Getting the most out of offshoring: Developing cross-cultural competencies

Technological and telecommunication advances have transformed the way work is organized. One of the most pervasive of these changes is the rapid rise of offshoring. Offshoring means reorganizing value chains, so that instead of performing a business function in their home country, organizations break the function up into smaller tasks, which are performed in foreign locations. This provides the opportunity for organizations to leverage the specific advantages of foreign locations such as lower costs, labor availability, or specialized knowledge. While offshoring initially involved relocating manufacturing activities, it has now expanded to include a wide array of services such as IT support, accounting, human resources, software development, and even knowledge-intensive activities such as engineering and R&D. However, despite the widespread popularity of offshoring, organizations often obtain unsatisfactory results.

Our research on offshoring performance has been carried out over more than five years, and includes interviews with 75 IT service providers, survey data from 250 organizations, and a review of 173 offshoring articles published in top management journals. An important finding of this extensive research project is that cultural distance between the home and the offshore operations is perhaps the biggest barrier to success in offshoring. Although surprisingly many organizations underestimate the difficulty of overcoming cultural differences when coordinating work across borders, and some are completely oblivious to those difficulties, we find that organizations can develop cross-cultural competencies that allow them, in time, not only to achieve offshoring goals but even to make offshoring an integral part of their business model.