ATSU Management Information Technology Outsourcing Discussion

Topic is: Information Technology outsourcing (Challenge in
Internalization and outsourcing. The paper should be from 2,500 to
3,750 words in length (10-15 pages) and contain a separate title or
cover page and separate pages for the list of reference sources.
The paper is expected to be authoritative, and based on at least
15 high-quality sources (i.e., no Wikipedia or blog citations
allowed). Use the library to find relevant journal articles for your report.
The majority of reference sources should be from recent publications
no older than five years. Follow the APA format (6th ed.) for the paper
and for all citations, figures, tables, and the list of references. You may
include in your paper the articles used for the Current Event Reviews, as
well as any other reference sources encountered during the course.
The report should exhibit graduate-level writing, in terms of grammar,
punctuation, format, quality of analysis, coherence, insight, logical flow,
and reasoning. The paper is NOT an essay or opinion piece, it is to
be a research report based fully on facts and data derived from
appropriate sources in the literature. Provide a reference citation for
EVERY statement of fact you include in your paper. Do NOT string
together direct quotes from reference sources to create a narrative in
the report. Write in your own words and include quote marks for ALL
material copied from other sources. More than three short quotes
will be too many.
RESEARCH PAPER
Assignment Criteria: Write a review of the literature that describes the
findings of other researchers related to a specific topic.
The objective of the research paper is to enable you to conduct
independent academic research in an area directly related to the
course subject matter. Your efforts will generate a high-quality written
report summarizing the results of your research into the current
scholarly and relevant trade literature related to your chosen topic. In
the paper summarize, compare, and contract what others have
discovered in their research efforts. Describe and explain their
finding
Journal scientific and applied research, vol. 21, 2021
International Journal
Original Contribution
ISSN 1314-6289
ANALYSIS OF THE ADVANTAGES AND DISADVANTAGES OF
OUTSOURCING
Yordanka Yankova –Yordanova
KONSTANTIN PRESLAVSKI UNIVERSITY OF SHUMEN, SHUMEN 9700, 115
UNIVERSITETSKA STR
E-mail: j.jordanova@shu.bg
ABSTRACT: With outsourcing growth expected in the years to come, it is time to learn
mo e abo hi opic. Befo e e mo e fo a d, i impe a i e o compa e he p o and con
of outsourcing. And it’s also very important to understand the effect outsourcing can have on
companies.
KEY WORDS: Outsourcing, flexibility, choice
The complex economic reality and the ever-changing business environment
exacerbates competition between businesses and puts their ability to adapt to the
surrounding them conditions to maintain a high level of competitiveness. On their
activity, there are more and more diverse factors that give priority to one at the
expense of other business entities[1]. In today’s dynamic and fast-paced world,
business also needs to be dynamic and evolving. This dynamic business
environment requires businesses and organizations to act quickly and efficiently
in an ever-changing environment. Business is the driving force for the inclusion
of innovations. The increase in foreign direct investment in the service sector is
the key trend which characterizes the state of the world capital market in a
globalizing economy. Attracting foreign capital is one of the mechanisms for
reducing the deficit of national capital as well as technology. This mechanism is
applied in developed and developing countries in order to stimulate various
sectors of the national economy, among which services take up significant part
[2]. Outsourcing is a concept for taking or replacing internal functions of a
company and providing these functions to an external company. outsourcing, also
known as outside resourcing – hiring human resources outside the company/
country. There are many reasons for the application of outsourcing in various
fields. Some of the most common of these reasons are:
JOURNAL SCIENTIFIC AND APPLIED RESEARCH Vol. 21, 2021
87
–
use of external / foreign competencies;
transfer of produce export of some risks to a given destination;
saving money;
increasing productivity and / or quality;
freeing up company resources for carrying out their relevant main
activities.
Companies apply outsourcing as a strategy to contract their non-essential
and secondary activities to highly efficient partners who specialize in that specific
activity. Outsourcing is an effective business solution for four indisputable
reasons: expertise and skills in the relevant outsourcing field, savings on the
ground of scale, faster market access and lower costs. By transferring secondary
functions to a contractor, a company could be in better serve of its customers using
the same or reduced resources, while at the same time it is able to focus on its
main activities. Statistics show that it is not easy to successfully outsource.
