Issues in Foreign Outsourcing

Abstract

The decision to outsource applications development and support to a foreign vendor involves not only the myriad issues pertinent to outsourcing in general. but a host of additional risks and challenges unique to firms operating in different legal and cultural environments. Careful assessment of these issues helps determine whether offshore outsourcing will realize its potential to reduce costs, improve software quality, and achieve economies of scale in skills acquisition. S~~\ I ) I~R R L \ I A M P Uis ussistdnl professor af C I S u t fhr Uniwrsity a{Sewdo, Keno. hlOSICA 1. I',\R%ISCER is an instructor oflT munugea r s t of Christian Hrothrrs University irt ,Memphis. AUCUSI'ISIIA. IADO is un us~islunl professor of sfrulegic rnunugcment of ClnelundSfatr University.ORlSlCN OU'I'SOUKCING I-IAS reccntly bccn transforrncd from a curious idca tn a major crazc, largcly as ;I result of growing pressures t o reducc costs. resolvc personnel problems, and increasc comixtitivcness. Many US con~panics that view outsourcing as an effcctivc way of lcveraging rcsourccs and managing costs are increasingly shifting at least somc of tlicir IS activities. especially applications dc\doprncnt and support, t o forcign sitcs in countries such as Ireland, India, and Argentina.~\ltliougli forcign outsourcing has somc bencfits, it also has many drawbacks. This article esamincs the forcign outsourcing phenorncnon from :an applications devclopmcnt pcrspective. particularly the risks, benefits, and issues involvcd in making the decision to usc a forcign vendor. FOREIGN OUTSOURCING DEFINEDIn its 1,roadcst context, forcign or offsliorc outsourcing is t h c sharing or transferring of rcsponsihility for some or all IS serviccs to a third-party x d o r wlio opcrates from a foreign country. Foreign vc~iclors rangc from small opcmtors to large multi~lationals. Thc) offcr the following Ixoxl spectruni of services: 0 Dota entry and simplc processing. Data-entry and processing functions Ii;~ve h c c~i outsourced to forcign vendors sincc t11c early 1960s. 0 Fuciliti~s managenzcrlt. /\ f;lcilitics illmlagcmcnt agrccmcnt givcs thc ve~ldor rcsponsildity for operation and support of a systcm or d:~ta centcr functions, includi~lg softw;~rc.h;~rdwarc, networking. and pcrsonncl. 0 Controct progrunitnir~g. Contract progralnming arr:mgemcnts addrcss software dcvelopmcnt and maintenancc facilities, including systems :~nalysis. design. progr:lmming, tcsting, implanentation. and mnintenancc.0 Systems integratior~. Outsourccd systcms intcgration involves the dc\~elopmcnt of a fully integrated systcm from design through implcmcntation. Undcr a typical, onc-timc basis contract, the \,endor turns thc system over to the customer following implemcnt;~ti~m. 0 h'laintenance/scr\~ice of support opcr:~tions and provision of specialty serviccs, These services include i1clp desk operations and disastcr recowry services.Many govcrlimcnts and world organizations that rccognizc tllc economic potential of the software industry are tnking actions to liclp

Effect of outsourcing strategies on the performance of small and medium scale enterprises (SMEs)

“…Somewhat surprisingly, given the nature of outsourcing activities, the following obstacles were ranked lower than other problems in respondents outsourcing efforts: inadequate control systems over how certain services are delivered, which in turn may raise the company's liability exposures (Guterl, 1996), and hidden costs and risks such as travel costs, license transfer fees, exchange rates, and foreign taxes on products and services (Ramarapu et al 1997). In addition, significant was that unsuccessful organizations did not generally consider lack of high-level management support to be a serious problem, which probably means there was support and involvement by top management in these organizations.…”

“…Adequate supporting infrastructures, commitment by top management, and development of objective performance criteria were among the factors contributed to successful outsourcing projects. Properly defined performance criteria for an outsourcing engagement are objective, quantifiable, and collectible at a reasonable cost, and should be metrics, which can be benchmarked against performance of other organizations and providers (Ramarapu et al 1997;Kleepes and Jones, 1999). Other factors identified among the top priorities in successful firms include adequate performance feedback, emphasis on both short and long-term benefits, anticipation of change for both good and bad times and accommodation of cycles of demand that require an adjustment in services.…”

Explaining Variations in Client Extra Costs between Software Projects Offshored to India

“…the fact that an IS function is outsourced to another country actually influences the economic success of an offshore project. Some studies identified various types of risks or challenges associated with offshore outsourcing (Apte et al 1997;Carmel and Agarwal 2002;Khan et al 2003;Kliem 2004;Ramarapu and Parzinger 1997). There is still little understanding, however, about the relationships between offshore-specific challenges, such as cultural differences, geographic distance or regulatory/legal differences, and further economic risks, such as extra costs (Hogan 2004;Barthelemy 2001).…”

“You Feel The Threat From Asia”. Onshore Experiences of IT Offshoring To India

“…Outsourcing companies occupy a position of power since they control the primary domain knowledge, define the standards of work, and how they should be enforced in practice (Sahay et al 2007). It is often noncore/noncritical and routinized tasks, the non-innovative work, testing and online technical support that is offshored to countries like India (Luftman and Kempaiah 2007;Ramarapu et al 1997). As knowledge is gradually transferred to the contracting company, however, there can be a degree of reconfiguring of the power differential between onshore and offshore companies (Sahay et al 2007).…”

“…Recent debates within economic geography have highlighted how space, proximity, and local embeddedness matter for businesses and the process of knowledge formation, learning, and innovation (Amin and Cohendet 2005;Strengers 2014). Different dimensions of distance have often been perceived as inhibiting innovation and growth since they can prevent an efficient flow of information between firm and market (Metters and Verma 2008;Ramarapu et al 1997). The development of trust in business relationships has also been described as requiring spatial proximity, at least initially (Grote and Täube 2006).…”