Practise explaining and evaluating outsourcing, offshoring, subcontracting and operational reorganization decisions for IB Business Management SL.
Zeat’s MiniC production line, based in the UK, has 125 employees, most of whom have been with the business since 2000. Currently, approximately 90 % of MiniC sales are to customers in the EU, and profit margins for the MiniC air compressors have fallen significantly due to rising costs in the UK. Lucas recommended to ELE directors that MiniC production be outsourced to a manufacturer in Hungary in the EU.
ELE has three profitable divisions but faces major changes. Gasoline sales are expected to decline as governments ban new gasoline and diesel cars, while electric-car sales are growing and battery prices are falling. Zeat's gasoline-station compressor market is saturated but profitable, and car-rental growth in Europe is expected to slow. The car-rental division has expanded through stations, airports and online booking. The existing Section B information below gives the data needed to evaluate market share, redundancy, outsourcing MiniC production to Hungary and Perrana's offer to buy the gasoline stations. The offer would close the stations, make all station employees redundant and require ELE to relocate 700 car-rental offices, but it could finance expansion into India, where tourism and urbanization are growing and car rentals are still a small share of cars on the road.
ELE is continuing to focus on all three of its divisions.
Car rental division
In 2010, ELE owned 4.5% of the European Union (EU) car rental market. In 2019, ELE's car rental division had revenues of EUR 0.9 billion in a market worth EUR 16.8 billion. Initially, ELE only provided car rentals in its gasoline stations in Belgium. By 2014, ELE had expanded the service to its stations in France, Spain and the UK. Giselle believes that maintaining high levels of customer satisfaction is an important factor in the car rental division's continuing success.
Zeat division
Zeat's MiniC production line, based in the UK, has 125 employees, most of whom have been with the business since 2000.
Currently, approximately 90 % of MiniC sales are to customers in the EU, and profit margins for the MiniC air compressors have fallen significantly due to rising costs in the UK. Lucas recommended to ELE directors that MiniC production be outsourced to a manufacturer in Hungary in the EU.
Gasoline station division
The gasoline station division accounted for 35 % of ELE's operating profits in 2021. Perrana PLC, a global supermarket chain, has offered to purchase all of ELE's gasoline stations. The offer significantly exceeds the current market value of ELE's gasoline stations.
Perrana would close the gasoline stations and open supermarkets on the sites. All ELE gasoline station employees would face redundancy. ELE's workforce will feel betrayed. Although Hugo is very unhappy about the proposal, Giselle has mixed feelings: she would need to find new locations for her 700 car rental offices, but the sale could help finance the expansion of ELE car rentals into India.
Explain two factors relevant to the Zeat division in its decision to outsource MiniC production to Hungary.
Factors include:
- financial aspects: profit margins for MiniC had fallen due to rising costs in the UK: it might be cheaper to produce in Hungary.
- sales aspects: much of the sales ( 90 % ) is in the EU which might make Hungary a better choice (EU single market).
- political aspects: after Brexit, trading with EU is easier from a country within the EU (such as Hungary).
- geographical aspects: geographical proximity to customers (but this aspect of (re)location must be linked to outsourcing).
- legal aspects: laws/policies in Hungary (different/better?).
- cultural and linguistic aspects: communication and possible problems of cross-cultural understanding.
- quality aspects: quality and quality control/assurance might be better in Hungary (or not).
- HR aspects: outsourcing means contracting a specialized company, so the Hungarian workforce may be more proficient (but less committed or less loyal?).
Accept any other relevant factor.
Mark as 2+2.
Award [1] for each relevant factor identified and an additional [1] for a description of how that factor relates to the Zeat division. Maximum two factors.
N.B. do not expect candidates to have advanced knowledge about EU/Hungary/Brexit.
Maximum award overall: [4].