Comprehension Set -17

As a concept, outsourcing is no doubt gaining ground. But there are many who still keep away from it. First, there’s a perception that outsourcing could adversely impact the quality of service. “We believe that directly controlling our stores is the only way to maintain quality. If we outsource, quality would suffer as a whole. You can do outsourcing only if you’re willing to shut your eyes to many things,” says a Managing Director of a company. Despite being the dominant partner in the relationship, the outsourcer doesn’t always have all the advantages. For one, very few entrepreneurs are willing to take on a new outsource, unless it comes with a guarantee of a certain level of sales. The trade refers to it as the minimum gurantee clause, which means that if an outsourcee is unable to reach an anticipated sales level, he will be compensated for the balance amount. This invariably acts as an incentive for outsources to be lax in developing the business. Yet, given that there are too many outsourcers chasing too few potential outsources, the minimum guarantee clauses often become a crucial deciding factor in choosing an outsource. Of course, there are ways of working around this. The Rs 14 –crore-chain of personal grooming and fitness clinics tried the outsourcing route two years ago by handing over management of the outlet to its outsourcee. That agreement did not work. “Ours is a very critical service. Our business is about people’s health and well-being. If the standards area not kept up one mistake will wipe out so many years of goodwill. And since we saw maintaining the right service levels was a problem, we decided to opt out of outsourcing,” says a managing director. To make things simpler, it set up joint ventures with interested parties and kept 65% of the stake and, therefore, management control in its hands. Its future plans of opening specialized fitness centre chains and good health eateries are also based on the current 65:35 model. Players with a large existing outsourced network have an incumbency problem: upgrading the quality of the outlets in line with changing customer needs. The logic may seem reasonable, but convincing an outsourcee to invest more in upgradation is seldom easy. Bentex wants to move beyond the retail ambience it is offering to its customers. “We have grown to a fair level with our outsourcees but times have changed. We need to move on,” says executive director. Won’t it unsettle the 430-odd Bentex outsources? “We are only setting up 25 of these shops to show our outsources it can work. The rest we want to outsource,” affirms marketing manager. But potential outsourcees will be up aginast a hurdle: the stores will be allowed to stock only branded Bentex products, from earnings to bangles. This may put off consumers who seek variety. Currently, Bentex allows its outsourcees to outsource 35% of the products in the outlet. “There may be a certain sense of independence that an outsourcee gets by choosing some stock but we think it is a habit. Once he realizes the convenience of sourcing from just one place, he will upgrade. But Bentex realizes the psychological impact of starting its own retail stores.” So, how does outsourcing work? “It’s like a marriage,” says general manager, marketing. The stakes are high on both sides. The outsourcer gives up his precious asset, the brand, and the outsourcee parts with his right to operate alone. In the end, implicit trust is at the cornerstone of the relationship between an outsourcee and an outsourcer.

1. Which of the following is a disadvantage of outsourcing ?

(a) The relationship of partners are at stake.

(b) The quality of the business is always on the higher side.

(c) It is very difficult to control the quality.

(d) The profit margins are low.

(e) None of these

2. What compensation does the outsource expect?

(a) The cost of maintenance should be borne by the outsourcer.

(b) In the event of loss, outsourcer should buy back the stock.

(c) For declining sales level, outsourcer should not be held responsible.

(d) The ambience should be the responsibility of the outsourcer.

(e) None of these

3. Outsourcing works best if

(a) the relations between the partners are symbiotic.

(b) the outsourcer accepts a submissive role.

(c) high-cost ambience is maintained.

(d) variety is sacrificed at the cost of high quality.

(e) None of these

4. What prohibits entrepreneurs to take up new outsource?

(a) Dominance of outsourcer

(b) Fear of losing existing business

(c) High overheads in maintaining ambience

(d) Uncertainty in reaching the sales target

(e) None of these

5. What puts off customers?

(a) Lack of ambience

(b) Unhealthy competition

(c) Poor quality standards

(d) Absence of variety

(e) None of these

6. What does minimum guarantee clause mean?

(a) The minimum number of goods should be guaranteed.

(b) The sales level should be such that the market share is not affected.

(c) The outsourcer will make the amount good if the sales fall down below a particular level.

(d) There will be penalty for laxity in business development.

(e) None of these

7. The outsourcing is like a marriage because

(A) the partner relationships are based on trust.

(B) the stakes of both the parties are interdependent.

(C) the parties concerned do not have equal say.

(a) All A, B and C

(b) Only A and B

(c) Only A and C

(d) Either A or C

(e) Neither A nor B nor C

8. The incumbency problem, according to the passage, is linked with

(a) quality standards prescribed by the outsourcer.

(b) the ambience standards of the outsourcee.

(c) keeping pace with customer needs.

(d) maintaining minimum level of sales.

(e) None of these

9. What is a 65:35 model?

(a) A model where 65% is hard work and 35% is chance

(b) A situation where majority of shares lies with the 35% owner

(c) A model to make complicated things simpler

(d) A model to where management control remains with the major stakeholder

(e) None of these

10. Which of the following best explains the phrase ‘one mistake will wipe out so many years of goodwill’?

(a) One error will not affect the years of hard work.

(b) Omissions in big businesses are normally wiped out.

(c) Whether or not, a mistake is a mistake.

(d) One mistake is enough to affect the business reputation adversely.

(e) None of these

Directions (Q. 11-13): Choose the word/phrase which is most nearly the same in meaning as the word/phrase given in bold as used in the passage.

11. SHUT YOUR EYES

(a) look over

(b) sleep

(c) avoid storm

(d) winking

(e) overlook

12. RUB-OFF

(a) jeaslousy

(b) rivalry

(c) impact

(d) pressure

(e) publicity

13. PLAYERS

(a) entrepreneurs

(b) sportsmen

(c) workers

(d) partners

(e) politicians

Directions (Q.14-15): Choose the word/phrase which is most opposite in meaning to the word/phrase printed in bold as used in the passage.

14. IMPLICIT

(a) explicit

(b) candid

(c) clear

(d) inbuilt

(e) outspoken

15. DOMINANT

(a) progressive

(b) weak-headed

(c) submissive

(d) lay-off

(e) hostile

Answer key:

1. (c) 2. (e) 3. (a) 4. (d) 5. (d) 6. (c) 7. (b) 8. (c) 9. (d) 10. (d) 11. (e) 12. (c) 13. (a) 14. (a) 15. (c)

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