Looking Beyond India: Factors that Shape the Global Outsourcing Decisions of Small and Medium Sized Companies in America

Abstract

AbstractA number of developing countries are attempting to capture a piece of the rapidly growing offshore software development market, yet little is known concerning why an American firm may elect to work with a provider in one of these aspiring countries rather than in an offshore IT superpower such as India. This article examines the global outsourcing decisions of small and medium enterprises (SMEs), a sector that is increasingly looking offshore to fulfill its software development needs. The article is based on a study conduced between November 2001 and February 2002 involving structured interviews with eighteen companies and experts that have outsourced software development work to countries other than India. The responses were compared to the existing literature on the decision processes of large firms and the outsourcing experiences of firms that choose providers in India. The study revealed fourteen factors that influenced the decisions of these SMEs: cost savings, personal connection, US presence, critical mass of skilled technical professionals, project management skills and quality certification, language and culture, western business savvy and practices, intellectual property rights protection, regulatory environment, telecommunications infrastructure, physical infrastructure, time zone difference, political stability and diversification, and country image.Price savings is the primary catalyst driving the outsourcing decisions of these SMEs, just as it is with large firms. However, because the software development process of these SMEs is typically not as sophisticated, they rely more heavily on a wide range of non‐technical, or human, factors to achieve their outsourcing objectives. Most notably, these SMEs typically found their outsourcing providers through foreign nationals employed in their firms, and instead of CMM, required the sort of close cooperation that can only be sustained when client and provider can communicate frequently and resolve problems as they arise without interference from language barriers or cultural incompatibilities. US‐based intermediaries representing one or more offshore providers have proliferated to cater to these firms. Time zone differences are more of an obstacle than an advantage. Countries that can tap their overseas populations for their personal connections and expertise in western business practices should have a competitive advantage in building successful offshore software development industries. This is especially relevant as client companies in America seek to diversify their outsourcing relationships in order to reduce their dependency on any single country.