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Challenges in Operations Essay

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Updated: May 13th, 2019

Introduction

The main problem with consumer markets in economies such as those within the U.S., Europe and the Middle East is the fact that consumer spending is at an all time low which has resulted in the current economic downturn since consumer spending is the primary basis of economic recoveries or recessions (Keller & Kotler, 2009).

Unfortunately the inherent problem with the current situation is that it creates a vicious cycle wherein low consumer spending results in companies reducing various aspects of their operational capacity (i.e. manufacturing of products, low level employees etc.) in order to remain in business which results in even lower consumer spending since people donโ€™t have jobs to support themselves anymore (Putting the air back in, 2008).

An example of the effect of such behavior by major corporations can be seen in the U.S. wherein up to 8% percent of the population is unemployed due to workforce cutbacks employed by various companies in an attempt to continue to remain viable despite lackluster local demand.

The solution to this predicament is obviously to increase consumer spending however due to the current pervading atmosphere of economic uncertainty people are more reluctant than ever to spend resulting in even more layoffs occurring (Putting the air back in, 2008).

What must also be taken into consideration is the fact that the U.S. consumer market is one of the major destinations for exported goods in the world and is so intrinsically tied with other global economies that lackluster consumer demand within the U.S. affects the production of goods and services in other countries as well (The End of Free-Trade Globalization, 2010).

For example when examining the case of China and its booming manufacturing sector the latest data from September 2011 indicates a gradual slowdown in industrial output for exports.

This data has been examined and tied to low product demand growth rates within the U.S. wherein major retailers such as Wal-Mart, Costco, and Target are experiencing lackluster demand which necessitated a decrease in international imports as they try to get rid of backed up stock before importing any new products (The End of Free-Trade Globalization, 2010).

Another global factor that should be taken into consideration when conducting business operations is the current debt crisis in Europe that was brought about through not only the reckless actions of various banks within region (as seen in the case of Ireland) but also through government mismanagement of finances (seen in the case of Greece) and exposure to a reckless housing market (the case of Spain) (Candelon & Palm, 2010).

In fact when examining the sheer scale of the problem with the European Union possibly having to bail out not only Greece and Ireland but Spain and Italy as well this creates a chaotic economic environment which has the possibility of spilling over into the U.S. should the E.U. bailouts prove to be in effective (Candelon & Palm, 2010).

What must be understood is the fact that just as countries export products into the U.S. so to does the U.S. export products into other countries with the E.U. acting as one of the largest importers of U.S. based manufactured goods.

As such any adverse reactions within the E.U. economy will have a detrimental effect on U.S. based manufacturers as well due to consumer demand subsequently drying up due to economic difficulties (Samuelson, 2011).

This also creates a problem for consumer demand within the U.S. since if companies cannot sell products within the E.U. due to a lack of consumer demand they will try to survive by cutting costs the first of which will be in the amount of employees they hire.

Since the E.U. is one of the largest trading partners of the U.S. this means a large percentage of American based companies will lay off their workers which will affect local demand for imported products from the E.U. creating an even worse financial situation (Samuelson, 2011).

It is in this situation that the company finds itself in wherein lackluster demand within local markets in the U.S. and the possibility of an economic crash within Europe has resulted in massive unemployment creating low consumer demand.

Recommended Operational Strategy

Cost Saving Measures

While it is unfortunate what is necessary at this particular point in time is a gradual reduction in U.S. based manufacturing operations and customer support and a shift towards outsourcing to locations such as China and the Philippines.

It has been noted by studies such as Chen, Tian, Ellinger, & Daugherty (2010) that outsourcing manufacturing operations to China is a viable cost saving measure due to the fact that not only is the minimum wage lower but the cost of doing business along with the accessibility to cheap local resources is far easier as compared to U.S. based manufacturing operations that have to contend with American wages, government taxes, high utility costs and other factors that increase the cost of doing business (Chen, Tian, Ellinger, & Daugherty, 2010).

