The Problems Faced by an IT Company Based in USA Outsourcing in India - Term Paper Example

Table of Contents Executive Summary 2 Terms of Reference 3 Overview of the Situation 3 Analysis of the Situation 5 SWOT Analysis 5 Solutions and Recommendations 8 Forecasts and Outcomes 10 Conclusion 11 Reference 13 Bibliography 14 Executive Summary The project begins with the problems faced by an IT company based in USA outsourcing in India. The pros and cons of taking this step have been discussed in the project. A SWOT analysis has been provided to understand feasibility of the situation. The presence of a large population along with a large pool of technical talent has acted as an attractive force for the company. This is complemented by the low salaries in the country which would be effective in saving cost of the firm. An overview of the situation has been provided with regard to the culture barriers and differences between the two countries using Hofstede’s cultural dimensions. This is important to know the behaviour of people in the country where the company wants to operate. Based on the cultural differences, suitable recommendations have been provided to remove or utilise the differences. Lastly, the future of India’s outsourcing industry has been analysed and presented. Terms of Reference The project discusses about an outsourcing firm based in India. It is an IT company operating from USA. The company is named as ABC IT Solutions. The company has entered into partnerships with the local firms in India to take up their outsourced activities. The company has partnered with the outsourcing firm to take assignments on the IT enabled services. The firm has also taken up the business process outsourcing activities of the company. The IT services that have been outsourced by the company are data mining, data warehousing, IT consulting, e-Commerce, and software development. The business process outsourcing includes such crucial activities like Customer Relationship Management (CRM), Supply Chain Management (SCM) and Enterprise Resource Management (ERP). The main purpose of outsourcing the above activities is to save cost of the company. Since India’s labour cost is lower than that in USA, the company has set up its outsourcing operations in the country. The BPO market in India has been expanding at a fast rate. It is estimated that the BPO market in India would grow by 19% in 2013. The sector has become extremely organised and has become the focus of a number of multinational companies (India Current Affairs, 2010). Overview of the Situation It is critical that a globally integrated organisation shapes its management, operations and strategies in a global way. This company has been facing crisis implementing its strategies in the BPO on India. Firstly, the managers are confronted with the problem of coordinating resources like material, human and finance in meeting its business objectives successfully (Wursten, 2008, p.1). They are also faced with the problem of combining the culture differences prevailing between the two countries. The effective means of combination in USA may not necessarily be effective in India. The culture clash may take place between the client and the service provider at two levels; the corporate culture and the national/regional culture. With regards to the corporate culture, the speed with which a service is provided, or the norms followed with regard to decision making, style or organisational structure may be different between the client and the service provider (McCray, 2008, p.6). Another potential cause of clash could arise out of the fact that the process of outsourcing represents commercial relationships between two completely different entities. Organisations could take inflexible and extreme positions which could create a sense of distrust or tension between the two (McCray, 2008, p.6). Among the national or regional inhibitors, there could be language barriers which could create communication problems. Also the expectations regarding open debates, acknowledgement of problems or willingness to adopt different work techniques to complete it quickly may vary between different regions of the country. The most important cultural difference between the two countries arises out of the power distance index. India demonstrates high power distance which indicates that there is high inequality of wealth and power in society. This dimension is much lower in USA suggesting that each one in society enjoys equal power. It would be difficult for a country to outsource in India because of the presence of hierarchy. There exists a lot of mistrust among the people and people generally do not volunteer or provide proper feedbacks to the superiors (ITIM International-a, 2009). The American society is found to be more individualistic as compared to the Indian society. India reflects a tightly knit society. It would be easier for USA to outsource work in India people would perform well in group activities. But, on the contrary, if there is any violation of rules, the society would resist such acts collectively (Wursten, 2008, p.2). The company would also have to cope with a culture which is less competitive compared that of USA. This is because the Indian society reflects masculine culture where the people are less assertive and less result oriented (Wursten, 2008, p.2). The Indian society is also characterised by high uncertainly avoidance index which reflects their tendency to avoid uncertainties or ambiguities. This means that the company would have to confront the problem of turnovers during crisis situations. Also, the people in Indian society are more long term oriented while those in USA are short term oriented. The people would be respectful of their traditions and social obligations (ITIM International-b, 2009). This means that the company would have to consider the fact that their and design corporate strategies which would allow then maintain work life balance. Analysis of the Situation SWOT Analysis The cultural differences prevailing between the client nation and the service providing nation has given rise to a number of opportunities, threats, strengths and weaknesses for ABC IT Solutions. The project provides a SWOT analysis for the purpose. The strength of the company lies in the fact that outsourcing in India would allow it to save its cost to a substantial