Lessons from barbie world

When Mattel ordered 18m toys made for it in China to be recalled because of hazards such as the use of lead paint, the troubles of the world’s biggest toymaker resonated through boardrooms. A lot of other people in boardrooms will be waking up and asking ‘are we running the same risks?’

The company is, of course, not alone in outsourcing manufacturing to lower-cost regions such as China. Transferring parts of a company’s operations, such as manufacturing, to lower-cost regions of the world is just one way of broadening supply chains, and hence their global reach.

Mattel’s recall underlines the need for a robust risk management framework. Steve Taylor-Gooby, managing director of consultants Towers Perrin-Tillinghast says it is crucial to have strong quality-control procedures in place, and that these should be set when a contract to transfer functions is negotiated. There should be a requirement for the supplier to report regularly on risk management to the company for which it is working. This way, the company that has outsourced the function can be satisfied the supplier is following all the procedures correctly. If it is not, the company can put in its own staff to take control of the situation.

He suggests some companies may be looking to renegotiate their contracts with offshore suppliers to ensure they have in place quality procedures as robust for remote locations as they would in the US or Western Europe.

Another crucial factor, whether transferring manufacturing or white-collar functions to a third party, is knowing who you are doing business with. When it comes to manufacturing, this means ensuring your business partners are not, for example, using an inappropriate labour force. When it comes to outsourcing functions in the financial services industry, it is essential to prevent confidential information from falling into the wrong hands.

But there are other hazards associated with outsourcing and off-shoring. Some of the locations to which functions are transferred may be at risk from natural catastrophes. Others may be unstable politically, or at risk from terrorist attacks.

Lis Gibson, managing partner at Deloitte, says there are other more subtle risks from extending the supply chain, such as concern about the environmental impact of transporting goods from far away locations.

Extending the supply chain can also open companies up to considerable disruption if the links in the chain do not work, for example because of a global pandemic or a natural disaster in a crucial region.

Companies are also extending their global operations by forging into new markets. This can involve opening offices or branches, entering into strategic partnerships, or even making acquisitions.

Expansion, either into new territories or markets, can help reduce risk through diversification – because not all parts of an organisation are likely to face challenges at the same time. But it also increases the complexity of groups’ operations.

As companies move further from home, they encounter new cultures. They must also achieve the right balance between managing risk from the centre, while providing corporate outposts with autonomy.

Companies operating across borders also face the traditional risks associated with international expansion, such as currency fluctuations. But in recent weeks, it has been the lesser-known risks that have captured companies’ and investors’ attention. Recent years have seen the tendency for risks to be sliced up and sold on to multiple investors through sophisticated financial instruments.

The fall-out from the US mortgage crisis around the world has highlighted how global expansion can lead to the spreading of risk, sometimes to unexpected corners.

The Financial Times, September 10^th, 2007

ACTIVE VOCABULARY

1. to recall – отзывать, изымать, аннулировать, снимать с продажи

   • recall - отзыв, аннулирование, снятие с продажи

2. hazard – риск, опасность, источник опасности

3. to run a risk – подвергаться риску

• risk management – управление рисками

4. supply chain - канал поставок, логистическая цепь, цепочка поставок

5. framework – структура, система, схема

6. to negotiate – вести переговоры

• negotiations – переговоры

7. crucial - важный, ключевой, решающий

8. white-collar workers – инженерно-технические работники, служащие

blue-collar workers – производственные рабочие, работники физического труда

9. disruption – подрыв, срыв, дезорганизация

10. to forge – внедрятся, продвигаться, выходить

11. to encounter – столкнуться, встретиться

12. fall-out – последствия, побочный результат

13. mortgage – ипотека, ипотечный кредит

Suggest the Russian for the following word combinations.

To recall the goods from the market, to outsource manufacturing to low-cost regions, to broaden/ to extend supply chains, to transfer company’s operations to low-labour countries, robust risk management framework, to follow quality control procedures correctly, to be at risk from natural catastrophes, remote locations, to extend global operations, to renegotiate contracts with offshore suppliers, a crucial factor, to forge into new markets, to enter into strategic partnerships, to make acquisitions, to reduce risk through diversification, to provide corporate outposts with autonomy, to face challenges, to operate across borders, currency fluctuations, spreading of risk.

Suggest the English for the following word combinations.

Подвергаться риску, отозвать товар с рынка (изъять из продажи), передавать выполнение производственных функций зарубежным исполнителям в странах с низкими издержками на заработную плату, инженерно-технические работники, колебания валютных курсов, активно действующая система управления рисками, выходить на новые рынки сбыта, производственные рабочие, расширить сеть поставок, строго соблюдать установленные процедуры контроля качества, зарубежный поставщик, перебои в поставках, заключать стратегические альянсы, столкнуться с проблемами, приобрести иностранную компанию.

Text № 3

Translate the article into Russian orally and answer the following question:

What are the main pros and cons of outsourcing business functions to South Africa?