Various studies point out the share of failed projects is between 40 and 70%. The
innate conflict of interest in any outsourcing contract is at the heart of the problem.
The client strives to provide better services in comparison with his capabilities,
often at lower cost. On the other hand, the supplier is motivated by the potential
profit. This pressure can be handled as to ensure a successful outcome both for
the customer and the supplier [3]. Two main types of outsourcing should be
distinguished in large corporations or groups of companies: corporate outsourcing
and the so-called market outsourcing. Corporate outsourcing. In corporate
outsourcing, the role of the consulting company is not given to an external
organization which operates on the market. On the contrary, the role is given to a
division or a business unit of the corporation, holding or group, providing services
to each other. Outsourcing acquires special relevance when there is a
concentration of groups of profiled companies in a specific region. A classic case
is the formation of groups of enterprises as a result of reorganizations, separation,
formation of groups of wholesalers and retailers, profiled divisions (transport,
security, administrative, etc.) either from the production site or from the main
produce. Save for the obvious advantages, the formation of a new business
architecture has certain shortcomings and predicaments in organizational
development. These may include: the complexity of forecasting the cost of
designing and launching a new organizational unit; the significant increase in the
document flow; the growth in operating and transaction costs; the short terms for
management recruitment and selection, etc. Market outsourcing. In market
outsourcing, the role of the company – contractor of separate services outside the
client company, is taken by an external organization. This type of outsourcing is
used mainly by small and medium-sized companies that are not a part of large
groups or corporations. An important matter comes up here: is it possible to apply
the above-mentioned criteria in market outsourcing as tools for assessing the
effectiveness and optimality of its models? The answer to this question is “yes”,
88
JOURNAL SCIENTIFIC AND APPLIED RESEARCH Vol. 21, 2021
since the proposed criteria are universal and characterize the quality aspects of
outsourcing as a type of management. For instance, such criteria as “degree of
autonomy”, “level and quality of cooperation”, “level of personnel and
management costs” are applicable regardless of the type of company – small,
medium or large, whether a holding structure is available or not. The size of the
company may not affect the change of the criterion “duration and cost of the
project”[2]. Outsourced production. Main aspects, trends and drawbacks. The
transfer of activities and services back to the contracting company (backsourcing)
is carried out when the outsourcing contract fails due to lack of efficiency or
because of changes in the environment. Breaking an outsourcing agreement is not
easy. That is why a lot of companies dissatisfied with outsourcing activities and
services prefer to reconfigure agreements with suppliers rather than start a
backsourcing procedure. In a recent study on outsourcing practices, key data
indicate a revision of a significant number of outsourcing contracts, most of which
are mega-deals [4]. However, in some cases, backsourcing is a better choice than
proceeding an inefficient contract with the service provider [5]. Outsourcing, like
any activity, has its pros and cons. Before one decides on its implementation, the
following indicators must be taken into consideration:
– will the organization gain flexibility;
– will he he compan s economic efficienc increase;
– what will be the impact of outsourcing on the company culture;
– how will this affect employees later;
on he main ac i i fields and f nc ional rela ionships be een hem be
severed;
– will the outcomes
having to do with to competitiveness and trade
positions-be positive;
Some of the reasons for applying outsourcing are:
– the activity is not major for the company, it does not lead directly to profit
generation;
– he ac i i is ro ine and co ld lead o loss of he specialis s and e per s
in the company valuable time and energy;
– the task occurs once, temporarily or cyclically;
– it is cheaper someone else to perform the task than to organize and prepare
its internal implementation;
– the activity may be done within the organization, but it takes resources
(people, technology, resources) that can be used more efficiently in other
ways;
– the required skills are so specific that it is practically unreasonable to hire
a special employee for this task.
