The Impact of Cultural Differences in Offshore Outsourcing: Case Study Results from German–Indian Application Development Projects

Abstract

In the early 1990s, offshoring of software work to development centers in low wage countries pertained to large Western companies such as IBM and SAP who systematically attempted to take a hold of wage differences and resources of a global market. With the rise of the new millennium, former development countries such as India and emerging nations in Eastern Europe began to establish themselves as outsourcing vendors in the global market of IT services, drawing from a growing pool of qualified IS resources (Bode & Mertens, 2006; Hirschheim, George, & Wong, 2004). Given this global supply, offshore outsourcing of IT services has become a widely adopted part of many global organizations' sourcing strategies, especially in the labor-intensive domain of application services. Similar to domestic outsourcing, however, offshore outsourcing is associated with the typical market-based frictions. These frictions pertain to the very nature of systems development and maintenance as services that require a lot of communication and cooperation between the client (e.g., users, business managers, as well as systems analysts and architects) and the vendor (e.g., solutions architects, systems designers and programmers). It is therefore of little surprise that studies on domestic outsourcing have shown that effective relationship management that is aimed at reducing frictions is one of the key challenges and success factors of IS outsourcing (Goles, 2001; Grover, Cheon, & Teng, 1996; Kern, 1997; Lee & Kim, 1999).