How can cultural differences in offshore outsourcing be characterized?

The impact of cultural differences in offshore
outsourcing�??Case study results from German�??Indian
application development projects
Jessica K. Winkler & Jens Dibbern & Armin Heinzl
Published online: 23 February 2008
# Springer Science + Business Media, LLC 2008
Abstract Offshore outsourcing to vendors in foreign
countries causes unique challenges which need to be
understood and managed effectively. This paper explores
cultural differences in IS offshoring arrangements involving
German client organizations that outsource application development
activities to Indian vendors. For this purpose, a
research framework is developed based on both theoretical
considerations and specific empirical observations from
multiple case studies. The goal is to (1) explore the nature of
cultural differences in offshore outsourcing arrangements in
depth and to (2) analyze the relationship between those
cultural differences and offshore outsourcing success. Based
on the case findings, implications and practices for the
management of offshore development projects are outlined.
The results indicate that cultural differences in terms of power
distance, IS designer values, and an active versus passive
working attitude critically affect several dimensions of
relationship quality, thereby influencing offshore outsourcing
success. A clear definition of roles and mechanisms, strong
leadership, and an active management of culture by adapting
to either the client�??s or the vendor�??s national culture appeared
to be effective ways to manage cultural differences.
Keywords Offshoring . Outsourcing . Cultural differences .
Application development . Case study
1 Introduction
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 and Mertens 2006; Hirschheim et al.
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 laborintensive
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 et al.
1996; Kern 1997; Lee and Kim 1999).
Inf Syst Front (2008) 10:243�??258
DOI 10.1007/s10796-008-9068-5
J. K. Winkler (*)
Department of General Management and Information Systems,
University of Mannheim,
Schloss, S 134, 68131 Mannheim, Germany
J. Dibbern
Department of General Management and Information Systems,
University of Mannheim,
Schloss S 135, 68131 Mannheim, Germany
A. Heinzl
Department of General Management and Information Systems,
University of Mannheim,
Schloss, S 219/220, 68131 Mannheim, Germany
Offshore outsouring, however, brings about yet another
challenge to relationshipmanagement: the cultural differences
between client and vendor. Existing literature on IS offshoring
frequently mentions cultural differences and associated problems
(Heeks et al. 2001; Krishna et al. 2004; Nicholson and
Sahay 2001; Rao 2004; Vogel 2005). However, the actual
effect of cultural differences on offshore outsourcing success
has not been analyzed in a systematic way. When examining
the emergent literature, it is striking that little attempt has
been made to draw on existing research on outsourcing
success factors (for an overview see Dibbern et al. 2004) and
to analyze the influence of offshore-specific factors. Existing
studies have mostly discussed offshore outsourcing as a
separate phenomenon, either on a conceptual basis (Carmel
and Agarwal 2001; Kliem 2004; Krishna et al. 2004; Rao
2004) or by developing �?˜best practices�?? based on case studies
(Heeks et al. 2001; Kaiser and Hawk 2004; Nicholson and
Sahay 2001; Rottman and Lacity 2004). However, when
looking closer, there is considerable overlap between the
arguments pertaining to IS outsourcing success in general
and IS offshore outsourcing success in particular.
Accordingly, the main goal of this paper is to draw a link
between general outsourcing success factors and offshorespecific
factors. From the range of offshore-specific factors
(Carmel and Agarwal 2001; Gopal et al. 2003; Heeks et al.
2001; Kliem 2004; Krishna et al. 2004; Nicholson and
Sahay 2001), the focus is set on cultural differences in
offshore outsourcing of application development. The
following research questions will be addressed:
1. How can cultural differences in offshore outsourcing be
2. How do cultural differences affect the success of
offshore application development projects?
Specifically, offshore development projects involving
German customer organizations and Indian vendor organizations
are considered. By focusing on offshoring projects
to India, the results of this study may be compared to other,
mostly USA and UK based studies that also analyzed
offshore outsourcing to India (such as Heeks et al. 2001;
Kaiser and Hawk 2004; Nicholson and Sahay 2001;
Rottman and Lacity 2004). Our study takes an exploratory
approach, thereby attempting to identify relevant cultural
differences in German�??Indian software development projects
and to analyze the influence of those differences on
established determinants and measures of outsourcing
success from studies on domestic outsourcing.
2 Research framework
This work starts with an a priori development of a
theoretical, heuristic framework (Eisenhardt 1989), thereby
allowing for a focused analysis of the role of cultural
differences in offshore outsourcing. It will serve as a guide
for gathering qualitative data, ensuring that those factors
that turned out to be relevant in previous (offshore)
outsourcing studies will be considered. The research
framework is shown in Fig. 1.
The influence of relationship quality on offshore
outsourcing success essentially reflects previous findings
about success factors of outsourcing relationships. The
focus of this study will be to analyze how those factors are
influenced by cultural differences. It is important to note
that the framework serves as a conceptual framework that
guides our research (Eisenhardt 1989; Kubicek 1977); we
do not intend to test specific relationships between selected
variables. The framework shall foster our understanding of
the factors that may be influenced by cultural differences.
In the spirit of Eisenhardt�??s (1989) process of building
theory from case study research, we specified our dependent
variable based on existing outsourcing literature,
which is the relation between relationship quality and
offshoring success. Moreover, we outline our preliminary
thoughts about potential cultural differences; however, we
do not a priori specify specific relationships between
cultural differences and our dependent variable. Instead,
the influence of cultural differences will be examined in an
exploratory fashion by the means of case study analysis.
In the following, the constructs will be presented in detail.
Furthermore, based on literature on cross-cultural issues and
offshore outsourcing, cultural dimensions will be selected
which lend themselves to explain cultural differences between
clients and vendors in IS offshore outsourcing arrangements.
2.1 Success measures in IS outsourcing literature
Two ways of measuring success have commonly been
applied in the literature on IS outsourcing (see Dibbern et
al. 2004, pp. 69 ff.): (1) the realization of initial expectations
and (2) the level of overall satisfaction. As existing
studies indicate, the reasons for offshore outsourcing center
around saving costs, getting access to skilled and qualified
resources, increasing flexibility, and receiving a good
quality of services (Bartenschlager et al. 2005; Carmel
and Agarwal 2001). In contrast to domestic outsourcing
(Teng et al. 1995), strategic considerations play a less
Offshoring success