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Understanding Cultural differences between firms Engaged in ICT Offshoring

Jongkil Jeong

I. INTRODUCTION
Offshoring of services is defined as the relocation to foreign countries of services that have been previously been performed in the home country (Hahn & Bunyaratavej 2010). In the ICT industry, the reasons why companies choose to offshore have been well researched and documented, with companies looking to offshore to reduce costs through lower labour costs; increase productivity through setting up global teams that can work on projects around the clock as well as fulfill shortages within domestic markets for skilled ICT professionals (Kliem 2004).

Due to this fact, offshoring of ICT related services has seen resounding growth in recent times, and this has resulted in ICT professionals from different cultural backgrounds and countries having to interact on a more frequent basis in order to deliver ICT related services and support as Avison & Banks (2008) pointed.

However, despite the significant benefits firms can receive from offshoring, a significant amount of companies still struggle with the offshoring principle in general, and a high number of projects end up in failure. In this regard, Gregory et al (2009) argued that ICT offshoring projects might bear additional risks stemming from cultural issues which make them especially prone to failure, compared to domestic ICT outsourcing projects.

The purpose of this paper is to critically examine the importance of cultural issues in offshoring of ICT related services. In particular, this paper integrates and summarizes what is currently known about the topic in more detail by reviewing the existing literature in relation to culture & ICT offshoring. In addition, the paper explores to identify any gaps within current research, and provide recommendations for future research on the topic.

II. LITERATURE REVIEW

Framework for Culture Measures

The literature reviewed all mentions the use of Hofstedes seminal study as the basic framework for measuring the impact of culture. Hahn & Bunyaratavej (2010) in their studies summarizes the variations in the notion of culture over four dimensions which are as follows:

Uncertainty Avoidance (UAI) which indicates to what extent a culture shapes its members to feel either uncomfortable or comfortable in unstructured and ambiguous situations

Power distance (PDI) is the degree to which the less powerful members of organizations and institutions accept and even expect that power is distributed unequally

Individualism (IDV) involves the extent to which individuals are more or less tightly integrated into groups.

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Masculinity (MAS) refers to the distribution of roles between the genders in a specific culture

These key measures proposed by Hofstede have been used by hundreds of studies, and many scholars agree that this is the most comprehensive research into the notion of culture (Hahn & Bunyaratavej 2010).

However, Avison & Banks (2008) criticizes that Hofstedes framework alone is not entirely satisfactory in measuring something as complex as culture, and notes that the framework itself has come under criticism due to accusation of cultural determinism, that is, culture can vary significantly within a nation and that national culture is only a aggregation of sub culture from a specific country. Due to this fact, the literature states that Hofstedes framework should only be used to gain a handle on the difficult concept of culture and that it should be perceived as a general method of handling the notion of culture.

Cultural Risks

Reviewing the existing literature which examines the impact of culture on offshoring indicates that cultural differences between firms engaged in IS offshoring significantly increases the perception of risk.

As culture and communication share a dynamic relationship with each other, issues surrounding cultural differences and misunderstandings result in miscommunication between participating parties that end up straining working relationships between managers & team members which ultimately leads to a higher level of risk when engaged in ICT offshoring (Avison & Banks 2008).

Hahn & Bunyaratavej (2010) examines the issues around cultural risk from a different perspective, stating that expectations between managers and employees are generally better aligned in more similar cultures that tend to lead to fewer miscommunications, greater trust and better teamwork. Their studies come to the conclusion that failures in offshoring services are attributed at least in part to an unsuccessful bridging in cultural differences, and states that attributes drawn from Hofstedes model need to be examined in more detail to see if there is a cultural alignment between the firms wishing to engage in ICT offshoring.

Furthermore, Gregory et al 2009 also share this view stating in their literature that ICT offshoring projects bear some additional cultural risks compared to domestic IT outsourcing projects, which make them especially susceptible to failure and thus, the intercultural dimension increases complexity of such projects and adds risk that can make or break an offshore project.

In summary, cultural differences brings on an additional layer of risk for ICT offshoring projects, and these risks must be managed more carefully in order for ICT offshoring projects to be delivered successfully.

Importance of Cultural Intelligence

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Not only does culture define how communication occurs between parties (Avison & Banks 2008), but also is the basis of forming trust and better teamwork between individuals and parties in a working environment as well (Hahn & Bunyaratavej 2010).

Avison & Banks (2008) through their literature state that because of the increased frequency in communication between ICT professionals interacting with individuals & teams from vastly different cultural backgrounds in order to successfully deliver ICT related services and support, cultural intelligence is required to overcome the cultural barriers that exist between firms engaged in ICT offshoring.

Gregory et al (2009) also state the importance of cultural intelligence as a critical factor in creating a negotiated culture amongst cross-cultural ICT project teams to mitigate the additional cultural risks associated with ICT offshoring. Negotiated culture refers to the sum of compromises and innovations that are negotiated around those differences in behaviors and expectations that are problematic in a given cross-cultural setting. By creating a negotiated culture amongst crosscultural ICT project teams, it can stimulate further collaboration between client vendor, create trust-based interpersonal relationships, increase the effectiveness of resolving conflicts and help with information sharing.

