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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. Tenth Annual International Daejeon, South Korea P a g e | 38 Smart Sourcing Conference June 28-29, 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. Tenth Annual International Daejeon, South Korea P a g e | 39 Smart Sourcing Conference June 28-29, 2012
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Page 15 and 16: Contemporary Issues and Challenges
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