Culture Resource Centre

Outsourcing across Cultures

Outsourcing across cultures

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Ever since the mid-1990s when it first had its appeal, an increasing number of organisations outsource business processes to external offshore outsources to reduce the scope of their supporting activities. Only much later organisations factored in the impact of cultural differences on the outsource process and partners. The objective of outsourcing is to increase quality and reliability of processes, and to save direct and indirect costs as to enhance the competitive advantage of organisations. The decision process for outsourcing usually focuses on comparing the local cost of providing and managing an activity internally, against the cost of purchasing the service and managing the acquisition process. Although there might be a variety of reasons for the sometimes rather limited number of success stories, here we would like to focus on cultural differences which can impact on costs and quality.

India: example 1

An Australian manager observed that one of her Indian professionals often agreed to deadlines, and yet when he missed a deadline his Indian manager only provided vague, insufficient explanations as to why. This often resulted in budget blow-outs for business projects, a reduction in the perceived quality of the outsourcing’s services, and frustrated client.
This case can explained by looking at culture: Some cultures prefer to maintain harmony by sending positive messages, but at the same time not entirely agreeing with the requested deadlines…  In these cultures it is quite accepted to be positive and polite in their answers – often interpreted by Australians as being agreement- while at the same time not being able to deliver the results. Lacking intercultural knowledge and communication skills on both sides seems to be a major cause of the problem.

India: example 2

Whenever the Australian organisation identified an outsourced employee under-performing, their Indian outsource partner was extremely slow to replace the employee. The partner promised to try to replace these employees as soon as possible, but instead kept the employees in the job until their individual contracts were due for renewal. The organisation concluded that although outsourcing aims to lower costs, this practice increased costs as they had to ask for more employees to replace the ‘under-performing’ ones. Again let take culture into consideration to explain this example: An Indian manager explained later that he was reluctant to change employees halfway through their contract as it would imply that he had selected the wrong person. This would reflect badly on his managerial performance and his ability to manage a team. Indian society is much more hierarchical than Australian society, thus in India it is quite important for a manager to maintain their status and stick to their decisions. Furthermore, the Indian style of communication is also much more indirect than in Australia. When the Indian manager said they would replace the poorly performing staff members, they did not necessarily mean immediately. Lacking intercultural knowledge and communication skills on both sides seems to exacerbate problems.

Minimising the Cultural Clash

Looking at the first objective of outsourcing: “Increase quality and reliability of processes”, it has been documented that the top 25 Indian IT outsourcers have achieved the IT industry’s highest level of software certification (Strategy for success in Asia, A. Delios & K. Singh, John Wiley & Sons 2005). The second objective: “Saving direct and indirect costs” attracted many organisations to outsourcing by comparison of wages for highly qualified and often better trained personnel in emerging countries such as India. It is estimated that India has the potential to emerge as a leading global centre for business processes outsourcing in IT software and services in Asia (with growth estimated from us$ 16 billion in 2004 to about US$75 billion in 2008). However research suggests that very few outsourcing organisations actually achieve savings greater than 50% and that many realise considerably less.

Optimising Outsourcing Efforts

So how can we optimise the opportunity of outsourcing? If we take the Indian IT services as an example, there are major opportunities for both organisations and outsourcers. However, to take full advantage of quality and cost savings as discussed in the examples above, cultural implications involving the organisation and the outsourcer need to be carefully addressed. Increasingly organisations recognise the cultural component as one of the challenges in outsourcing their processes. Organisations and Outsourcers that are culturally aware, understand cultural differences, and develop their cultural competence are reaping the benefits.

Joost Thissen, Partner & Interculturalist
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