post-mortem phase (Nicolas, 2007). 

Summary 

Our review of literature on agile development and global software development provided 

evidence from large number of anecdotal and case study based evidence for the potential 

benefits of using agile methods in GSD which would provide best of the two worlds to customers 



and vendor firms. Several scholars have highlighted how agile methods could be customized to 

perform optimally in the context of globally distributed software development. 

Although agile methodologies and GSD have received research attention, empirical studies 

useful for statistical generalizability have been much less. As such more studies are required to 

provide recommendations to overcome the governance and process issues which can directly 

influence the performance of global projects are much less. Empirical studies identifying 

different dimensions of GSD-agile fit are not well developed conceptually as also suggested by 

previous reviews in this context (Dyba and Dingosyr, 2008). 

In the back drop of the growing interest to adopt agile methods in global software development, 

this research seeks to understand the fit between project characteristics and the agile 

methodologies and how the fit impacts project outcomes. This will involve the following specific 

sub-objectives: (i) understand what characteristics of global software development projects 

determine the selection or choice of agile methodologies (ii) analyze how the choice of specific 

agile methodologies impact the project governance 

References 

1. Juyun Cho (2007). Globalization and Global Software Development. Issues in Information Systems, VoI. 

8, No. 2, pp. 287-290. 

2. Friedman, T.L., (2005). The World is Flat. World, Vol. 100, No. 5, pp.525-6. 

3. Carmel, E., and Tjia, P. (2005). Offshoring Information Technology: Sourcing and Outsourcing to a Global 

Workforce. Information Technology for Development, Vol. 13, No. 1, pp. 101-102. 

4. Shrivastava, S.V and Date, H. (2010). Distributed Agile Software Development: A review. Journal of 

Computer Science and Engineering, Vol. 1, No.1, pp. 10-17. 

5. Kotlarsky, J and Oshri, I. (2005). Social ties, knowledge sharing and successful collaboration in globally 

distributed system development projects. European Journal of Information Systems, Vol. 14, No. 1, pp. 

37-48. 

6. Sridhar, V and Paul, R. (2006). Analyzing factors that affect performance of global virtual teams. Second 

International Conference on Management of Globally Distributed Work, pp. 159-170. 

7. Tsai, W. (2002). Social Structure of ”Coopetition” Within a Multiunit Organization: Coordination, 

Competition, and Intraorganizational Knowledge Sharing. Organization Science, Vol. 13, No. 2, pp.179- 

190. 

8. Herbsleb, J.D and Paulish, D.J and Bass, M. (2005). Global software development at siemens: experience 

from nine projects. In Proceedings of 27th International Conference on Software Engineering, pp. 524- 

533. 

9. a-Vanzin, M., Ribeiro, M B., Prikladnicki, R., Ceccato, I and Antunes, D. (2005).Global Software 

Processes Definition in a Distributed Environment.29th Annual IEEE/NASA Software Engineering 

Workshop, pp. 57-65. 

10. Pilatti, L., Audy, J.L.N and Prikladnicki, R.(2006). Software configuration management over a global 

software development environment: lessons learned from a case study. In Proceedings of the 2006 

international workshop on Global software development for the practitioner. ACM, pp. 45-50. 

11. Austin, R. D. (2007). CMM versus Agile: Methodology Wars in Software Development. Harvard Business 

School, pp. 1-17. 

12. Mikael Lindvall, Dirk Muthig, Aldo Dagnino, Christina Wallin, Michael Stupperich, David Kiefer, John May, 

Tuomo Kahkonen (2004). Agile Software Development in Large Organizations. Computer, Vol. 37, No. 12, 

pp. 26-34. 

13. Michael Coram and Shawn Bohner (2005). The Impact of Agile Methods on Software Project 

Management. 12th IEEE International Conference and Workshops on the Engineering of Computer-Based 

Systems, pp.363-370. 

14. Ivcek .M and Galinac .T (2008). Aspects of quality assurance in global software development 

organization. 31st International Convention MIPRO, 2008, pp. 150–155. 

15. Patrick Nicolas (2007). Introduction to SCRUM Agile Process for Global Software Development. Coalesce 

Network, pp. 1-9. 

16. Sutherland .J, Schoonheim .G, Rustenburg .E and Rijk .M (2008). Fully distributed Scrum: The secret 

sauce for hyperproductive offshored development teams. Agile 2008, Washington, DC, USA, IEEE 

Computer Society, pp. 339-344. 



Customer Satisfaction on IT Outsourcing: Chinese SMEs Perspective 

Abstract 

Xiao Tang 

University at Buffalo, SUNY 

xiaotang@buffalo.edu 

Chung-Yean Chiang 

Solbridge International School of Business 

cchiang@solbridge.ac.kr 

Wenqing Zhang 

Solbridge International School of Business 

wzhang@solbridge.ac.kr 

Jianzong Lin 

Xiamen University of Technology 

jzlin@xmut.edu.cn 

Outsourcing the IT function to application service providers (ASPs) is considered one promising 

business activity for small and medium-sized enterprises (SMEs) to access the state-of-the-art 

technology with limited financial input. Limited efforts have been devoted to investigate the 

critical antecedents which improve ASP clients’ satisfaction level in developed countries. 

However, little efforts have been made to investigate the contributing roles of ASP capability 

and the ASP-client coordination to the development of the ASP clients’ satisfaction in 

developing countries. Using a structured survey to collect opinions from Chinese SMEs in a 

government-supported ASPs outsourcing project, we expect to investigate the relationship, 

especially for an important developing country, like China, between customers’ expectation and 

the ASP’s capability, between ASP-client coordination and expectation, between ASP-client 

coordination and customer satisfaction, and between ASPs’ capabilities and customer 

satisfaction in China. 

Key words: IT outsourcing, ASPs, system satisfaction, business coordination, SMEs, ASP 

capability, structural equation modeling 

Dr. Chung-Yean Chiang is an assistant professor in Solbridge International School of 

Business. His research focuses on the empirical examination of the bullwhip effect, the 

investigation of the IT contribution on the operational excellence, and the influence of the agility. 

His research works publish in the International Journal Operations and Production Management 

and International Journal of Production Economics. He has delivered multiple presentations in 

major conference, including Decision Science Institute Conference, Production and Operations 

Management Conference, Hawaii International Conference on System Sciences, etc. 



INTRODUCTION 

The use of information technology (IT) has become one critical business practice to streamline 

the business activities and maintain competence. For example, enterprise resource planning 

(ERP) system was extensively employed during late 1990s to integrate both back office and 

front office works. The implementation and the maintenance of IT often demands significant 

financial resource and human resource investments which are the major barriers for small and 

medium-sized enterprises (SMEs) from gaining competitiveness. Hence, given SMEs’ 

difficulties, Morgan (2005) suggested SMEs to access to the (benefits of) IT through using the 

application-centric IT outsourcing service provided by application service providers (ASPs), 

defined by Application Service Provider Consortium as “an organization that manages and 

delivers application capabilities to multiple entities from a data center across a wide area 

network”. 

ASP outsourcing, which means to outsource the IT function to an ASP, is studied to investigate 

the critical factors that improve SME clients’ satisfaction in developed countries. For example, 

Susarla et al. (2003) identified the major ASP’s service components which improve customer 

satisfaction in a survey study of 256 American samples. Kim and Kim (2008) in an exploratory 

study tested the critical factors for the SAP success in a 52 Korean companies. Some additional 

studies explored the ASP effectiveness in the developed countries (Bennett & Timbrell, 2000). 

These studies showed the SMEs’ perception of customer satisfaction on the use of ASP 

services in the developed countries while the investigation for such phenomenon is missing for 

SMEs in the developing countries, such as China, India, etc. 

Among all developing countries, China is of great interests to examine the mentioned critical 

factors for ASP outsourcing. China, a promising market for the development of ASP business, 

has more than 10 million registered SMEs by May 2010 (xinhuanet.com, 2010). ASP 

outsourcing is a more economical and affordable choice for Chinese SMEs because 80% of 

them have access to internet but are not financially strong to develop needed programs 

internally. In addition, Wu (2005) pointed out that previous success IT outsourcing activities in 

other countries may not be feasible in China due to the characteristics of the Chinese market 

and culture. Furthermore, limited efforts have been devoted to investigate the ASP satisfaction 

in China after a key word search of “ASP satisfaction” and “China”. 

The objective of this study is to investigate the major causal factors for ASP satisfaction in 

China. This study will duplicate the existing framework to understand the impact of the 

customer’s expectation on the satisfaction. Furthermore, this study also intends to explore the 

effect of the vendor-user coordination on the user’s satisfaction. The disparity and inconsistent 

interests between ASPs and the clients may cause serious conflicts. In this study, the effect of 

coordination is examined to understand its role in the development of customer satisfaction. 

RESEARCH METHODOLOGY AND DATA 

The survey instruments were developed through an extensive literature review to create an 

adequate set of survey questions. The questionnaire was designed in Chinese for the survey 

respondents who may not be excelled in using English. The survey questions are, then, 

translated into English by two bilingual experts in academia. A standard approach of double 

translation was applied to ensure the accuracy of Chinese-English translation. There are no 

significant differences before and after the translation. A 7-point Likert-scale was used to 

measure all survey questions for the study, with two different schemes: (1) from extremely low 

to extremely high, and (2) from extremely disagree to extremely agree. 

This study is part of one government-driven project in Fujian province to probe the application of 

the ASP business model by local SMEs though there is no official requirement to use the ASP 

service. The survey respondents are chosen because of their participation into the ASP project. 

The respondents are senior executives and owners for the company. The survey was collected 



in a seminar meeting using paper-based questionnaire to reduce possible misunderstanding 

about the questions since ASP outsourcing is a new business process and the project was 

initiated within two years. We collected for a total of 78 quality responses. 

The empirical analysis was carried out utilizing the partial least squares (PLS) technique of 

structural equation modeling (Star & Griesemer, 1989). PLS analysis was chosen over 

regression-based analyses because it can analyze all paths at once (Barclay, Thompson, & 

Higgins, 1995; Gefen, Staub, & Boudreau, 2000), handle formative, single-item and summated 

scales, and does not require a large sample size (Gefen & Straub, 2005). 

To run PLS, SmartPLS 2.0 was used to assess the measurement model and structure model. 

All measurement items were standardized. PLS examines the causal relationship, validity, 

reliability, and statistical power of the complete model. To derive more reliable results, the 

bootstrapping method was used, which approximates the sampling distribution of an estimator 

by re-sampling with replacement from the original sample (Moore & McCabe, 2005; Temme, 

Kreis, & Lutz, 2006), to simulate the sample distribution and form a larger sample size. The size 

of subsamples to run the bootstrapping technique followed the suggestions in (Efron & 

Tibshirani, 1998)(p.52). To test the second-order construct in the model, a repeated indicators 

approach, also known as the hierarchical component model in (Wold, 1982), was used. This 

technique is widely used to estimate higher order constructs with PLS (Wilson, 2007; Zhang, Li, 

& Sun, 2006). The impacts of each factor were presented by the path coefficient and the 

corresponding level of significance. 