Due to the fact that globalization has made capital flows and communication between international locations far easier for companies outsourcing has now become an integral aspect of the business models of numerous Fortune 500 corporations (Keller & Kotler, 2009). It is due to this that the Philippines as of late has become a global center for business process outsourcing and customer service call centers.

What must be understood is the fact that the Philippines has had close ties with the U.S. for several decades and this has resulted in a local culture that is more conducive towards assisting Americans as compared to any other location in the world due to the level of popular culture similarity and the pervasive use of the English language.

With this in mind several companies have been outsourcing their customer service departments to companies such as Convergys and Sykes resulting in significant savings since the minimum wage within the country is far lower than that of the U.S. with the cost of doing business being relatively low as well.

It is based on the two case examples of China and the Philippines that it becomes obvious that the best course of action in reducing costs during the current economic downturn is to outsource aspects of the company’s manufacturing operations to China and its customer service department to the Philippines in order to maintain the same state of operational capacity while reducing costs for the company.

Shifting to New Consumer Markets

The problem with the current consumer market situation in both the U.S. and Europe is the fact that the atmosphere of economic uncertainty and the fact that there is widespread unemployment has drastically reduced consumer spending. With low consumer spending this results in wasteful operational costs such as storage, utilities, taxes, worker salaries and employee benefits.

The fact is the current consumer market situation within the country is not conducive towards sales and as such the company is suffering because of it. One possible avenue of approach that can be implemented is to shift resources towards foreign markets which have not been as adversely affected by the current economic downturn and focus efforts there instead of in cathartic local markets.

Asian markets such as those within China and the A.S.E.A.N (Association of South East Asian Nations) present themselves as viable consumer markets due to the fact that despite the slow down of various western economies, eastern economies have actually grown on average by five to eight percent annually.

This is due to the fact that as the expense of doing business within western nations rises companies start to shift their manufacturing operations to other countries with far lower operational expenses.

Not only that the growing movement towards environmental sustainability within the U.S. and Europe has made regulatory compliance that much harder for companies to do resulting in a significant cost in ensuring that companies comply with set regulations.

In fact the company itself has had to comply with numerous environmental regulations that have grown stricter over the years and as such this creates a difficult environment to do business.

Taking such factors into consideration the transfer of various manufacturing facilities to several Asian nations has in effect created industrial booms within such countries making their local populations flush with higher earnings. This makes them a viable consumer market to target since it has been shown that consumer markets within Asian economies at the present are more willing to spend as compared to their western counterparts.

As such the new strategy of the company in order to continue to sell products despite the current global economic situation is to shift gears and actually sell in locations where consumers are willing to spend and at the present this takes the form of Asian markets.

This is not to say that the company will pull out of U.S. sales completely rather what will occur is a reduction and consolidation of current sales practices in order to meet market demand for what it is at the present and hopefully expand the company’s market penetration in the near future once the economic situation improves.

Reference List

Candelon, B., & Palm, F. (2010). Banking and Debt Crises in Europe: The Dangerous Liaisons. De Economist (0013-063X), 158(1), 81-99.

Chen, H., Tian, Y., Ellinger, A. E., & Daugherty, P. J. (2010). Managing logistics outsourcing relationships: an empirical investigation in China. Journal of Business Logistics, 31(2), 279-299. Retrieved from EBSCOhost.

Keller, K., & Kotler, P. (2009). Marketing management. (13th ed.). New York: Pearson/Prentice Hall.

Putting the air back in. (2008). Economist, 389(8604), 79-80. Retrieved from EBSCOhost.

Samuelson, R. J. (2011). A Looming Disaster: Europe. Newsweek, 157(13/14), 22. Retrieved from EBSCOhost.

The End of Free-Trade Globalization. (2010). Nation, 291(21), 20-25. Retrieved from EBSCOhost.

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