extent. The cost of labour is much lower in India than that in USA. It would be beneficial for the company as the Indian employees could be paid lower salaries than their USA counterparts. Moreover, since the company is a major brand name in the international market, there would be great demand for its jobs in the Indian market. There already exists high unemployment in India. Thus the company would not have to struggle much for finding employees. There is a great demand for hi-tech service in the Indian job market which would act as strength for the company (Barrera, 2004). The main area of weakness for the company would be losing its managerial control due to outsourcing. It is more difficult to manage outsourced activities in comparison to managing the company’s won employees. This acts as a potential hidden cost involved in the process of outsourcing. The hidden costs also comprises of the legal costs and costs involved in coordinating between the two companies. These are some of the weaknesses which would add to the company’s cost considerably (Software Projects, 2010). In India, power distribution is easily accepted in society. All organisations have a proper hierarchical structure which works best in the society. However, the weakness is that the power seekers very often tend to exploit the situation by highlighting the flaws of others and suppressing their efficiencies and good work. Many a times the people present in the upper levels of the hierarchy try to display their superiorities and make a show of their supremacy. There could also be biasness and prejudices of the superiors towards employees. The nature of culture prevailing in the Indian society would give rise to a number of opportunities and threats for the company. The collective nature of society works best to bring out the best performance from the people. Moreover, a number of problems can be solved effectively in informal meetings between group members. Each member participates equally in the activities, ideas can be shared, and each one’s point of view is given preference when solving any problem. Collective work also improves competitive behaviour among employees. However such behaviour can be viewed as healthy and not meant to bring down each other. The system has a major drawback which can be viewed as a weakness. Many a times there could be clash of ideas or disagreement of views and ideas between group members. Also group activities could result in complicating problems even further. Each one comes up with his own perspective which is difficult to coordinate. The problem may even take more time than usual to get resolved. The growing demand for outsourced jobs in India may be viewed as the most important opportunity in front of the company. India has become the outsourcing destination for a number of multinational companies. It is considered to be the centre of excellence in the field of ITO and BPO. It also provides a large number of people skilled for technical services such as programming. India has been chosen as the most promising destination which delivers the most challenging works. It also specialises in the provision of support tasks for the critical business applications (Kotlarsky, 2010). India is aimed by many multinationals for opening outsourcing firms. This could be considered to be a threat for the company. The position is equally insecure for the outsourcing firm. This is because there are more than 120 nations across the world that has been competing for attaining foreign investments. The Russian Federation, Brazil and China are among the most competitors for India. Solutions and Recommendations It is evident that the power distance index is high for India. Thus, it would be easier for ABC IT Solutions to delegate from a distance because of the fact that inequality of power is accepted easily and predominant in the Indian society. Hierarchical superiority would be accepted as a norm. Thus the company would be least likely to face resistance. It is recommended that the company creates a proper hierarchical structure for the outsourcing firm to function successfully. A major responsibility of the job should be allocated to the leader. The leader or the manager would have to coordinate the activities of his team members. In fact, the company could remain in contact with the mangers for constant feedback. The role of meeting job objectives within the stipulated time would also have to be managed by the managers. He would be assigned with the responsibility of getting the best results from his team and delivering the services to the client. It is important that communication remains effective between the client and the service provider. The management should be assigned with the role of acting as a medium of communication between the employees and the client. It should be transparent and should be meant to reduce communication gaps between the two entities. It is apparent that there would be problems of communication between the two different cultures. Effective communication is a major reason behind the success of the organisation. It is also seen that the Indian society is less individualistic in nature. It is recommended that the company encourages collective work and team work. People in India are highly cohesive and would produce the best results when they are in a team. The company could also design a reward structure for team works. The company could likewise use the collective nature of the society in its favour. The company should be extremely cautious of the high uncertainty index of the society. The society remains extremely sensitive to uncertainties and ambiguities. It is expected that the smallest of disturbances would result in high attrition rates which would create an unfavourable condition for the society. It is important that employees are made to feel comfortable in their place. In time of crisis situations, the company must shied them for the crisis instead of passing on the burden on them. Steps like job cuts and salary cuts would result in discomfort and anxiety among the employees. Rather employees should be motivated to perform better during crisis and rewarded too for the same. It is also seen that the Indian society is highly masculine. This means that the distribution of roles between the males and the females is unequal. Here the men are more competitive than the