by Richa Tandon
From the smallest entrepreneurial businesses to the largest corporations, outsourcing is a means to stay competitive, profitable and one step ahead of competition. It is estimated that for many companies, IT spending will increase at a compounded rate of 4.6% in the next 5 years, yet funds spent on outsourcing will increase by almost 22%. Outsourcing provides almost unlimited resources to companies at their disposal, when used properly. Of course, nothing is as perfect as it sounds. Issues that constantly arise when outsourcing are the hurdles of culture, lack of control, language and even the problems associated with dealing with different legal and financial structures. In particular, the friction that has arisen due to cultural differences has become a severe problem for businesses.
According to a recent Accenture survey, sixty-seven percent of U.S. business executives had miscommunication arise from cultural differences as a primary cause of outsourcing problems. Imagine two individuals from completely different geographical areas, with two separate languaes, cultures, work ethic, and skill set. Now imagine them marrying. Cross-cultural outsourcing can essentially be seen as marriage, with two companies walking in with idealistic expectations, believing they will “compromise” and work it out as it goes along. Nowadays, more than ever, corporate culture compatibility and potential issues arising from differences in national cultures is acknowledged as predictors of success for outsourcing. There are certain risks businesses must evaluate when choosing to outsource, in order for the task to be deemed successful. Some of these risks are outlined below.
Corporate culture procedures: what is the degree of fit? Is one company’s decisions top-down and the other based on consensus? Do their corporate policies tend to integrate well with one another? There must be some type of alignment in the visions, values and beliefs of both respective firms in order for smooth interaction. Lack of alignment in corporate culture can have great effects on the productivity of outsourcing, with negative impacts for both organizations.
Differences in national culture are important characteristics that must be evaluated as well. What are these firms underlying attitudes? Will the company in India a US business outsourced to be willing to work around the US schedule and timeline, and work as an integral part of the “team”? Do these companies focus on processes or results? Attitude and cultural characteristics is very important, and can serve as a deciding factor when deciding where and what work to outsource.
There are certain tricks to avoiding many of these obstacles that Fortune 500 companies have invested in. Companies try to have native members of each culture in the engagement team to facilitate a smooth process. This way, there is someone who is native to the supplier’s country, but well versed with the buyer’s culture. Without this, companies can run risks of offending the suppliers. Furthermore, companies should try and broaden cultural knowledge and facilitate informational flow about culture throughout the engagement team in order to avoid any friction or misunderstandings. Employing technology that enables teams to work “face to face” also adds a degree of personality to the transaction, aiding in building the relationship between the supplier and buyer.
Overall, outsourcing is a strong valuable asset, and is very cost-effective for business. Hence, more than 90% of all Fortune 500 clients outsource some part of their IS portfolio. Outsourcing can make more effective use of labor and capital, technology and resources. However, outsourcing must be used properly, and the risks of cross-cultural outsourcing must be evaluated in order to ensure a smooth transaction between the buyer and supplier. Companies must strive toward maintaining a strong relationship with the supplier, and becoming well versed with one another’s culture.