Each company has its own reasons; however, these reasons most
commonly include some of the following parameters:
– cost reduction;
JOURNAL SCIENTIFIC AND APPLIED RESEARCH Vol. 21, 2021
89
–
seeking an opportunity to focus on key aspects of the overall business
process by outsourcing peripheral activities;
– lack of resources in the company;
– achieving efficiency during the performance of the preplanned
activities;
– opportunities for faster reaction in changing business conditions;
– greater opportunities to control the budget by fixing expenditures;
– reduction of current investments in internal infrastructure, access to
innovations.
Companies hire other subcontractors to carry out minor but necessary
activities and subsequently gain access to their technical, human and
operational resources at optimal and efficient costs. Another example might
be a small or medium-sized company that strives to achieve rapid growth
through high standards of customer service and uses the knowledge and
skills of a contractor without the need for significant investment for
achieving this purpose[6].
Fig. 1. The essence of the modern outsourcing model
Source: Parashkevova, A. Outsourcing in the management of the
organization – Yearbook of Varna Free University, year XIII, vol. XIII, ISSN
1310-800X, 2007, pp. 194-243 [6]. Minor and supporting activities are usually
90
JOURNAL SCIENTIFIC AND APPLIED RESEARCH Vol. 21, 2021
outsourced. When one makes up their mind about outsourcing, it is recommended
non-strategic activities that do not directly affect the overall functioning of the
company must be chosen. Once a stable and loyal relationship has been
established with the outsourcing partner, the company can take advantage of more
of the benefits that outsourcing can offer by transferring services or a group of
services of greater importance. For example, a bank may first transfer its outgoing
calls for telemarketing, debt collection. Once the processes of this first phase are
identified and the areas of possible mutual benefits between the companies are
clearly identified, the bank may delegate more complex functions such as
incoming information lines, technical procedures, etc. Although outsourcing is a
long-term and stable partnership, the transfer of key business functions which are
an essential part of the company’s true expertise is not recommended [4]. There
are plenty of arguments about the benefits and risks of outsourcing. Opinions
range from describing outsourcing as a management practice that can solve any
problem, to it being associated with a loss of control and the inevitable price
increase. Overall, Bulgarian managers perceive outsourcing as a promising model
for managing a company function. Nevertheless, at the same time they report on
the risks of carelessly planned and implemented outsourcing. The greatest
potential for outsourcing is the opportunity to use qualified staff, which
organizations cannot afford to hire with their limited budgets and inflexible
employment methods. Thus, outsourcing is a rational way to use the work of staff
outside the organizational boundaries. Access to new technologies is also
considered an advantage of using external providers of certain services.
According to managers, suppliers can afford narrow specialization in any given
field; they could also make an investment in the technologies which have to do
with the respective technology. Through outsourcing these new technologies can
be applied in both public and private administration [7]. In terms of organizational
management and the organizational systemmanagement, what can be seen is the
high degree of agreement with the statement that outsourcing services allows
organizations to focus better on their main goals and objectives. A great deal of
managers identify the objective of the whole organization as the main goal of their
department – e.g. performing control or regulatory functions in a certain industry,
providing services to citizens and businesses, etc. Therefore, the outsourcing
services that are not considered essential to the organization is considered as a
means of concentrating on the goals of the organization. This way, for instance,
instead of devoting time, effort and budget to hiring programmers, providing the
necessary conditions for quality product, testing and product implementation,
managers consider outsourcing as a strategy for outsourcing services and focusing
on activities such as planning, management of suppliers, technology and market
monitoring, as well as advising organization leaders[8]. Cost-benefit analysis – an
initial review of the implementation of each alternative. Pros and cons of the joint
activity. When the probable outsourcing scope has been clarified and the most
JOURNAL SCIENTIFIC AND APPLIED RESEARCH Vol. 21, 2021
91
realistic alternatives have been identified, a preliminary analysis of the cost and
expected benefits of outsourcing the alternatives should be completed. This may
include:
– estimate of the transaction price of migration to an outsourcing
agreement;
– the current price for contract management;
– the price for providing services which will be maintained;
– price reduction by components of the service, if more than one
component will be outsourced;
– price and expected benefits for stakeholders;
– the potential impact on other organizations, as well as on the
services shared with other organizations.