EXPECTED RESULTS 

It is expected that the results of current study support previous findings regarding the 

contributing role of customer’s expectation on the customer’s satisfaction when SMEs outsource 

its IT function to ASPs. Meanwhile, the role of coordination will be confirmed. 

REFERENCES 

1) Barclay, D., Thompson, R., & Higgins, C. 1995. The Partial Least Squares (PLS) Approach to Causal Modeling: 

Personal Computer Adoption and Use and Illustration. Technology Studies, 2(2): 285 - 309. 

2) Bennett, C., & Timbrell, G. T. 2000. Application Service Providers: Will They Succeed? . Information Systems 

Frontiers, 2(2): 195-211. 

3) Efron, B., & Tibshirani, R. J. 1998. An Introduction to the Bootstrap. Florida: Chapman & Hall / CRC. 

4) Gefen, D., Staub, D. W., & Boudreau, M. 2000. Structural Equation Modeling and Regression:Guidelines for 

Research Practice. Communications of the Association for Information Systems, 1(7): 1 - 78. 

5) Gefen, D., & Straub, D. 2005. A Practical Guide to Factorial Validity Using PLS-Graph: Tutorial and Annotated 

Example. Communications of the Association for Information Systems, 16(July): 91 - 109. 

6) Kim, G.-M., & Kim, E. S. 2008. An Exploratory Study of Factors Influencing ASP (Application Service Provider) 

Success. Journal of Computer Information Systems, 48(3): 118-124. 

7) Moore, D. S., & McCabe, G. P. 2005. Introduction to the Practice of Statistics (5 ed.): W. H. Freeman. 

8) Morgan, T. P. 2005. IBM Buys Application SErvice Provider Corio, The Four Hundred, Vol. 14. New York, NY: IT 

Jungle. 

9) Star, S. L., & Griesemer, J. R. 1989. Institutional Ecology, 'Translations' and Boundary Objects: Amateurs and 

Professionals in Berkeley's Museum of Vertebrate Zoology, 1907-39. Social Studies of Science, 19(3): 387-420. 

10) Susarla, A., Barua, A., & Whinston, A. B. 2003. Understanding the Service Component of Application Service 

Provision: An Empirical Analysis of Satisfaction With ASP Services. MIS Quarterly, 27(1): 91-123. 

11) Temme, D., Kreis, H., & Lutz, H. 2006. PLS Path Modeling - A Software Review: SFB 649: Economic Risk. 

12) Wilson, B. (Ed.). 2007. Using PLS to Investigate Interaction Effects between Higher Order Brand Constructs. 

Berlin/Heidelberg: Springer. 

13) Wold, H. (Ed.). 1982. Soft Modeling. The Basic Design and Some Extensions. . Amsterdam: North-Holland. 

14) Wu, W. 2005. Carrying Out Contract Successfully Ends up With an IT Outsourcing Failure: Relationship 

Management Cases of IT Outsourcing in a Cross-Cultural Context. Paper presented at the ACIS 2005 

Proceedings. 

15) xinhuanet.com. 2010. 中国中小企业数量已超千万户. 

16) Zhang, P., Li, N., & Sun, H. 2006. Affective Quality and Cognitive Absorption: Extending Technology Acceptance 

Research, 39th Hawaii International Conference on Systems Sciences. Hawaii: IEEE Computer Society. 



Healthcare Information Technology Offshoring: Is it on the Radar 

Screen in the U.S.? 

Prashant Palvia, University of North Carolina at Greensboro, USA, pcpalvia@uncg.edu 

Tim Jacks, University of North Carolina at Greensboro, USA, tfjacks@uncg.edu 

Kevin Lowe, University of North Carolina at Greensboro, USA, kblowe@uncg.edu 

Hamid Nemati, University of North Carolina at Greensboro, USA, nemati@uncg.edu 

ABSTRACT 

Healthcare Information Technology (HIT) is widely regarded worldwide as a way to improve 

quality of healthcare while reducing its cost. Although the use of information technology (IT) in 

healthcare is accelerating, the U.S. is still in the early stages of achieving meaningful use of the 

technology. Stakeholders such as hospitals, medical practices, physicians and consumers face 

a myriad of issues and concerns related to IT in healthcare. Offshoring of HIT activities have 

often been associated with advantages such as significant cost savings and higher quality, but 

pitfalls such as loss of control and threats to security and privacy remain issues of concern. In 

this study, we target one group of stakeholders: hospitals, and describe preliminary evidence 

regarding their concerns in healthcare IT and offshoring. We conducted a survey of hospital 

CEOs and CIOs in the U.S. nationwide. 177 responses were received. Results demonstrate the 

low diffusion of IT-based outsourcing and offshoring. We also provide some evidence for some 

of the reasons behind the low penetration. Both healthcare administrators and outsourcing 

vendors can benefit from these findings by obviating some of the real or perceived concerns. 

Keywords: Healthcare, Key IT issues, Healthcare Information Technology, IT Management, U.S. 

Hospitals, CEOs, CIOs 

Prashant Palvia is Joe Rosenthal Excellence Professor in the Bryan School of Business & Economics at 

the University of North Carolina at Greensboro. He received his Ph.D. from the University of Minnesota. He 

works extensively in the field of Global Information Technology Management (GITM) and chairs the annual 

GITMA world conference. Professor Palvia is the Editor-in-Chief of the Journal of Global Information 

Technology Management and has published 96 journal articles in such outlets as the MIS Quarterly, Decision 

Sciences, CACM, CAIS, Information & Management, Decision Support Systems, and ACM Transactions on 

Database Systems, and over 170 conference articles. He has co-edited four books on Global Information 

Technology Management. Tim Jacks is a PhD candidate in Information Systems and Operations 

Management at the University of North Carolina at Greensboro after 18 years of industry experience in IT 

and management. He has previous publications in Decision Support Systems and Business Process 

Management Journal as well as in conference proceedings for ICIS, AMCIS, and GITMA. Research 

interests include IT occupational culture, IT/Business strategic alignment, and electronic health records. 

He will be joining the faculty of Southern Illinois University at Edwardsville in the department of Computer 

Management and Information Systems in the Fall of 2012. Kevin B. Lowe is the Burlington Industries 

Research Excellence Professor at the University of North Carolina at Greensboro where he serves as 

Head of Department in Business Administration for the Bryan School of Business and Economics. An 

Associate Editor at The Leadership Quarterly, International Journal of Dependable and Trustworthy 

Information Systems, and International Journal of Information Security and Privacy, he also serves on the 

editorial boards of the Journal of Management, Journal of Organizational Behavior, Journal of Leadership 

and Organizational Studies and the Journal of World Business. Dr. Lowe holds a Ph.D. in Organizational 

Behavior from Florida International University. Hamid Nemati is an Associate Professor of Information 

Systems at the Information Systems and Operations Management Department of The University of North 

Carolina at Greensboro. He holds a doctorate from the University of Georgia. He has extensive 

professional experience as a consultant with a number of major corporations. His research specialization 

is in the areas of Decision Support Systems, Data Analytics, Health IT and Information Security and 

Privacy. His research articles have appeared in a number of prestigious journals. He has widely 

presented nationally and internationally. Dr. Nemati is the Editor-in-Chief of the International Journal of 

Information Security and Privacy. 



INTRODUCTION: 

Healthcare Information Technology (HIT) is widely regarded worldwide as one of the means for 

improving the quality of healthcare and potentially reducing the cost of care. In particular, the 

delivery and cost of healthcare have been challenging issues in the United States. Recent U.S. 

administrations have emphasized the utilization of computers and information technology in 

streamlining healthcare and reducing its staggering costs. It is estimated that in the United 

States, approximately 20% of healthcare expenditures are related to the storing, processing, 

and dissemination of information. While attention to the use of information technology (IT) in 

healthcare is accelerating, the United States is still in the early stages of achieving meaningful 

use of the technology. Consequently, various stakeholders such as hospitals, medical 

practices, physicians and consumers face a myriad of issues and concerns related to IT in 

healthcare. In this study, we target one group of stakeholders: hospitals, and describe 

preliminary evidence regarding their concerns in healthcare IT and offshoring. We look at HIT 

offshoring specifically, as offshoring has often been associated with advantages such as 

significant cost savings and higher quality, but also has pitfalls such as loss of control and 

threats to security and privacy. 

HEALTHCARE INFORMATION TECHNOLOGY: 

We conducted a survey of hospital CEOs and CIOs in the U.S. nationwide. A total of 177 

responses were received. One of the objectives of the survey was the identification of key HIT 

issues. Based on literature review, consultation with practice experts, and a pilot test, we 

identified thirty four IT issues of potential concern to hospital executives. This list included two 

issues related to outsourcing: IT based outsourcing with the country, and IT based offshoring 

outside of the country. Executives were asked to rate these issues. Based on their responses, 

the top ten issues as identified by these senior executives are shown in Table 1. What is 

interesting to observe is that outsourcing and offshoring are not included in the top-ten list. In 

fact, they are ranked at the very bottom. IT-based outsourcing within the country was ranked at 

number 33 and IT-based offshoring outside the country was ranked at number 34. These are 

very surprising and revealing results, as IT-based outsourcing and offshoring are important in 

almost all areas of industry in the U.S. and many European countries. One plausible 

explanation is that the U.S. healthcare industry is so far behind in IT implementation that it is still 

dealing with basic issues and has not had the maturity or skills developed to consider 

outsourcing in a serious way. There is also silver lining in the knowledge that there is so much 

more to be explored and both healthcare providers and IT vendors can find fruitful venues for 

collaboration and mutual benefit. 

Table 1. The Top Ten Healthcare IT Issues 

Rank Issue 

1 Implementation of electronic medical records 

2 Reducing healthcare errors with information technology 

3 Change management from paper to electronic medical records 

4 Privacy of electronic records 

5 Improving quality of care with information technology 

6 Quality assurance of electronic records 

7 Security of electronic records 

8 Health information systems interoperability 

9 Decision support systems for hospital units 

10 Decision support systems for physicians and clinics 



We also examined specific issues in IT-based offshoring in healthcare. One of the issues 

investigated was the types of services that can be offshored. Table 2 shows a number of 

services and their average perceived importance and the number of hospitals engaged in their 

off shoring. These results are based on 153 responses. Perceived performance was measured 

on a 7-point likert scale; a higher number represents higher importance. 

