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    Diversification of a multinational company

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    Scenario: A multinational organization in China has experienced dramatic growth in the past two years. Recently, the executive staff has been reading about outsourcing costs, and they want to renegotiate their contract with Outsourcing Company. For Outsourcing Company, this is the largest client and the third request to renegotiate the contract and reduce the price. Accepting the offer guarantees a large client but reduces the likelihood to accept new clients because of the demanding workload for the staff. Not accepting the offer to renegotiate the contract could result in releasing a significant number of employees and suffering a loss for the next two years, unless Outsourcing Company can land another large client. So, risk is involved. As the international management team, you have been tasked to consider all of the associated variables and choose the course of action that best supports Outsourcing Company. Should Outsourcing Company accept the offer and maintain the contract, or do you have an alternative suggestion? Negotiate among yourselves, the international management team for Outsourcing Company, for the best solution. Support your negotiations with an explanation.

    Goal: To maintain sales numbers at Outsourcing Company.

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    Solution Preview

    Based on the goal listed above to maintain sales numbers, then the primary focus is to renegotiate the contract, while striving for favorable terms from the multinational company. Some of those terms would include:

    * maintaining ongoing relations for a specific period of time, say for 3 years
    * agreeing to renegotiating at specific intervals (if necessary), say every 6-9 months (allows for planning for potential changes in activity, pricing, staffing, etc.)
    * gaining a provision based upon cost of living provisions which would guarantee minimum pricing philosophy in order to retain staff and continuity within the firm (will help to prevent dropping below a certain price point and help to aid in minimum levels of revenue for this period in time)
    * inserting a clause providing for an optional 4th and 5th years depending upon business levels, activity, and profitability of the contract
    * possibly adding a clause related to improved performance which can result in a bonus to Outsourcing Company should agreed upon goals be exceeded

    While ...

    Solution Summary

    This situation addresses the need for firms to seek to diversify in order to reduce risk, in order to financially plan, and in order to maintain and grow revenue (as well as negotiate a successful contract to insure future operations).