What Happens When the Host Country Environment Changes? A Tale of Currency Devaluation You Have Successfully Outsourced – Part Two
By Denise Harrison
Note: This post is part of a series of posts from Denise A. Harrison’s article What happens When the Host Country Environment Changes originally posted in Compass Points in November 2004. Part One introduced the topic and discussed how Competition, Customers, Technology and the Economy will respond. In this part, we will discuss The assumptions we made, Strategic Options, Evaluation of Strategic Options and Strategic Choice.
The assumptions we made:
- Competition would lower prices aggressively to regain market share.
- Customers would move business if price differential was significant.
- The peso would continue to fluctuate and we needed to maintain flexibility for as long as possible.
- Lower prices to meet competitive onslaught.
- Maintain current pricing and move when competitors called customers with their new pricing.
- Develop a rebate program where a portion of the processing savings (due to the currency fluctuation) is refunded back to the customers.
Evaluation of Strategic Options:
- Lower prices to meet competitive onslaught
- Benefit: Prevents market share loss
- Risk: If peso returns to previous level then it would require a price increase – easy to say, difficult to implement
- Risk: Lowers profitability (does not take advantage of a profitable circumstance)
- Maintain current pricing and move when competitors called customers with there new pricing.
- Benefit: Reap the profit before the competition presents lower pricing options
- Risk: Angers customers, they perceive that we have been gauging them.
- Risk: Loss of market share as customers move to competition due to lower prices or frustration that we did not lower prices quickly enough.
- Develop a rebate program where a portion of the labor savings is refunded rebated back to the customers.
- Benefit: Wins customer goodwill, they get rebate without asking. This rebate lowers the cost of this line item in the customer’s budget and helps them look good at their company as they are under budget on this line item.
- Benefit: Give us flexibility with currency fluctuation rebate goes up and down – the more savings we have the more goes to the customers; if the peso goes in the other direction the rebate is smaller. This occurs without a change in prices.
- Benefit: Customer goodwill after receiving the rebate gives us the time and ability to respond to competitive pricing as the competition makes proposals to larger customers.
- Benefit: Buys time and flexibility, pricing agreements only change as fast as the competition can call on customers. While we may have to go to lower pricing, this will happen over time, not all at once. Giving us flexibility as we gain a better understanding of where the currency will stabilize.
We choose the rebate strategy because it offered us the most flexibility in a changing environment and offers benefits to customers without locking in on a lower price until forced to by competitive bidding.
In the next part, we will discuss What Actually Happened, In the End, Lessons Learned, Template for Evaluation Environmental Changes.
Have you successfully outsourced and the host country’s environment changed? Attend the Simplified Strategic Planning Seminar for more instruction on how to handle this subject as well as all other aspects of Simplified Strategic Planning.
Denise Harrison is a senior consultant for the Center for Simplified Strategic Planning, Inc. She can be reached at email@example.com.
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