III. CRITICAL ANALYSIS

The literature review conducted in the previous section has helped to identify and better understand the importance of culture within the context of ICT offshoring.

One of the main focus points in the current literature is that without proper understanding of cultural differences between individuals and teams engaged in ICT offshoring, the risk associated with the project increases significantly and this may lead to further costs involved with the delivery of the project, or even end up as a failure (Hahn & Bunyaratavej, 2010).

Hence, the research suggests that cultural intelligence must be gathered and implemented in order for a Negotiated Culture to be formed so that it stimulates better teamwork, trust as well as increase effectiveness and efficiency amongst those engaged in the project (Gregory et al 2009).

However, I notice that much of the literature which has been examined in detail fails to take into consideration some important points that may be overlooked while conducting the research in this area.

Firstly, the sample used throughout the research is not large enough to come to a concrete conclusion on the research findings. All the literature reviewed for this project use large multi-national companies from western countries, while their counterparts are from smaller sized businesses. This neglects the fact that culture is identified in both national and organizational terms, where the latter is a culture which is created based on the organizational size, structure, industry and other factors which are closely related to the actual business itself. Hence, it is unclear whether or not the same conclusions can be drawn out if different sizes of businesses (e.g. A Large Enterprise from a Western Country dealing with a Small to Medium Enterprise from a popular IT offshoring destination) are used as the case study.

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Secondly, the approach and methodology used to conduct the research varies greatly from literature to literature and hence it must be questioned as to whether or not the findings gathered can remain consistent within the variations of research methodology and frameworks used between the literatures. For example, Avison & Banks (2008) applies Conversation Analysis (CA) techniques based on the linguistics and anthropology fields to conduct their research, whereas Gregory et al (2009) used interviews to conduct their research. In this regards, this proves that the methods used to conduct the research still lacks a set standard or format, and this may be due to the fact that research into this field is still in its earlier days. To ensure the robustness of empirical findings, multiple approaches should be employed rather than a single methodology.

Finally, different offshoring models such as captive vs. outsourcing are not considered in the research either. For example, captive offshoring refers to when a company sets up a subsidiary business in a different country, where as outsourcing refers to when a firm uses an independent provider to conduct the work required.

The points raised above are all important factors when conducting research into offshoring & culture and by neglecting these points, the conclusions presented within the literature may require more detailed studies to be conducted to be able to gain a more accurate picture on the situation at hand.

IV. CONCLUSION
This paper reviewed the current status of research into some of the cultural factors when offshoring ICT projects. Three common themes are identified through a comprehensive review of 3 published literatures. The first is to identify the relevant frameworks in order to successfully measure and understand the impact of culture on ICT offshoring projects. The second theme is in regards to the types of cultural risks associated with ICT offshoring, and the impact these risks may have on the overall results of the project. The third theme is the importance of cultural intelligence when trying to mitigate cultural risks.

The overall conclusion is that although the issues surrounding culture and ICT offshoring is well identified, there is a lack of real suggestions based on their findings on how to resolve this issue. Furthermore, the definition of culture itself, and the lack of a solid framework / model to conduct research has led to most researchers to rely on Hofstedes model, which itself has been criticized for its generalization.

As the scope of this paper was limited to only three publications, it is impossible to guarantee that the topic at hand has been researched in full breadth and scope. However, as the literature chosen to conduct this literature review are from prominent papers within the field of IS that goes through rigorous peer review & editorial processes, the issues that are raised in this paper are relevant to the current study of culture and ICT offshoring.

In summary, the future research on the impact culture has on ICT offshoring should consider the following points outlined below:

a.

A more rigorous framework to measure the impact culture has on ICT offshoring success must be created Page 4

b.

Common terminology and language when addressing cultural issues must be created as there are significant differences in the terms used to describe these issues.

c.

A more diverse pool of case studies should be used to validate the claims made in the current literature.

REFERENCES
Avison D. & Banks P. (2008), Cross-cultural (mis)communication in IS Offshoring understanding through conversation analysis, Journal of Information Technology (2008) 23: pp. 249-268

Hahn E. & Bunyaratavej K. (2010), Services cultural alignment in offshoring: The impact of cultural dimensions on offshoring location choices, Journal of Operations Management 28, pp. 186 193

Hofstede, G.H. (2001), Cultures Consequences: Comparing Values, Behaviours, Institutions, and Organizations Across Nations, 2nd ed. Sage, Thousand Oaks, CA. Gregory R., Prifling M. & Beck R. (2009), The role of cultural intelligence for the emergence of negotiated culture in IT offshore outsourcing projects, Information Technology & People, Vol:22 No.3: pp.223-241

Kliem R. (2004), Managing the risks of offshore IT development projects, Information Systems Management 21 (3), pp. 2227

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