This process can be involved in defining the outsourcing objectives and
expectations and can later be turned into a request for a proposal and a contract,
if a decision for outsourcing has been made. The outsourcing model is changing
extremely fast it is turning from a tactical to a strategic tool. It is becoming
increasingly important for companies to increase their action flexibility and access
to new skills that are the know-how of the outsourcing industry. The tendency is
for the best service providers to be those who use the most innovative technologies
in order to meet the needs of their customers as quickly and efficiently as possible.
The main benefit of outsourcing is the generation of income and profits as well as
the providing jobs [9]. Apart from the direct effects, the transfer of services to
Bulgaria brings more advanced technologies and business practices, increases the
staff qualification and in its turn improves their productivity. However, the risk is
that as easily a business is imported into the country, it can be as easily and quickly
be exported to another country with cheaper labor. The short history of
outsourcing shows that the projects are at least medium-term – in the range of 3 to
5 or 8 years. Even if at a certain point the low tide begins, Bulgaria will have won
at least temporarily. In order to retain more business, the country should try to
focus on boutique services which are less likely to leave [10]. “The potential can
be this- having commenced an outsourcing project, develop your own product,
with more added value and consequently contract a joint activity, rather than a
purely technical implementation. “, thinks Iliya Krastev, Director of Information
Services
at
A
DataPro.
In the past decade the topic of outsourcing has become a heavily debated
subject on if it is ethically correct to outsourcing jobs to foreign countries.
Outsourcing has become more and more an option for many companies and not just
an economic fad. The decision to outsource is a difficult one for any company to
make because there are many advantages and disadvantages to consider. We can
conclude that when applying outsourcing, it is necessary to make in-depth
research and analysis before proceeding with its implementation. The choice of
strategic management approach such as outsourcing ensures our competitiveness
92
JOURNAL SCIENTIFIC AND APPLIED RESEARCH Vol. 21, 2021
in the organization. In today’s modern and dynamic world, organizations need to
use effective methods to maintain service quality, reduce costs and increase their
competitiveness.
References:
[1]. Kurshumov, V., Problems of outsourcing in the Bulgarian industry, Varna
2015, 207p
[2]. Harizanova, M., D, Boyadzhiev., Human Resources Management, Sofia.,
2002, ISBN 954860020 288 p
[3]. Styblo, J., Outsourcing a Outplacement, ASPI – Prague, 2005. 200 p.
[4]. Harizanova, M., D, Boyadzhiev., Human Resources Management, Sofia.,
2002, ISBN 954860020 288 p
[5]. Harizanova, M., Boyadzhiev, D., Mironova, N. Human Resources
Management: Theory, Practice, Internet, Neda Publishing House, Sofia.,
1999 176 p
[6]. Parashkevova, A. Outsourcing in the management of the organization Yearbook of Varna Free University, year XIII, vol. XIII, ISSN 1310-800X,
2007, p. 194-243
[7]. Harizanova, M., The practice of human resource management – outsourcing.
Bankya, Scientific Conference “Modern Management Practices”2004 p.
157-168
[8]. Kurshumov, V. Highlights of the outsourcing process and its planning. //
Proceedings of the XIV Scientific and Practical Conference, dedicated to the
65th anniversary of the Department of Industrial Business at UNWE-Sofia
on “Prerequisites and opportunities for industrial growth in Bulgaria”,
Publishing House – UNWE, Sofia, 2013, p. 462-471
[9]. Heywood, J. Br., The outsourcing dilemma. The search for Competitiveness,
Prentice Hall, Inc., Financial Times Prentice Hall 2005. Product number
B010BFR48Y 152 p
[10]. Information Management Branch Government and Program Support
Services, A Contract Management Framework for Information Technology
Projects, Government of Alberta. p. 20-26
JOURNAL SCIENTIFIC AND APPLIED RESEARCH Vol. 21, 2021
93
Copyright of Journal Scientific & Applied Research is the property of Association Scientific
& Applied Research and its content may not be copied or emailed to multiple sites or posted
to a listserv without the copyright holder’s express written permission. However, users may
print, download, or email articles for individual use.