Table 2. Offshored Services 

Services Average 

Importance 

Hospitals involved in 

offshoring 

Number Percent 

IT support in offshoring of medical data entry and 

transcription 

3.93 7 4.6% 

IT support in offshoring of medical billing 3.47 0 0% 

IT support in offshoring of insurance processing 3.50 3 2.0% 

Offshoring of medical software development 3.38 6 3.9% 

International call center operations 3.46 5 3.3% 

IT support in offshoring of medical diagnosis (e.g., 

reading of X-rays or pap smears) 

3.95 15 9.8% 

IT support in offshoring of drug development 3.31 1 0.7% 

IT support in offshoring of medical treatment 3.31 0 0% 

IT support in offshoring of medical research services 3.26 3 2.0% 

RESEACH FINDINGS: 

A few observations are apparent from these results. As it is a national sample, most U.S. 

hospitals are not much involved in IT-based offshoring. Each service was offshored by less 

than 5% of the hospitals. Only medical diagnosis registered the most IT-based offshoring, with 

almost 10% of the hospitals involved in it to some extent. The next two services are medical 

data entry at 4.6% and medical software development at 3.9%. Furthermore, these low levels 

of offshoring were reflected in the low-to-moderate ratings assigned to these services. On a 1-7 

likert scale, 4 is in the middle and would represent a medium level of importance. The fact that 

all average ratings were below 4 corroborates the observation that offshoring is currently not 

high on the list of U.S. hospital executives. 

In order to gain further insights into the low offshore activity in healthcare compared to other 

industries, we explored some of the key issues associated with offshoring. Some of these 

issues are fact-based, often reported in popular media; others may be myths based on 

prevailing stereotypes. Table 3 lists specific offshoring issues together with their average 

importance ratings as perceived by hospital executives. It also lists the number and percent of 

hospitals dealing with the issue. Once again, the results are based on 153 responses. 



Table 3. Issues in Offshoring 

Offshoring Issue Average Hospitals dealing with the issue 

importance Number Percent 

Intellectual protection of outsourced medical data 

and technologies in the offshored country. 

4.59 0 0% 

International laws and enforcement of privacy 

related to medical data 

4.68 5 3.3% 

International laws and enforcement of security 

related to medical data 

4.68 3 2.0% 

Legal recourse available in the offshored country 4.27 0 0% 

Medical data quality and related policies in the 

offshored country 

4.05 1 0.7% 

Data stewardship and ownership across borders 4.34 3 2.0% 

Medical ethics in the offshored country 4.31 0 0% 

Offshore vendor selection 3.61 4 2.6% 

CONCLUSIONS: 

Using 4 as the middle of the scale, anything above 4 represents a heightened sense of 

importance for the issue in question. Except for vendor selection, all issues seem to be 

important for the hospital executives. These issues have to do with intellectual protection, 

security and privacy, ethics and legal recourse in the offshoring destination. Given the high 

importance of data accuracy, security, privacy, and quality insurance of patient-related medical 

data as demonstrated in Table 1, the hospital administrators are justified in their opinions. 

Whether their opinions are fact-based or simply based on prevailing notions about offshoring 

countries such as India, China, Russia, and Philippines, they help explain the low penetration of 

IT-based offshoring activities in the healthcare arena. 

Together our results demonstrate the low diffusion of IT-based outsourcing and offshoring in 

healthcare. We also provide some evidence for some of the reasons behind the low penetration. 

Both healthcare administrators and outsourcing vendors can benefit from these findings by 

obviating some of the real or perceived concerns. While ours is an exploratory study, the 

research community will be well served by a careful and detailed examination of the issues and 

concepts discussed in this research. 

References Available upon Request. 



Global Sourcing Opportunities and Challenges in South Korea 

ABSTRACT 

Moderator: 

William Patrick Leonard, Vice Dean, SolBridge Internataional School of 

Business 

wpatleon@solbridge.ac.kr +82 42 630 8813 

Panelists: 

Mr. Bob Graff, Senior Lecture, SolBridge International School of Business 

bgraf@solbridge.ac.kr +82 42 630 8559 

Dr. Kyung Ah Lee, Senior Manager, Human Resource Department 

Emerson Process Management 

Kyungah.lee@emerson.com +82 2 3438-4600 

Gustavo Parés, CEO Financetech Mexico Delivery, Mexico, 

gpares@financetech.mx +52155-2686-3696. 

Dr. Jay Q. Park, Executive Director of Operations 

Pantos Logistics 

jayq.park@pantos.com +82 2 3771 2129 

To date Korea has enjoyed both robust internal and external sourcing opportunities with 

accompanying challenges. These opportunities have been supported by its strategic 

advantages. It has large array of world class research institutes propelling a highly productive 

workforce. Recently, the Korea-United States FTA and the prospects for FTA’s with the 

European Union, Japan or China have bolstered optimism. Korea’s challenges are largely 

driven by the faltering US and European economies. The nation’s large conglomerates, the 

Chaelos, responsible for about half of exports have been impacted. The Bank of Korea has 

recently projected that export growth will slow down significantly. In addition, militant labor union 

and regulatory environments add to the challenges. The panel will address these opportunities 

and challenges within the context of specific contemporary manufacturing and service 

enterprises. 

Key words: Western Economies, Korea, Manufacturing, Service, Sourcing Challenges, 

Sourcing Opportunities. 

William Patrick Leonard serves as Vice Dean, SolBridge International School of Business and 

Senior Fellow for Higher Education Policy at the Rio Grande Foundation. He holds a Ph.D. from 

the University of Pittsburgh and a MBA from Loyola University of Chicago. He has served in an 

array of senior higher education leadership posts-dean library and learning resources, deputy 

chief academic and student affairs officer, chief academic and student affairs officer, campus 

CEO and college president. In all he has faced sourcing challenges. Leonard as has served in 

Guatemala, Germany, United Arab Emirates and currently Korea. His commentaries, essays 

and reviews number over 170 appearing in US and international publications. 



Challenges of IT Adoption and Outsourcing in Supply Chain 

Framework: A Comparison of Service Firms in China and United Arab 

Emirates 

Habib Ullah Khan College of Business Administration, Al-Yamamah University, Riyadh, KSA 

habibkhan1974@hotmail.com 

Mahmood A. Awan School of International Business, Daejeon, S.Korea 

mawan@solbridge.ac.kr 

Wenqing Zhang School of International Business, Daejeon, S.Korea wzhang@solbridge.ac.kr 

Shafiq Ahmed College of Business Administration, Al-Yamamah University, 

Riyadh, Saudi Arabia. s_ahmad@yu.edu.sa 

Abstract 

The adoption and outsourcing of Information Technology (IT) services are growing rapidly and 

becoming more complex in a supply chain framework. Proper IT adoption in the framework of 

the supply chain and smart outsourcing are the main elements of achieving efficiency. This 

study addresses the challenges faced by service firms in making such decisions. The scope 

includes study of motivating factors, implementing, and managing the strategy. The study 

adopts the case study approach in two countries – China and UAE, where data was gathered 

from managers of over 140 firms. The service organizations ranged from retailers, banking, 

healthacare, investment, education, and government sectors. Suitable statistical techniques are 

used to explore the possible relationship among the challenges with companies in the service 

sector. The findings of the study indicate that the motivating factors are the focus on core 

competencies, turning non-profit activities into profit generating activities, and cost reduction. 

The outcomes of the current research can help both the UAE and Chinese service firms to 

consider the proposed challenges seriuosly in the adoption and outsourcing of the IT in their 

supply chain framework. 

KEYWORDS. Supply Chain Framework, Information Technology Adoption, Information 

Systems, IT Outsourcing, Efficiency, Service Industry of UAE, Service Industry of China 

Biography of Authors: 

Dr. Habib Ullah Khan is Assistant Professor and Head of Department of Management 

at Yamama University, Saudi Arabia. His research interests include management and 

Information Technology, MIS. 

Dr. Mahmood A. Awan is Assistant Professor of Marketing at SolBridge International 

School of Business, Daejeon, South Korea. His research interests include E-Marketing, 

E-government, and Online Export Marketing in developing countries. 

Dr. Wenqing Zhang is Assistant Professor of Management Science at SolBridge 

International School of Business, Daejeon, South Korea. His research interests include 

OM and marketing interface, Firm's decision making with CSR considerations, Game 

theory, Q. Methods. 

Shafiq Ahmed is Assistant Professor at the University in area of Statistics, with 

research interest in areas of Quality management. 



Introduction 

Information Technology (IT) is playing an essential role in today’s competitive business 

environment. According to Russell & Hoag (2004) IT has a vital role in Supply Chain 

Management. It is advisable for the companies to adopt technological tools to gain competitive 

advantage (Lau et al., 2006; Porter & Millar, 1985). Adoption of IT has made a significant impact 

on supply chain principles, practices, and became a field of research interest for both academic 

and professional circles over the last decade (Shams et al., 2011). Today Information 

Technologies like: Information Systems (IS) and web-based technologies (WBT) have changed 

the way we manage information flows among supply chain stakeholders. Adoption of these 

technologies is most cost effective means of driving supply chain framework integration 

(Simatupang and Sridhara, 2005). Therefore, main challenge for the organizations is to identify 

main challenges faced by the organization in the adoption of the suitable technologies, this will 

lead to a possible solution to overcome these challenges. Identification and possible solution of 

the challenges can play a major role in the selection of right technology to produce productive 

results. This paper proposes the possible challenges in adopting the new information 

technological tools in the framework of supply chain in UAE and China. United Arab Emirates is 

considered as the hub of business in gulf region. While China is progressing fast to become the 

next largest economy of the world. The regional and multinational companies are trying to base 

in this country to control the logistics of the region. The outcome of the current study can be 

used in the similar markets of the region. 

Literature Review 

The importance of the supply chain is increasing very fast in all kinds of activities, including intra 

organizational processes and inter organizational linkages (Bowersox et al., 2000). It is base of 

two or more than two companies working together to get competitive advantage, which 

ultimately will lead the company to a shelf of higher profitability.(Simatupand and Sridharan, 

2002). Linkage of the operations of the organization with different companies in the upper 

stream of Supply chain or with the lower stream of supply chain is not efficient without the 

sharing of the information efficiently. Lee and Whang (2000) reviewed the needs of proper 

information to the components of supply chain. This information sharing is leading them for 

process improvement (Lee, 2000) which is a base of productivity and value creation. Some 

commonly used processes in supply chain, which can be affected\improved directly from proper 

information sharing, are inventory management process and consumer response processes. 

(Barratt and Oliveira,2001). Daghfous and Barkhi (2009) also concluded possible benefits of 

Supply Chain processes such as: Greater control of suppliers, Process streamline, 

communication improvement, prompt feedback to customer, accurate forecasting, productivity 

enhancement, and maintaining lower inventory level. Wu, Zhao, Xia, and Zhu (2008) have 

studied the internal factors on IT adoption in China and concluded that factors like leadership, 

organizational learning, and IT resources positively impact IT adoption. Taking in mind the 

benefits of Information Technology (IT) adoption in the supply chain frame, the current research 

will try to explore the possible challenges faced during the adoption process. Highlighting of the 

possible challenges faced during the adoption process of the service industry can alarm the 

companies to prepare their mitigation strategy considering the recommendations of the current 

research. Outsourcing IT to China brings more opportunities in the fast-growing Chinese 

market. Technology services companies must pay careful attention to China’s regulations and 

changing technology standards and adapt their strategies accordingly. China will become the 

largest IT outsourcing player, and it will be to your own peril to ignore this powerful and 

important market (Chan, 2008). 



Methodology 

To conduct the research, UAE was selected due to its business wise importance in the region. 

