Merchants' Bank (MB) is a large regional bank operating in 634 locations in the Southeast U.S. MB has grown steadily over the last 20 years, because of the region's growth and the banks prudent and conservative business practices. The bank has been able to acquire less successful competitors in recent years, further enhancing its growth. Until 2005, the bank operated a call center for customer inquiries out of a single location in Atlanta, GA. MB understood the importance of the call center for overall customer satisfaction and made sure that the center was managed effectively. However, in early 2004, it became clear that the cost of running the center was increasing very rapidly, along with the firm's growth, and that some issues were arising about the quality of the service. To improve the quality and dramatically reduce the cost of the service, MB moved its call center to Bangalore, India, where it is now run by an experienced outsourcing firm, Naftel, which offers similar services to other banks like MB. The Naftel contract was for five years, and now in late 2008 it is time to consider whether to renew the contract, change to another call center service provider (in India or elsewhere), or bring the call center back to Atlanta.

Some important factors to consider in the decision:

• The value of the dollar has been increasing relative to most other currencies at the time of the decision in late 2008.

• The financial crisis of 2008 continues to affect the banking business, and the outlook for growth for MB is not as rosy as it has been for the last few years. Top management and economic advisors for the bank have basically no idea what is the right forecast for the coming five years.

• The employment rate in Atlanta has fallen in the last several months and there is a good supply of talented employees who might be recruited into the call center if it were relocated back to Atlanta.

• The bank has just completed a new headquarters building in Atlanta and has a good bit of space in the building that MB has yet to lease. The outlook for the Atlanta economy is such that MB does not expect to lease much of this space for at least the next three years. If the call center were returned to Atlanta, it would occupy a space that would be rented for $100,000 per month, if there were a company that wanted to lease the space.

• If renewed, the Naftel contract would cost $4,200,000 per year for the next five years.

• The cost of salaries to staff the call center in Atlanta are expected to be $2,300,000 per year, the equipment would be leased for $850,000 per year, telecommunication services are expected to cost $500,000 per year, administrative costs for the call center are expected to be $600,000 per year, and the call center's share of corporate overhead is expected to be $400,000 per year.

Required

1. Should MB return the call center to Atlanta or renew the contract with Naftel? Develop your answer for both a one-year and a five-year time horizon. Consider the strategic context of the decision as an integral part of your answer. (Hint: using discounted cash flow is not required but would improve your answer; MB uses a discount rate of 6%.)

2. What are the global issues that should be considered in the decision?

3. What ethical issues, if any, should be considered in the decision?