In Focus:  Global Outsourcing

Outsourcing Failures and Their Causes

Making global outsourcing work requires a carefully planned and orchestrated approach.  Quite a few firms had to find that poorly-managed efforts to leverage outsourcing as a cost-saving opportunity led to quite the contrary: communication didn’t work well, expectations were not met, work quality was substandard, and the need for frequent rework wiped out any cost advantages.  While others report good results and high satisfaction, it pays to look at why outsourcing fails and what can be learned from that.

A recent study by the Outsourcing Center was based on a survey of more than 300 buyers and providers of outsourcing services.  The most frequent causes of outsourcing failure were identified as

    #1  Buyer’s unclear expectations up front    (23% of resp.)

    #2  Poor communication or poor cultural fit  (16%)

    #3  Interests became misaligned over time  (15%)

The report observes that “the dominant theme recurrent in the tips provided, whether from buyers or providers, is that those who spend more time and effort up front ensure predictable results and less chance of failure in their outsourcing initiatives.”  Defining and setting clear expectations, targets, and deliverables at the beginning of an outsourcing engagement and following up diligently are factors critical to its success.

Communication and cultural fit, the other identified primary causes of outsourcing failures, are often paid little attention in the early stages of an outsourcing engagement.  That can be a costly mistake, since especially relationship aspects can hugely impact all stages of a foreign business engagement.  Making the communication work, building mutual trust, and ultimately establishing a win-win relationship requires considerably more effort in global outsourcing than it does within the framework of a domestic business engagement.

Outsourcing Destinations

Americas.  Lately, the global competitiveness of Mexico in manufacturing seems to have declined some as other destinations combine improved workforce skills with significantly lower cost.  However, it continues to be attractive to the U.S. as an outsourcing destination, especially in light of its NAFTA status.  In Latin America, Brazil is the current manufacturing heavyweight, combining skilled workforce with a decent infrastructure, albeit in a still-shaky political and economic environment.  The country is also an up-and-comer in the IT industry.  Cross-cultural aspects need to be carefully managed in all of these countries.

Europe.  Former East bloc countries like Hungary, Czech Republic, and Poland have become attractive manufacturing destinations, combining good infrastructure, skilled workforce, and stable political and economic environment through their integration into the EU.  Current wage and salary levels still give them a strong cost advantage.  In software and other high-tech areas, Ireland maintains a favorable position owing to its young and well-educated workforce, but its cost of labor now exceeds the EU average.  Here, Hungary, Czech Republic and Poland are again strong competitors, each of them with an effective public education system.  Cross-cultural aspects deserve attention but don't present huge hurdles, while language barriers can be difficult to overcome.

Asia.  A fiercely competitive field with many low-wage countries like China, Malaysia, Indonesia, Thailand, and the Philippines.  Worker efficiency and quality of work can be spotty, so it pays to select carefully and to establish effective control systems.  In technology and services, India has become the 800-pound gorilla.  Since the country’s most highly qualified resources are concentrated in a few centers such as Bangalore, and since there is much competition between local and foreign employers to hire the best of them, salaries, while still low to U.S. standards, have gone up quite a bit.  India’s overall infrastructure and political stability are still gating factors.  In all of Asia, cultural differences present additional challenges, requiring preparation and constant guidance.

(The above is an excerpt from an in-depth article available on our web page)
  Read the full article

Book Of The Month
The Lexus And
The Olive Tree


Pulitzer Prize winner Thomas L. Friedman illustrates the tension between globalization and cultures & traditions in this excellent book.

(click title for full book review)


Web Site Of The Month
Discovery Channel
Spotlight - Outsourcing


Interesting facts and several useful links to other sites on Global Outsourcing.

(click title to visit this web site)


Quote Of The Month

The wind and waves
are always on the side
of the ablest navigators.

(Edward Gibbons)


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Expanding Our Team:    Expert Partners

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Lothar Katz is the founder of Leadership Crossroads.  He has a wealth of experience in achieving productive coopera-tion across cultures and driving business success on a global scale.
A seasoned former executive of a For­tune 500 company, he regularly interacted with employees, cus­tomers, out-sourcing partners, and third parties in more than 25 countries around the world.


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Leadership CrossroadsTM, 2004

Global Business Practices:
Ten Tips For Doing Business in Hungary

  • Similar to Americans, Hungarians are very individualistic. Don't stereotype.
  • However, formal authority always is respected and managers may sometimes strike you as 'bossy'.
  • Dialogue is more important than data exchange.
    Avoid 'dumping information' on them.
  • Don't always expect things to follow a sequential order. Hungarians are 'multi-active' people who enjoy handling parallel events.
  • Be cautious of eloquent speeches and grand plans.
    They are not always followed by swift action.
  • People enjoy bargaining and may haggle extensively over contracts.
  • Timeliness is not very important. Appointments may chance on short notice.
  • Good, conservative business clothing is important in Hungary.
  • The personal space people need is narrower than in the U.S.  Be prepared for some getting closer to you than what you're comfortable with.
  • Entertainment plays an important role in Hungarian business. Prepare for extensive dinners and other events.

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