Later on, the outcomes of the research can be easily implemented in the business markets of 

the gulf region. A thorough review of the literature has provided a base for reframing the 

purpose of the research and finalizing the research questions. Motivated in identifying possible 

challenges faced by UAE as well as Chinese service industries in IT adoption, following three 

research questions were created: 

RQ1. What are the possible challenges of IT adoption in supply chain frame work of different 

categories of service Organizations? 

RQ2. How the size of organization is affecting the possible challenges of IT adoption of supply 

chain frame work? 

RQ3. How service organization’s span of operation is affecting the possible challenges of IT 

adoption in Supply chain frame work. 

To answer the above research questions, a proper data collection technique was required. 

Conclusive research technique (Joppe, 2001) was adopted in the form of an onsite 

questionnaire through formal interview. The data of research was collected through 

questionnaire consisting mainly open end questions. Managerial employees, who were 

responsible for the processes of supply chain or frame work of the supply chain, were 

interviewed during the data collection phase. Data was collected from around 140 different 

private and publics organizations operating in UAE and China. The selection of these 

organizations was a bit challenge. Many companies rejected to share their information for this 

research. Researchers used their connections in the industry to get the approval of collecting 

data. 

Discussion 

RQ.1 

In order to respond to the research question number 1, the analysis was conducted on the 

categories level. The results of category wise analysis showed that Complexity of the current 

system is the major challenge in the adoption of the information technological tools in the frame 

work of the supply chain. Infrastructure of the company is second main challenge of majority of 

the categories. Further, in-depth analysis of the data showed that secondary challenges of the 

different categories are bit different among each other. Infrastructure of the company and lack of 

skilled work force are the top two secondary challenges of the Banking sector. Health care 

showed interesting results of their secondary challenges of IT adoption. 

RQ.2. 

To explore the answer of the research question number 2, the analysis was conducted on the 

size of the organization level. The results of size wise analysis showed that regardless the size 

of the organization complexity of the current system is the main challenge in the adoption of the 

information technological tools in the frame work of the supply chain. This uniform main 

challenge is faced by all sorts of organizations. Infrastructure is the common secondary 

challenge is large and small size organizations. In medium size organizations, resistance to 

change is the dominant secondary challenge. The ground reality in real world also supports the 

results. Complexity of the system is one of the major obstacles for the companies to adopt new 

technological tools. Companies don’t want to take risk of losing or sharing sensitive 

organizational data. As a result they avoid partial/full automation in the organizations. It is 

recommended that the organization should start making their system and process less 

complicated to adapt to any of the developments easily. 

RQ.3. 



It is useful to explore the possible challenges of IT adoption from the point of view of the 

operations of the organizations. The statistical results have shown very interesting outcomes. In 

the local based companies and worldwide multinational companies have same dominant 

challenge of complexity of the current system. GCC based companies are facing main 

challenge of infrastructure of the organization as a main challenge in the It adoption. Middle 

East based organizations are having two main equally important challenges; those are Lack of 

skilled worker and infrastructure of the company. These interesting figures are opening the 

doors for the future researches to explore the results further. 

Conclusion 

Breaking down the analysis under different RQs tried to validate the results from different 

angles. All the analysis results showed that complexity of the system and infrastructure are the 

main challenges faced by different organizations. Resistance to change and lack of skilled labor 

are the dominants secondary challenges in these organizations. For further detail based on 

different categories, size, and operation width the analysis in the discussion can provide indepth 

analysis. The current research provided a starting point to future researchers to validate 

the results of current research with their outcomes. The limitation of the current research is that 

it is focusing on the service sector. The same type of research can be replicated on the 

manufacturing sector of UAE. The outcomes of the manufacturing research can be also used for 

the comparative research with the data of the current research to compare the possible IT 

adoption challenges. Further, future researcher can repeat the same type of research in other 

GCC and Middle Eastern countries using the same parameters of the current research. 

References 

1. Barratt, M., Oliveira, A. 2001. Exploring the experiences of collaborative planning initiatives, 

International Journal of Physical Distribution & Logistics Management, Vol. 31 No 4, pp. 266-89. 

2. Bhatt, G. and Emdad, A. 2001. An analysis of virtual value chain in electronic commerce. The Journal 

of Logistics and Information Management, 14 (1/2): 78-84 

3. Bowersox, D., D. Closs and T.P. Stank, 2000. Ten mega-trends that will revolutionize supply chain 

logistics. J. Bus. Logist., 21: 1-16. 

4. Chan, S. (2008) IT Outsourcing in China. The Outsourcing Institute. Available at 

http://www.outsourcing.com/china_trends/pdf/IT_Outsourcing_China.pdf 

5. Carr N., 2003, IT doesn’t matter. Educause Review 38(60, 24-38. 

6. Daghfous, A. and Barkhi, R. 2009. The strategic management of information technology in UAE 

hotels: An exploratory study of TQM, SCM, and CRM implementations. Technovation 29 (9): 588– 

595. 

7. Dawn M. Russell, Anne M. Hoag, 2004. People and information technology in the supply chain: 

Social and organizational influences on adoption, International Journal of Physical Distribution & 

Logistics Management, Vol. 34 Iss: 2, pp.102 – 122. 

8. Ilie, V., Slyke, V. C., Parikh, A. M. & Courtney, F. J.2009. Paper Versus Electronic 

9. Medical Records: The Effects of Access on Physicians’ Decisions to Use Complex 

10. Information Technologies. Decision Sciences, 40 (2), 213-241. 

11. Jones N., 2003. Competing after rapid technology changes: the significance of product line 

management strategy. Strategic Management journal 24(13), 1287-1310 

12. Joppe M., 2001. Conclusive research: the research process, available at 

www.ryerson.ca/~mjoppe/ResearchProcess/ConclusiveResearch.html. 

More references will be available upon request. 



AN EXAMINATION OF CAPABILITY, QUALITY, PERFORMANCE AND 

CRITICAL ISSUES OF OUTSOURCING VENDORS IN INDIA & CHINA 

Shailendra C. Jain Palvia, Long Island University, USA, 

spalvia@liu.edu, 732-218-5041 

Prashant Palvia, University of North Carolina at Greensboro, USA, 

pcpalvia@uncg.edu, 336-334-4818 

ABSTRACT 

In the past, research literature has primarily focused on issues facing outsourcing clients to the neglect 

of those faced by outsourcing vendors. The vendor perspective is equally important as offshore IS 

vendors need to make important decisions in terms of delivering operational and strategic 

performance and aligning their resources and processes in order to meet or exceed targeted 

outcomes. This paper proposes and tests three-level capability–quality–performance (CQP) 

theoretical framework to understand vendor outcomes and their antecedents. The first level of the 

framework represents three vendor capabilities: relationship management, contract management, 

and information technology management. The second level has three mediating variables 

representing process quality: partnership, service, and deliverable quality. The third level has three 

dependent variables representing vendor outcomes: operational performance, strategic 

performance, and satisfaction. The model was tested with 188 vendor firms from India and China, 

the two most popular destinations for IS offshoring. Results support the CQP framework; vendor 

capabilities are significant predictors of intermediate quality measures, which in turn affect vendor 

outcomes. Implications of the study findings to both theory development and IS offshore vendor 

strategic decision making are discussed. This paper also explains ratings and ranking of issues 

faced by IT outsourcing vendors in China and India – the two primary destinations for IT offshoring. 

The results suggest that for both the Indian and Chinese vendors, the most critical issues are not 

related to cultural, language and time zone differences as publicized by the popular press. Rather, 

the most critical concerns IS vendors experience are issues related to work arrangements and 

relationships with the client, and client’s organizational readiness for offshoring. These concerns 

include gathering relevant information from the client to either help design project processes, to 

respond to a call for proposal or to understand existing business processes. 

Key words: Global Outsourcing, Offshoring, IT, ITES, Capability, Quality, Performance, India, 

China, Issues ranking, vendors, clients 

Shailendra C. Palvia is Professor of MIS at Long Island University (LIU) Post. At LIU, he was Director 

of MIS during 1997-2004. He received his Ph.D. and M.B.A. from the University of Minnesota, and B.S. in 

Chemical engineering from the Indian Institute of Technology in New Delhi, India. He has published over 

150 refereed articles in journals -- Decision Sciences, Communications of the ACM, MIS Quarterly, 

Information & Management, Communications of AIS, Journal of Information Systems, Journal of Systems 

Management, International Journal of Information Management, Electronic Markets, Information 

Resource Management Journal, Journal of Industrial Management and Data Systems, Journal of Global 

Information Management, Journal of Information Systems Education, conference proceedings, and 

books. As Founding Editor, he edited the Journal of IT Case and Application Research (JITCAR) during 

1999-2007. Prashant Palvia is Joe Rosenthal Excellence Professor in the Bryan School of Business & 

Economics at the University of North Carolina at Greensboro. He received his Ph.D. from the University of 

Minnesota. He works extensively in the field of Global Information Technology Management (GITM) and 

chairs the annual GITMA world conference. Professor Palvia is the Editor-in-Chief of the Journal of Global 

Information Technology Management and has published 96 journal articles in such outlets as the MIS 

Quarterly, Decision Sciences, CACM, CAIS, Information & Management, Decision Support Systems, and 

ACM Transactions on Database Systems, and over 170 conference articles. He has co-edited four books 

on Global Information Technology Management. 



THEORETICAL DEVELOPMENT 

Utilizing systems theory to understand complex phenomena, we examine three aspects of offshore IS 

vendors: inputs, process and outputs. These three aspects can be broadly classified as: management 

capability (input), process quality (process), and performance (output). This translates into a three-level 

capability-quality-performance (CQP) theoretical framework. The first level of the framework represents 

three vendor capabilities: relationship management, contract management, and IT management. The 

second level has three mediating variables representing process quality: partnership, service and 

deliverable quality. The third level has three dependent variables representing vendor outcomes: 

operational performance, strategic performance, and satisfaction. We propose the “Capability-Quality- 

Performance (CQP)” model for evaluating vendor outcomes in an outsourcing relationship (Figure 1). 

CAPABILITY 

LEVEL I 

Relationship 

Management 

Capability (RMC) 

Contract 

Management 

Capability (CMC) 

IT 

Management 

Capability (IMC) 

HYPOTHESES 

Figure 1. The Capability-Quality-Performance (CQP) Model 

The Capability – Quality Linkage 

For this linkage, we propose the following five hypotheses. 

H3 

H5 

H1 

Partnership 

Quality 

(PQ) 

Service 

Quality 

(SQ) 

Deliverable 

Quality 

(DQ) 

H1: IS vendor’s relationship management capability is positively related to its partnership quality. 

H2: IS vendor’s relationship management capability is positively related to its service quality. 

H3: IS Vendor’s contract management capability is positively related to its service quality. 

H4: IS vendor’s contract management capability is positively related to its deliverable quality. 

H5: IS vendor’s IT management capability is positively related to its deliverable quality. 

The Quality – Performance Linkage 

Under this linkage, we propose yet another five hypotheses as follows. 