women. Thus it is recommended that the company should prefer male candidates more than women candidates. The values held by the men and women are different. Also the company would have to design flexible work schedules for the employees. Giving extra benefits to the females is also recommended. Women in India have to maintain a work life balance. Recently more and more of the females have been entering the job market. However, they also have to look after the household activities which are generally not looked after by the men. In case of disturbances in the household, they are more likely to prefer their house works and may even choose to leave their jobs. Thus it would be critical for the company to provide extra benefits and incentives for the women for retaining them. Female employees would prefer favourable working conditions more than monetary rewards and incentives. Forecasts and Outcomes It is expected that the outsourcing industry would be flourishing in the future. Many developing nations are becoming big players in the market of IT services. “Many United States clients already use Central American suppliers for Spanish-speaking business processes, such as help-desks, patient scheduling and data entry” (Kotlarsky, 2010). United States have been increasingly motivated to outsource work to the South and Central America. Although India stands to be a strong contender in the field, it would face stiff competition from countries like Brazil which is not only blessed with a large population but also a skilled pool of engineers. It also has a number of government support programs (Kotlarsky, 2010). The main purpose why India was considered to be popular destination for outsourcing was its low wages for both the skilled and unskilled workers. However, the situation has been gradually changing. The productivity of work has been improving rapidly and so are the salaries of workers. Rising salaries are expected to nullify the cost advantage which the firms have been enjoying for so long. However, the near future looks bright for the outsourcing industry because of the prevalence of high unemployment levels in the economy. Thus the cost of labour would take some time to rise significantly (Gulf, n.d.). The IT giants in the world have also been running successfully and making huge profits out of outsourcing. These companies have been making the maximum utility out of the human resource present in the country. Investors are showing a lot of interest in the country’s manpower, the fair system of education and the low rates of salary (Gulf, n.d.). It is also being said that the other sectors in the economy have been expanding at a fast pace. The steel and natural gas sector, medical and banking sector too have been showing strong signs of improvement. A number of industries have been coming up. The software industry is required for the growth of these industries as well. It is obvious that Indians would be employed for these services. It is forecasted that few years down the line, India would be outsourcing jobs to other nations. India would attain a new level where the country would raise its bars (Gulf, n.d.). Conclusion It is seen that ABC IT Solutions would be faced with a number of cultural differences and barriers while outsourcing in India. However, since the conditions are ideal for the outsourcing industry in the country, it is chosen as the best destination for the same. The large manpower, low salaries are the most important factors attracting the company. However, the cultural differences are quite distinct between the two countries. The collective behaviour of society could be exploited and encouraged. Team work and team spirit would be the driving force of the firm. A proper hierarchy in the organisation, with a definite job role and responsibility of the managers would be effective in bringing out the best performance of employees. Special facilities for the females in the organisation are recommended as the job responsibilities in India are not equally distributed between males and females. This means that women would be more likely to leave their jobs during times of crisis. Also, the Indians remain extremely cautious of the ambiguities and uncertainties. Thus it is recommended that the company should try and shield the outsourcing firm from external disturbances as the attrition rates would be difficult to control during such times. Lastly, the future of the outsourcing industry in India looks as large pools of talent have been waiting to be utilised among the large population in the country. Reference Barrera, A. 2004. Who Benefits from Outsourcing?. [Online]. Available at: http://www.religion-online.org/showarticle.asp?title=3115. [Accessed on January 17, 2011]. Gulf, S. No Date. How long will India hold the cost advantage for IT outsourcing?. [Online]. Available at: http://www.smallbizupdate.org/how-long-will-india-hold-the-cost-advantage-for-it-outsourcing/. [Accessed on January 18, 2011]. India Current Affairs. 2010. Indian BPO market to grow 25 pc in 2010. [Online]. Available at: http://indiacurrentaffairs.org/indian-bpo-market-to-grow-25-pc-in-2010/. [Accessed on January 17, 2011]. ITIM International-a. 2009. Geert Hofstede™ Cultural Dimensions. [Online]. Available at: http://www.geert-hofstede.com/hofstede_india.shtml. [Accessed on January 17, 2011]. ITIM International-b. 2009. Geert Hofstede™ Cultural Dimensions. [Online]. Available at: http://www.geert-hofstede.com/hofstede_united_states.shtml. [Accessed on January 17, 2011]. Kotlarsky, J. 2010. New Opportunities in Global Outsourcing. [Online]. Available at: http://www.tradeforum.org/news/fullstory.php/aid/1578/New_Opportunities_in_Global_Outsourcing.html. [Accessed on January 18, 2011]. McCray, S. 2008. The Top 10 Problems With Outsourcing Implementations. [Pdf]. Available at: http://www.tpi.net/pdf/papers/Top_10_Problems-with_Outsourcing.pdf. [Accessed on January 17, 2011]. Software Projects. 2010. Disadvantages of Outsourcing. [Online]. Available at: http://www.softwareprojects.org/disadvantages-outsourcing.htm. [Accessed on January 17, 2011]. Wursten, H. 2008. Intercultural Issues in Outsourcing. [Pdf]. Available at: http://www.itim.org/interculturalissuesinoutsourcing.pdf. [Accessed on January 17, 2011]. Bibliography Bik, O. P. G. 2010. The Behavior of Assurance Professionals. Eburon Uitgeverij B.V.. Read More