H4 

H2 

QUALITY 

LEVEL II 

H6: IS vendor’s partnership quality is positively related to its operational performance. 

PERFORMANCE 

LEVEL III 

Operational 

Performance 

(OP) 

Strategic 

Performance 

(SP) 

Satisfactio 

n 

(SAT) 



H9 

H6 

H10 

H7 

H8

H7: IS vendor’s partnership quality is positively related to its strategic performance. 

H8: IS vendor’s partnership quality is positively related to satisfaction. 

H9: IS vendor’s service quality is positively related to satisfaction. 

H10: IT Vendor’s deliverable quality is positively related to its strategic performance. 

METHODOLOGY 

Measures 

Survey data from outsourcing vendors in Indian and China were used to test our research model and 

hypotheses. Relationship management capability was measured using three items that were adapted 

from the works of Lee and Kim (1999), Holmström et al. (2006) and Kumar and Palvia (2002). Contract 

management capability was measured using two items that were adapted from the works of Richmond & 

Seidman (1993), Kumar and Palvia (2002) and Poppo and Lacity (2006). IT management capability was 

measured using four items that were developed based on the concepts suggested by Bharadwaj (2000), 

Swinarski, et al. (2006) and Subramani (2004). Partnership quality was measured using four items that 

were developed based on the work of Lee and Kim (1999), Lee (2001), and Grover et al. (1996). Service 

quality was measured using six items that were adapted from the SERVQUAL items developed by 

Parasuraman et al. (1988) and from Lee and Kim (1999). Deliverable quality was measured using three 

items that were adapted from the works of Paulk et al. (1993), Lee and Kim (1993), Holmström et al. 

(2006); and Kumar and Palvia (2002). The dependent variables were measured using the 

outsourcing/offshoring success scales developed by Grover et al. (1996), Levina and Ross (2003) and 

Lee and Kim (1999). All items were assessed using a seven-point Likert-type scale. Regarding critical 

issues, after pretesting with professional colleagues, the instrument included a total of 21 issues as 

shown in Table 1. 

Table 1. The Critical Issues Instrument 

Issue Description 

1. Lack of communication with the client during critical phases of designing the processes. 

2. Gathering data to make a compelling proposal to the client. 

3. Availability of experts on the client’s processes (or systems) during knowledge transfer. 

4. Attrition of our company’s staff by the client before completion of knowledge transfer. 

5. Lack of documentation of client’s existing processes (or systems). 

6. Unclear communication channels with the client. 

7. Reaching agreement with the client on the ROI (Return on Investment). 

8. Lack of involvement from the client’s top management team. 

9. Attrition of the client staff before completion of knowledge transfer. 

10. Poorly designed network infrastructure at our own offshore site. 

11. Client’s readiness to reengineer process before outsourcing. 

12. Unclear roles and responsibilities of the client’s employees. 

13. Legal and regulatory concerns. 

14. Resistance from client’s employees to outsourcing. 

15. Client’s short term objective focused only on cost savings (rather than long-term benefits). 

16. Inadequate staffing at the client end. 

17. Poorly designed network infrastructure at the client site. 

18. Language differences between our employees and the client’s employees. 

19. Time differences between our country and the client’s country. 

20. Organizational culture differences between our company and the client. 

21. National culture differences between our country and the client’s country. 



Survey Method 

To test our research model and hypotheses, we surveyed IS vendors in China and India. Within the 

vendor firm, we examined one representative project in order to focus the vendor’s experience with the 

client. We defined the IS vendors for our study as companies located in China and India that develop, 

maintain and/or support IS functions and/or services to overseas clients. Questionnaires were pilot tested 

with select vendors before the full administration of the survey. The response rates in China and India 

were 18.9% and 16.9% respectively. 

CONCLUSION 

Overall, with the exception of Hypothesis 7 regarding the relationship between partnership quality and 

strategic performance, all of the other ten hypotheses were supported by our empirical data analyses. 

The results provide strong evidence that supports the notion suggested by our CQP model. The extent of 

vendor capabilities influences the quality that it provides to the clients which in turn affect the vendor’s 

performance. The findings have implications for both client companies which are searching for potential 

IT vendors and vendor companies which are searching for ways to strengthen their outsourcing 

capabilities to win over more clients and more contracts. While the vendor management can benefit 

directly from our findings, the client management can also apply these findings to select vendors who can 

demonstrate the desired capabilities and competencies. 

With respect to ranking of critical issues, Our findings suggest that the most critical issues are not related 

to cultural, language and time zone differences as publicized by the popular press; rather, the most 

critical concerns IS vendors experienced can be categorized as issues dealing with relationships and 

work arrangements with the client, and issues related to the client’s organizational readiness for 

offshoring their IS activities. The pyramid in Figure 1 aptly represents the nature of the vendor issues 

and their relative importance. 

Client Relationship, e.g., 

Communication, involvement 

Client Readiness, e.g., 

Expertise, staffing, roles 

International Barriers, e.g., 

Language, culture, time zone 

Figure-1: Relative Importance of Critical Vendor Issues 

References and more details will be provided on request. 



Annual Global Outsourcing Quiz Bowl 

Shailendra Palvia 

Professor of MIS, Long Island University 

spalvia@liu.edu 

The Quiz Bowl has been a regular feature of Center for Global Outsourcing Conferences. The 

competition, based on some game show format, will consist of 20 multiple choice questions. 

The Questions are based on past classic events and current notable events in the global 

sourcing industry. 

This year’s Quiz Bowl, unlike those before it, will involve lively competition between Professors 

from SolBridge International School of Business and all other delegates. Historically, the battle 

has been between Global Sourcing experts from Academia and Industry and has been very 

fierce. Both, Academia and Industry have stood their grounds. Out of the past 8 quiz bowl 

events, Industry won 4 times and Academia won recent 4. Will SolBridge win or will rest of the 

world beat SolBridge? In either case, we can be assured the 2012 CGO Quiz Bowl will be just 

as fun filled and animated as past Quiz Bowls. 

Dr. Shailendra C. Jain Palvia is a Professor of MIS in the College of Management at Long 

Island University (LIU) Post. He received his Ph.D. and M.B.A. from the University of 

Minnesota, and B.S. in chemical engineering from the Indian Institute of Technology in New 

Delhi. His research interests include management of the systems development process; human, 

social, and global issues of information technology; IT applications and architecture, 

telecommuting, computer software training methods, electronic commerce, outsourcing of IT 

and IT enabled services, and e-government. He has published over 150 refereed articles in 

journals, conference proceedings and books. Journals in which he has published include 

Decision Sciences, CACM, MIS Quarterly, Journal of Information Systems, Information & 

Management, Journal of Systems Management, International Journal of Information 

Management, Electronic Markets, Information Resource Management Journal, Journal of 

Industrial Management and Data Systems, Journal of Global Information Management, and 

Journal of Information Systems Education. As founding editor, he edited the Journal of IT Case 

and Application Research (JITCAR) during 1999-2007. Since 2002, he has chaired the annual 

international smart-sourcing conferences. In 2012, Dr. Palvia was one of the two Professors 

nominated from LIU Post to receive Abraham Krasnoff Lifetime Scholarly Achievement Award. 

He has been an invited speaker to conferences and institutions in Germany, India, Italy, 

Singapore, Thailand, and Russia. 



Vertical Integration Outsourcing and Virtual Integration Outsourcing 

Financial Hedging in the Taiwanese Integrated Circuit Industry 

Kuang-Hsun Shih, Chinese Culture University, Taiwan shihsteve@faculty.pccu.edu.tw 

Shu-Shian Lin, Chinese Culture University, Taipei, Taiwan sslin68@gmail.com 

Yi-Hsien Wang, Chinese Culture University, Taipei, Taiwan holland@mail2000.com.tw 

Ping-Hui Huang, Chinese Culture University, Taipei, Taiwan 

ricky963ricky@hotmail.com 

Yu-Wei Hu, Chinese Culture University, Taipei, Taiwan vivian@wieson.com 

Abstract 

In response to the trend of the rapid international financial integration, it is a common practice 

for Taiwan’s enterprises to operate financial derivatives for hedging. However, most of the 

previous literature focuses on foreign exchange risk, while seldom discusses the interest risk of 

high level of correlation with operating costs. Based on literature review, this paper attempts to 

find the decision making theories relating to the use of financial derivatives for hedging. Besides 

discussing whether company hedging is related to company characteristics, such as company 

size, company size, financial crisis and industrial characteristics, this paper also explores the 

vertical integration and virtual integration business models of Taiwan’s IC industry. For this 

purpose, this paper uses the Multinomial Logistic to explore whether same hedging tools have 

been used to hedge interest risk before and after the outbreak of the financial crisis in case of 

the outsourcing business models. Furthermore, it explores whether the selected hedging 

financial products can effective avoid the interest risk and the major internal financial factors of 

the company will significantly affect the profits when operating the hedging commodities. It is 

expected that the findings of this research can provide relevant enterprises and investors with a 

reference in making decisions for using financial products for hedging purposes. 

Keywords: Interest risk, Derivatives, Financial Crisis, Hedging, Outsourcing, Vertical 

Integration, Virtual Integration 

Dr. Kuang-Hsun Shih, is an Professor & Chairman, Department of Banking & Finance at 

Chinese Culture University, Taipei, Taiwan. He earned his Ph.D from the Nova Southeastern 

University. His major interest is in corporate finance and his paper appeared has published 

extensively in many academic journals. Dr. Shu-Shian Lin is an Assistant Professor of 

Department of International Business Administration at Chinese Culture University, Taipei, 

Taiwan. He earned his Ph.D from the National Central University. His major interest is in 

financial management, and his paper appeared has published extensively in many international 

journals. Dr. Yi-Hsien Wang is an Associate Professor of Department of Banking & Finance at 

Chinese Culture University, Taipei, Taiwan. He earned his Ph.D from the Ming Chuan 

University. His major interest is in economics and time series and his paper appeared has 

published extensively in several academic journals. Mr. Ping-Hui Huang is Undergrad Students 

of Department of Banking & Finance at Chinese Culture University, Taipei, Taiwan. Miss. Yu- 

Wei Hu is MBA Student of Graduate Institute of International Business Administration at 

Chinese Culture University, Taipei, Taiwan. 



Introduction 

The rapid development and innovation of financial derivatives with low transaction costs may 

meet the multiple demand of the hedging of enterprises. (Gewalda, 2010). However, the 

characteristics of high leverage and implied high risks will result to many problems arising from 

excessive operation. Regarding the mode of industrial development, with Taiwan’s IC industry 

as an example, the IC industry has undergone three major revolutions, and developed two 

business models of vertical integration (Integrated Device Manufacturing, IDM) and virtual 

integration. The two business models coexist and compete with each other. (Chu et al., 2005). 

Previous studies have discussed the use of financial derivatives to hedge in the face of foreign 

exchange rate risk and the discussions on the interest rate risk in the of financial crisis are rare. 

During the global financial crisis, the different levels of sensitivity in the balance sheets of 

enterprises lead to different due dates of debts, different accounting basis or the cash flow 

uncertainty arising from the financial contracts of floating interest rates. Hence, this paper aims 

to find out how Taiwan’s IC industry can effectively avoid interest rate risk in case of two 

business models. To hedge the interest rate risk, enterprises may use multiple types of hedging 

tools and the result of affecting factors, the effectiveness of using financial derivatives before 

and after financial crisis are worthy for further discussions. Hence, these are listed as key points 

for in-depth discussions in this study. The discussions on the scope of hedging decision making 

factors regarding of the use of financial derivatives are extensive, and can be divided into the 

four points, as listed below Graham and Roger (2002) the costs of financial crisis will result in 

fluctuations in corporate value, and urged enterprises to take hedging activities to reduce the 

probability of the occurrence of financial crisis. (Campello et al. 201) Smith and Stulz(1985) 

proposed that the separation of ownership and operating power will create the agency problem 

between creditors and shareholders who provide capital, and the managers who use the capital, 

resulting in agency costs. (Fauver et al., 2010). According to the information economies of scale 

assumption, Block and Gallagher (1986) argued that large enterprises are more capable of 

inviting professional managers to use financial derivatives for hedging with lower transaction 

costs on average.(Carter et al., 2006). Tufano(1996)have different opinions concerning the 

impact of company size on the hedging motivation of the company. However, the diversification 

of assets of the large enterprises is easier and the external financing is more easily. As a result, 

small enterprises will have more hedging activities. Gale and Hellwig (1985) to raise corporate 

value, the enterprises will use financial derivatives for hedging to mitigate the fluctuations in 

cash flow of the company to distribute the redundant capital to places in short of cash flow, in 

order to increase the investment opportunities. (Graham and Rogers, 2002 ;Bartram et al., 

2009) 

Data and Empirical Result 

In this study, the research period is from January 1, 2007 to June 30, 2011. The 5 years are 

divided into 9 periods of each half of a year. My data is from Public Information Observation 

Website, Taiwan Stock Exchange, Annual reports and prospectus of listed and OTC enterprises 

in Taiwan, Taiwan Economic Journal Database as the source of sample selection and 

measurement variables. There is Virtual Integration for 7 samples, Vertical Integration is for 59 

samples, total sample are 66. This paper first conducts the Pearson correlation analysis is 

performed to analyze the correlation of various variables to eliminate the collinearity of the 

regression model. Finally, logistic regression analysis is employed to test the hedging by using 

financial derivatives, the hedging purpose and the selection of hedging tools. Logistic regression 

model’s explanatory variable is a nominal scale variable of discontinuity. In addition to testing 



the explanatory power of the explanatory variable to the explained variable, it can observe the 

explanatory power of individual explanatory variable against the explained variable. 

it DEB it TIE it OM it DMS it OI it it D it it ( ) 

The dependent variable of multinomial logistic is of multiple categories (0, 1, 2, 3, 4 … …). In 

this model, the dependent variables include the types of risks and types of hedging tools used 

by the company during the period of the empirical study. 

it DEB it TIE it OM it DMS it OI it it D it it ( ) 

In virtual integration model, Futures has significant positive correlation with only OI and all of 

Options, Change and other hedging instruments have also significant positive correlation with 

DEB, DMS and OI. In vertical integration model, Futures hedging activities are positive 

correlated significantly with TIE, OM, OI. Besides, in correlation with Option and other hedging 

tools, DEB, OM and OI are significantly positive but DMS is significantly negative. In addition, 

with Change, DEB, OI and DMS are significantly correlated but only DMS is negative. 

Table14. Two Business models Comparison 

Products Futures Options Change Others 

Model VI IDM VI IDM VI IDM VI IDM 

DEB + + + + + + 

TIE + 

OM + + + 

DMS + - + - + - 

OI + + + + + + + + 

GW 

Suggestions 

RD - 

+ mean Positive correlation,- means Negative correlation 

By the results associated with the domestic and foreign research shows that added incentive for 

companies hedging activities associated with the trait of the company there are some, such as 

the financial crisis, company size, Company can understand its characteristic can be used, as a 

basis for hedging decisions. Taiwan IC industry in two business models, virtual consolidation 

and vertical integration in hedging activities cause its Debt ratio and Company’s growth 

investment opportunity, can be displayed as reference of the two models of risk aversion. In 

vertical mode, also from the operating margin, operator stake as risk aversion reference, 

research and development costs. This study is expected to deepen the understanding of 

investors, governmental authorities, and policy makers regarding the relationship between 

financial derivatives and business operations of enterprises to provide a basis for reference of 

decision making. 



References 

1. Bartram, S. M., Brown, G. W. and Fehle, F. R. 2009, International Evidence on Financial 

Derivatives Usage. Financial Management, 38, 185-206. 

2. Block, S. B. and Gallagher, T. J. 1986, The Use of Interest Futures and Options by 

Corporate Financial Managers. Financial Management, 15, 73-78. 

3. Carter, D., Roger, D. A. and Simkins, B. J. 2006, Hedging and Value in the Airline Industry. 

Journal of Applied Corporate Finance, 18, 21-33. 

4. Chu, P. Y., Teng, M. J., Huang, C. H. and Lin, H. S. 2005, Virtual integration and 

profitability: some evidence from Taiwan's IC industry. International Journal of Technology 

Management, 29, 152-172. 

5. Campello, M., Lin C., Ma, Y. and Zou, H. 2011, The Real and Financial Implications of 

Corporate Hedging. The Journal of Finance, 66, 1615-1647. 

6. Fauver, L. and Naranjo, A. 2010, Derivative Usage and Firm Value: The Influence of 

Agency Costs and Monitoring Problems. Journal of Corporate Finance,16, 719-735 

7. Gale, D. and Hellwig, M. 1985, Incentive-Compatible Debt Contracts: The One-Period 

Problem. Review of Economic Studies, 52, 647-663. 

More references will be available upon request. 



An Analysis of Domestic and International Events Impact Stock 

Return Volatility of the Outsourcing Market in Vietnam 

Kuang-Hsun Shih, Chinese Culture University, Taipei, Taiwan 

shihsteve@faculty.pccu.edu.tw 

Fu-Ju Yang, Chinese Culture University, Taipei, Taiwan fuju@faculty.pccu.edu.tw 


Dao Le Minh, Chinese Culture University, Taipei, Taiwan dao.le.minh@gmail.com 

Abstract 

Being known as a young and small market, Vietnam stock exchange is vulnerable to both 

internal and external changes economically. Recently, the recession of global economy and its 

influences on Vietnam economy have caused the investors’ worries and doubts about this 

investment channel. The purpose of this study is to examine which events impact significantly 

on stock return in Vietnam stock exchange. The study used daily stock indexes in Ho Chi Minh 

stock exchange from 2007 to 2011 as data in order to examine stock returns volatility by using 

family GARCH models. The preliminary results are expected to be found that interactive effect 

of domestic and international events on stock return volatility in Vietnam market. The research 

findings perhaps can be a reference benchmark for companies and investors in decisionmaking. 

Keywords: Stock market, stock return volatility, GARCH model, VN-index, Domestic, 

International Events, decision-making 

Biography 




extensively in many academic journals. 

Dr. Fu-Ju Yang is an Associate Professor of Department of Banking & Finance at Chinese 

Culture University, Taipei, Taiwan. He earned his Ph.D from the National Chiao Tung University. 

His major interest is in corporate finance and his paper appeared has published extensively in 

several academic journals. 

Dr. Yi-Hsien Wang is an Associate Professor of Department of Banking & Finance at Chinese 

Culture University, Taipei, Taiwan. He earned his Ph.D from the Ming Chuan University. His 

major interest is in economics and time series and his paper appeared has published 

extensively in several academic journals. 

Miss. Dao Le Minh is MBA Student of Graduate Institute of International Business 

Administration at Chinese Culture University, Taipei, Taiwan. 



Introduction 

Comparing with other stock markets in the region and in the world, Vietnam stock market is likely a 

baby. Although the first Securities trading center was licensed in 1998 in Ho Chi Minh (it’s 

abbreviated HOSE), the first official transaction was done in 2000, marking the birth of Vietnam 

stock market with VN-index. 5 year later, the second securities trading center was launched in Hanoi 

(hereafter called HNX). At 10 years old, Vietnam stock market has developed dramatically with 2 

trading centers, a market for unlisted public company (to be called UPCoM), more than 550 

commodities, 105 Securities companies, 46 mutual funds, about 1 million trading accounts of which 

25% is foreign investors. Almost previous studies on stock volatility related to developed markets, 

even studies on regional ASEAN markets, there are a few researches on Vietnam stock market. 

Although it is still young and small, it has been developing and huge potentials, it is worthy to be 

investigated. The purpose of this paper is to find domestic or international events which impacts on 

stock return volatility. It may become a literature view help investor to forecast the stock return trend 

or further studies about stock market in Vietnam. As many previous researches concerning stock 

return volatility, we also will employ the class of ARCH/GARCH model (Engle, 1982;Bollerslev, 

1986) in order to measure the impact of events on stock volatility. 

In finance research, stock return volatility is known as a familiar topic. Volatility is a measure of the 

uncertainty about the returns provided by stock. The volatility of stock price can be formally defined 

as the standard deviation of the national logarithm of the change in stock price in one year (Mai, 

2008). In financial markets, volatility is a central issue to the theory and practice of investment (Do, 

Mcaleer and Sriboonchitta, 2009). Therefore, with the increase of economic and politic uncertainties 

internally and externally, many empirical studies about stock return volatility have been carried out 

over the world, especially in emerging stock markets such as South East of Asia. Many economic 

and politic events or factors were tested to investigate their impacts on stock return volatility. Stock 

volatility is linked with macroeconomic variables and it can be forecasted based on both real-time 

macroeconomic data (Pierdzioch, Dopke and Hartmann, 2008). The events affected to stock return 

volatility can be grouped into domestic event and global events. Domestic events may be economic 

issue such as inflation, monetary policy or financial reform as reviewing studies of (Pham, 2011). 

Emphatically, stock market prices may be important for monetary policy, independently of their direct 

impact on inflation and a monetary policy focused on maintaining price stability in the long-term can 

contribute also to stock market stability (Vithessonthi, Techarongrojwong, 2012). Monetary policy 

announcements have a significant effect on stock prices (Cassola and Morana, 2004). Besides, 

political news is correlated to returns for stock Index (Chan and Wei, 1996). 


The data source is the daily stock prices of the Ho Chi Minh Stock Exchange market index (VN- 

Index) (Mai, 2008). The closing values of VN-Index for the period from 2007 to 2011 were 

collected from the official website of Bank for Investment and Development of Vietnam 

Securities Company Ltd.(www.bsc.com.vn). The related information can be obtained in website 

of Bloomberg (http://www.bloomberg.com/quote/VNINDEX:IND/chart/). The VN-index was 

calculated as a value weighted index of all companies listed in the Ho Chi Minh stock exchange 

with base value of 100 (Mai, 2008). According to instruction of Government about monetary or 

fiscal policy, written Directives are issued by the State Bank of Vietnam. And then the lower 

level legal documents are Decision, Circulars and official letters adopted as specification or 

partly revision or replacement. All legal documents were obtained from official website of the 

State Bank of Vietnam (www.sbv.gov.vn). Accordingly, the dummies are embedded in the 

EGARCH model to detect the effect of congressional sessions as follows: 



Financial Hedging in the Various Outsourcing Stages of the Taiwan 

Information Technology Industry 

Kuang-Hsun Shih, Chinese Culture University, Taipei, Taiwan 

shihsteve@faculty.pccu.edu.tw 

Shu-Shian Lin, Chinese Culture University, Taipei, Taiwan sslin68@gmail.com 


Rui-Lin Tseng, Chinese Culture University, Taipei, Taiwan 

brilliantboy2009@hotmail.com 

Mei-Chi Wang, Chinese Culture University, Taipei, Taiwan miki102@pchome.com.tw 

Abstract 

Following the liberalization of financial markets increasingly, the performance of the 

business are significantly related to the market risk. Therefore, the company usually utilized 

high financial leverage of derivatives to hedge the risk. First, we utilize the Multinomial Logistic 

model to analysis the risk impact of various derivatives. Furthermore, under different stages of 

business cycle, we examines whether there exists the hedge effect within the upper, middle and 

lower stream of Taiwanese information technology industry. Empirical results of this study 

perhaps provide a diacritical opinion for investors that there is no need to overestimate the 

hedge effect. The research findings can be a basis reference for investors in decision-making, 

and hedging financial risk can be considered as outsourcing of financial risk 

Keywords: Business cycle, Hedge, Derivatives, Exchange rate risk, Information industry 

Biography 




extensively in many academic journals. 

Dr. Shu-Shian Lin is an Assistant Professor of Department of International Business 

Administration at Chinese Culture University, Taipei, Taiwan. He earned his Ph.D from the 

National Central University. His major interest is in financial management. He has taught and 

worked in the Korea and Taiwan, and his paper appeared has published extensively in many 

international journals. 

Dr. Yi-Hsien Wang is an Associate Professor of Department of Banking & Finance at Chinese 

Culture University, Taipei, Taiwan. He earned his Ph.D from the Ming Chuan University. His 

major interest is in economics and time series and his paper appeared has published 

extensively in several academic journals. 

Mr. Rui-Lin Tseng is Undergrad Students of Department of Banking & Finance at Chinese 

Culture University, Taipei, Taiwan. 

Miss. Mei-Chi Wang is MBA Student of Department of Graduate Institute of International 

Business Administration at Chinese Culture University, Taipei, Taiwan. 



Introduction 

Taiwan’s economy is mainly export-driven. Since 1970s, countries have implemented the 

floating exchange rate system, and the fluctuations in exchange rate have an enormous impact 

on the export prices of the enterprises (Alkebäck & Hagelin, 1999). The fluctuations in exchange 

change will result in decrease or increase in settlements of the trading between enterprises, 

indirectly affecting the shareholder interests. Hence, enterprises may avoid the system risk of 

exchange rate by buying or selling financial derivatives. The control of exchange rate risk has 

become an increasingly important and valued subject for enterprises. The output of Taiwan’s 

information industry has occupied the pivotal part in global market. Most of the literature about 

Taiwan’s information industry development focuses on the relationship between 

internationalization level and corporate governance, the motivations and strategies for the 

internationalization of the information industry, the globalized functional relationships in the 

information industry, or explores the employees and organizational core functions in the 

information industry (Conyon & Peck, 1998; Zald, 1969; Supanvanij & Strauss, 2006; Mian, 

1996). 

Enterprises having larger size and greater financial crisis costs will be more likely to use 

financial derivatives for hedging. Particularly, the electronics industry is more proactive in using 

financial derivatives trading for hedging than other industries (Venkatachalam, 1996). 

Regardless of the electronics or the non-electronics industries, investors will partially use the 

contract amount. In summary, the above literature mainly discusses the use of financial 

derivatives in electronics industry. Few discussions on the relevance of information industry and 

the use of financial derivatives in the background of economic cycle have been made in the 

past. Hence, it is worth to be reviewed and studied in the present. This paper probes into the 

relevance and significant level of using financial derivatives in the long economic development 

process of alternating active periods and downturn periods by the upstream, middle stream and 

downstream manufacturers in the information industry, who are facing to exchange rate risks? 

The problems discussed are as follows. 

What are the hedge factors that affect the use of financial derivatives of enterprises in the 

information industry in Taiwan? Are there any differences in hedge factors of engaging in 

financial derivatives trading of enterprises in the information industry in Taiwan when they face 

types of risks and use hedging tools? In the business cycle, is there any significant relevance 

between manufacturers in different positions of the supply chain of the information industry? 

This paper uses the logistic model to verify the relationships among the use of financial derivatives to 

avoid risks from different sources, the selection of hedging tools and major financial variables in case 

of the information industry in Taiwan. The multinomial logistic is applied to understand whether the 

use of financial derivatives for hedging is effective or of poor effect or without significant effects. The 

corporate hedging demand derived from the company size, risk exposure extent or financial risk or 

company’s growth investment opportunity variables or financial price fluctuations. Changes in 

financial prices not only affect the earnings in the financial statements of the company, but also affect 

the survival of the company. Hence, enterprises will protect financial position through hedging 

policies, and further enhance the current value of the company. Below is the review of the literature 

on the company’s hedging motivations as proposed by scholars at home country and in abroad. The 

implementation of investment plans are determined by investment returns. If most of the 

benefits of certain investment have to be paid to the creditors rather than shareholders, the 

shareholders will be very likely to abandon the investment plan, resulting in the problem of 

insufficient investment (Myers, 1977; Chang, 2000). When a company has more growth 

investment opportunities, it is more likely to face the problem of insufficient investment and more 

likely to use financial derivatives for hedging to reduce cash flow volatility (Lin & Smith, 2007; 

Nance et al. 1993). 




With Taiwan’s listed and OTC enterprises of the information industry traded on Taiwan Stock 

Exchange in the period from January 1990 to December 2011 as the research subjects, this 

paper explores the type of financial derivative that should be selected at various stages in the 

business cycle, and how to use the characteristics of such financial derivatives to avoid foreign 

exchange rate risk and risks arising from other factors. This paper has eliminated enterprises of 

the non-information industry, enterprises with omissions of requested variables, enterprises of 

incomplete financial information or enterprises that have been merged or delisted due to 

financial crisis during the research period. After the removal of such samples according to the 

above standards, this paper selects 344 samples. The data are sourced from the prospectus 

and annual reports of Taiwan’s listed and OTC enterprises, the public information websites. This 

research is divided into four parts: the first, an introduction of the general survey of using 

financial derivatives at various stages of business cycle by the listed enterprises of the 

information technology in Taiwan; the second, using the Pearson correlation analysis to analyze 

the correlation among variables and removing the collinearity of regression model; third, 

employing the logistic regression analysis to discuss the hedging tools and types of financial 

derivatives by enterprises; and the last using multinomial logistic to discusses how enterprises 

use different financial derivatives to avoid different risks and the covariance relationship arising 

from the use of different hedging tools and hedging effectiveness. The dependent variable of 

this paper is the use of financial derivative for hedging with 1 denotes use and 0 denotes no use 

of financial derivatives. This is a discontinuous binary variable that is not suitable for general 

linear regression model. This paper employs the logistic model to discuss the determining 

factors affecting the use of financial derivatives at various stages of business cycle of listed 

enterprises of the information technology industry. The empirical model of this study is as below: 

This paper also discusses how enterprises use different financial derivatives to avoid 

different risks and the covariance relationship arising from the use of different hedging tools and 

hedging effectiveness. Since the dependent variables are multiple choices, the multinomial 

logistic model is used as the analysis tool. In theory, this model inherits the characteristics of the 

logistic model to test the relationship between the occurrence probability of the dependent 

variables and the explanatory variables. The difference is that the dependent variable of the 

logistic model is dichotomy (0 and 1) while the dependent variable of Multinomial Logistic is 

multiple categories (0, 1, 2, 3, 4 …). In this model, the dependent variables include the types of 

risks and types of hedging tools used by the company during the period of the empirical study. 

Suggestions 

Regarding factors affecting the use of financial derivatives for hedging by enterprises, this study 

uses multinomial logistic regression analysis to explore factors affecting the use of types of 

hedging tools and hedging tool combinations by the company, findings are empirically. In this 

study, an enterprises with greater net operating income and ratio of foreign sales will have more 

interests to use forward contracts, option or others to hedge. In case of enterprises using swap 

contracts to hedge, all the relevant explanatory variables are almost not significant and no 

conclusion has been reached accordingly. Eventually, choosing the most suitable instrument, 

enterprise is suggested to make certain of what its trade activities are being carried out, 

exhaustively estimate exchange rate, consequently, you might make the best decision. 

References will be available on request. 



∑ 

∑ 

∑

Abstract 

Issues and Challenges with Global Outsourcing of Manufacturing 

Dr. Jens Graff 

Associate Professor Jens Graff, Ph.D. 

Chair, Global Business Management 

SolBridge International School of Business, Woosong Educational Foundation 

151-13 Samsung 1-dong, Dong-gu 

Daejeon 300-814, South Korea 

jensgraff@solbridge.ac.kr 

The aim of this research is to examine issues and challenges with global outsourcing of 

agricultural production. The methodology is case study analysis of a Danish starch 

producing company, KMC. 

The objectives of the research are as follows: 

� To examine problems with global outsourcing of production 

� To study what other firms can learn from the experiences of the case firm 

� To extract some policy implications for other firms 

� To give recommendations for the local stakeholders 

� To explore what host governments should do 

The KMC case study validates some of the recommendations in literature, for example 

the outsourcing checklist (Michelman, 2005). There are also good illustrations in the 

KMC case of the policy recommendations of Porter and Rivkin (2012). In their words, 

“Location-decision processes are so complex and dynamic that they are often made on 

the basis of simple rules of thumb, rough estimates, or history” (p. 8 ). This seems to be 

the case for KMC too. 

Jens Graff is an Associate Professor, Chair, Global Business Management at 

SolBridge International School of Business, Woosong Educational Foundation, South 

Korea. He received his PhD from Umeå School of Business, Umeå University, Sweden, 

where he lectured. Before that, he lectured at Copenhagen Business College, Denmark, 

for more than two decades in most business administration disciplines. His business 

career has included but has not been limited to marketing consulting and business 

advisory assignments. 



PROBLEMS WITH GLOBAL OUTSOURCING OF PRODUCTION 

The primary reasons for KMC to source from Vietnam were reduced subsidies for producing 

starch from potatoes in the EU and the quota system, both of which prevented volume growth at 

home. Sourcing offshore could circumvent the quota system. Seen in this light, the KMC 

decision to source from Vietnam seemed reasonable. 

Often quoted problems with global outsourcing are lower productivity in host countries, lower 

skills of labor, and not so advanced production technology. When wages rise quickly in host 

countries, the wage advantage will soon disappear. On the other hand, host country suppliers 

soon can achieve production competence and acquire advanced machinery. The problem can 

hereafter be that the outsourcing company has created a competitor and that it has lost its 

competence in producing the material or components. 

In KMC’s case a major problem was the Vietnamese government’s inability to keep its promises 

to sell land to KMC for tapioca farming and secure a steady supply of the roots to the factory. It 

seems like communist countries in particular have problems with honoring legitimate claims 

from private firms. The Swedish furniture maker Ikea has had severe problems in Russia 

because of broken promises from government authorities and has stopped all expansion in 

Russia until this attitude is changed. 

Besides the hidden costs in producing far away from home, it can be difficult to uphold the 

prescribed quality and keep it there. KMC had difficulties in getting the KMC Vietnam starch 

certified because of open factories that allowed insects and birds to fly in and contaminate the 

starch. 

WHAT CAN OTHER FIRMS LEARN FROM THE EXPERIENCES OF THE CASE FIRM? 

One lesson for other firms would be to focus less on volume sales. If a product has the potential 

to be value added, it might be better to focus on adding value to the products, so that the selling 

prices per unit and the profit per unit can increase. KMC has had good results doing this. Just to 

expand volume capacity for standard products may not be the best way to secure growth. 

Another lesson is that irrespective of how diligent you think you have been before deciding to 

outsource, you cannot control the government in the host country. In particular, a small or 

medium-sized company does not have much power in negotiating with a communist 

government. In Vietnam, changes in regional structure became problematic for KMC, as some 

suppliers became able to supply to other starch-producing factories. 

A third lesson from the KMC case is the importance of an exit strategy. Apparently, KMC had 

none, and the available exit possibilities do not seem to be favorable for them. 

SOME POLICY IMPLICATIONS FOR OTHER FIRMS 

Outsourcing decision processes are complex and dynamic. Probably, many decisions are made 

because of “me too” effects and simple estimates of cost savings in production. But there are 

many hidden costs in sourcing from often distant countries with other work and management 

cultures. Just to mention a few: higher cost of freight to markets, more product inspection, and 

extra supervision and training. Also, the external environment changes so fast that calculations 

on for example wage advantages can soon be outdated. 

To give policy advice for other companies, the Michelman (2005) outsourcing checklist comes to 

mind. The key here is to be “timely solicitous,” before outsourcing is decided. Since it is not easy 

to switch partners, due diligence is strongly recommended while working out MOU with current 

partner. It is, therefore, important to make thorough feasibility studies, before making decisions. 



Often, however, feasibility studies can be read and perceived too optimistically and based on 

wishful thinking. The urge to outsource can be strong and linked to manager prestige, so that 

danger bells are overheard. 

In the KMC case the prices that farmers charged for tapioca roots were much higher than 

reported in the feasibility study. This was, of course, a blow to KMC Vietnam as tapioca roots 

are the main raw material in producing starch. 

RECOMMENDATIONS FOR LOCAL STAKEHOLDERS 

Local stakeholders should be committed and sincere in their approach to business. It seems 

that the Vietnamese mindset is rather opportunistic with focus on short term advantages. This 

should be turned into a more relationship-focused mindset, where the outsourcing and host 

companies communicate fully with employers in both organizations. It should be emphasized 

that cooperation and assertiveness are essential for long term win-win outcomes. 

WHAT HOST GOVERNMENTS SHOULD DO? 

Porter and Rivkin (2012) have given some policy recommendations to enhance the 

competitiveness of the United States. These would be obvious to recommend for other 

governments as well. One of these recommendations is to address the country’s business 

environment weaknesses. In KMC’s case concerning Vietnam it seems like the communist party 

has a good grasp on the economy. Even under Doi Moi, which means change and newness, 

which was implemented from 1986 and was a departure from the very Stalinist governance from 

1975, there is still much government influence on business life (Dali, 2012). The government did 

not keep their promise of land and raw material supply for KMC. 

The second recommendation is to protect core country strength. In Vietnam these could be a 

hard working population and a good climate for agricultural production. The government should 

enhance work ethics, upgrade farming methods, and invest in infrastructure to get farming 

produce into a more advanced supply chain. In the KMC case, it was told that Vietnamese 

farmers’ productivity was about half that of their Thai colleagues despite similar natural 

production conditions. It was mainly a question of the Vietnamese using too little fertilizer. 

The third Porter and Rivkin (2012) recommendation is to eliminate trade and investment 

distortions that unfairly disadvantage a country. Governments should work actively within 

international organizations - not least the WTO framework - to secure orderly trade. It is seen 

lately that free trade agreements (FTAs) proliferate, and in the absence of a successful WTO, 

these FTAs should have government attention. 

Governments are always vulnerable to subsidy wishes from local farmers and industries, but 

Porter and Rivkin (2012) suggest avoiding the subsidy trap, and instead “offering a compelling 

value proposition, such as access to talent, technological knowledge, supporting institutions, or 

a local market that fits the firm’s strategy and cannot be matched elsewhere” (p. 90). In 

Vietnam’s case it is obvious that most businesses need “compelling value propositions.” 

Linked to the former policy advice is the advice to “Work collaboratively to enhance local 

competitiveness” (Porter and Rivkin, 2012). This has much to do with cluster thinking, where 

industries collaborate and support each other, along with active government support to 

promising industries. In the KMC case the government could have been more dedicated, 

consistent, and long term in their attitude to KMC. 



CONCLUSION 

The KMC case study embodies some of the recommendations in literature, for example the 

outsourcing checklist (Michelman, 2005). There are also good illustrations in the KMC case of 

the policy recommendations of Porter and Rivkin (2012). In their words, “Location-decision 

processes are so complex and dynamic that they are often made on the basis of simple rules of 

thumb, rough estimates, or history” (p. 85). This seems to be the case for KMC too. 

FURTHER RESEARCH 

This research project has been based on one case only. It is obvious that more case studies 

would uncover more problems in offshoring and outsourcing. The case is based on 

offshoring/outsourcing of agricultural production, narrowing the scope of problems to this form of 

collaboration. Probably, many of the problems described in this case are generic, but some can 

be industry specific. 

REFERENCES 

1. Burns, A.C. & Bush, R.F. (2008) Basic marketing research. Using Microsoft Excel data analysis. 

Upper Saddle River: Pearson International Edition, 2nd Edition. 

2. Børsen (2012) Leading Danish business newspaper, article database, www.boersen.dk, 

accessed different dates in 2012. 

3. Dali, S. (2012) Retrieved from 

http://www.pptpalooza.net/PPTs/OtherTeachers/SDalyPPTs/VietnamUnderDoiMoi-SDaly.ppt, 

accessed 28 May 2012. 

4. Jacobs, F.R., Chase, R.B, Lummus. R.R. (2011) Operations and supply chain management, 

thirteen edition, McGraw-Hill Irwin. 

5. KMC (2001) Feasibility study for sourcing tapioca roots in Vietnam. Brande: Company internal 

material. 

6. KMC (2012) Company homepage www.kmc.dk, accessed different dates in 2012. 

7. Michelman, P. (2005) An outsourcing checklist. Harvard Business School Publishing Corporation. 

8. Newman, W.L. (2000) Social Research Methods: Quantitative and Qualitative Approaches (4th 

ed.), Boston, MA: Allyn & Bacon. 

9. Nygren and Blom (2001) Analysis of short reflective narratives: A method for the study of 

knowledge in social workers’ actions. Qualitative Research, 1(3), 369-384. 

10. Porter, M.E. and Rivkin, J.W. (2012) Choosing the United States. In contests to attract high-value 

business activities, the U.S. is losing out more than it should, Harvard Business Review, March. 

11. Porter, M.E. and Rivkin, J.W. (2012a) The looming challenge to U.S. competitiveness, Harvard 

Business Review, March. 

12. Quinlan, C. (2011) Business Research Methods, South-Western, Cengage Learning EMEA. 

13. Russell, R.S and Taylor III, B.W. (2011) Operations Management, 7th Edition, John Wiley & 

Sons, Inc. 

14. Verma, R. and Boyer, K.K. (2010) Operations & Supply Chain Management: World Class Theory 

and Practice, first edition, South-Western, Cengage Learning. 

15. Yin, R.K. (1997) Case study research: Design and methods. Thousand Oaks: Sage. 



Attendee List (Page 1 of 3) 

Name Role Organization Country 

Prasad 

Padmanabhan 

Alexander Suetin 

Giovanni Tamburrini 

Chia-Hsing Huang 

Wengqing Zhang 

Rajesh Rajaguru 

Chung Yean Chiang 

Jens Graff 

Mahmood A. Awan 

Shailendra Palvia 

Prashant Palvia 

Ping-Hui Huang 

Rui-Lin Tseng 

Dao Le Minh 

Mohammad 

Ebrahim Shiraqai 

Mohsen Rezai 

Endowed Professor 

Assistant Professor 




Endowed Professor 

Student 

Student 

Student 

Manager 

Manager 

Archana 

Shankarnarayana Student 

St. Mary's University, 

San Atonio, Texas USA 

SolBridge Int'l School 

of Business Korea 















Long Island 

University USA 

Univeristy of North 

Carolina at 

Greensboro USA 

Chinese Cultural 

University Taiwan 





Iran Heavy Dies 

Manufacturing 

(IHDM) company Iran 

Iran Heavy Dies 

Manufacturing 

(IHDM) company Iran 

St. Mary's University, 

San Atonio, Texas USA 





Erik Den Ouden Director Global IT HIllebrandGroup Netherlands 

Marilize Groenewald Student Self South Africa 

Kyungah Lee 

Gustavo Pares 

Ricardo Pares 

Miguel Garcia 

HR Manager 

CEO and Partner 

Sales VP and Partner 

Madrazo Sales VP and Partner 

Raymundo Camara 

Emerson Process 

Manageement Korea 

Ltd South Korea 

Financetech Mexico 

Delivery Mexico 





Sánchez CEO ITESECC Mexico 

Luis D. González 

Third Secretary 

Economic & 

Environmental Affairs Mexico 

Martha Ortíz de 

Rosas Ambassador 

President of Woosong 

Univeristy and Vice 

John Endicott 

Chancellor of 

SolBridge 

Adjunct Professor and 

Bob Graff 

ex-CIO 

Hameed Tahir 

Yongwook Jun 

William Patrick Leo 


Dean 

(Pat) Vice Dean 

Embassy of Mexico 

in South Korea Mexico 











Tonatiuh Najera 

Ruiz 


and Associate Dean 

Pannaga Prasad Reference Librarian San Antonio Library USA 

N. Kowtha Rao 

Song Younghack 

Varun Grover 

Associate Dean 


Distinguished 








Clemson University, 

SC USA 





Dilip Das Professor 

Dr. J Q Park 

Mr. Jeffrey Miller 

COO 

Photographer and 

Writer 



Pantos Logistics 

Company Korea

of 3 - Center for Global Outsourcings

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