Proceedings of the 2019 International Conference “ECONOMIC SCIENCE FOR RURAL DEVELOPMENT” No 52
Jelgava, LLU ESAF, 9-10 May 2019, pp. 256-263
DOI: 10.22616/ESRD.2019.130
ADVANTAGES AND DISADVANTAGES OF OUTSOURCING ACCOUNTING
WORLDWIDE AND IN LATVIA
130
Ivita Faitusa1, Dr.oec./ lecturer
1
University of Latvia
Abstract. The accounting outsourcing services have not rich experience in Latvia. It started developing in the
1990s, but accounting outsourcing services have different expertise and history in Europe and around the world.
An accountant is not a regulated profession in Latvia; an accountant is able to practice without a mandatory
accountancy qualification, and it is enough for him/her to have only an economic-related academic or professional
certificate, diploma or degree or experience or an accountant leading to a certificate of competency. This research
aims to identify main future challenges for outsourcing accounting companies and accountants. The article looks
at both theory and practice and attempts to determine and understand problematic issues about the advantages
and disadvantages of outsourcing accounting leading to recommendations for improvement. The rapid
development of cloud accounting has played an essential role in the development of outsourcing accounting these
days. The author found that only in Norway there are specific rules for outsourcing accountants or external
accountants. Main advantages of cloud accounting are possibilities of remote work and a universal system for
accountants and managers. The author defined three significant questions for the Accounting Outsourcing Survey
in Latvia, Lithuania, and Estonia.
Keywords: accounting, accounting outsourcing.
JEL code: M41.
Introduction
Outsourcing services have helped thousands of countries to be profiTable and increase efficiency
in Europe. In the paper, the author intends to discuss the historical development of outsourcing
accounting companies, cloud accounting as a part of the outsourcing service and as a new paradigm
of accounting policies. The development of an accountant’s profession is a popular subject in
researches in many countries. The author made theoretical research on literature review and
developed survey questions for the next research, evaluating outsourcing accountants in the three
Baltic States. The main problem is that there are No mandatory requirements regarding education
for a practising accountant in Latvia. This research aims to identify main future challenges for
outsourcing accounting companies. The scientific literature review and monographic method,
economic analysis and synthesis methods, data comparative analysis method, and data analysis of
the European Commission regulated professions database are used in this article.
Outsourcing accounting services worldwide and in Latvia
Any company and even any individual, who carries out an economic activity, must keep an
accounting. „Accounting is a system of measurement (‘to count’) and reporting (‘to account for’) of
economic events for the purpose of decision making.” (Stolowy H. &, Ding Y., 2017).
In general, the main reasons why companies outsource their services are to ensure a high level
of productivity and to offer maximum quality to their own customers. The area of outsourced service
is vast, including but not limited to business process outsourcing (BPO), human resources services,
and information technology (IT) outsourcing. Some of the most outsourced global services are
financial accounting services, generating much of Business Process Outsourcing revenue. The largest
global payers in this area are Deloitte, PricewaterhouseCoopers, Ernst&Young, and KPMG constituting
the so-called „The Big4” offering services such as accounting, auditing, corporate finance or insurance
services (Popovici, Moraru, 2018).
1
E-mail: ivita.faitusa@lu.lv, phone No +371 26141974
256
Proceedings of the 2019 International Conference “ECONOMIC SCIENCE FOR RURAL DEVELOPMENT” No 52
Jelgava, LLU ESAF, 9-10 May 2019, pp. 256-263
DOI: 10.22616/ESRD.2019.130
The origins of accounting services in Latvia should be related to Swiss Professor E. Lauris who
established the first accounting office in 1901, whereas the offices had already spread all over Europe
by the end of the 1930s. Accounting offices carried out accounting for the agricultural and craft
companies. In Latvia, the first office of this kind started its activities in 1923, and it provided services
to 71 agricultural companies during its first year of operations (Millere, 2011).
Since the Industrial Revolution, companies have grappled with how they can exploit their
competitive advantage to increase their markets and their profits. Almost throughout the 20th
century, a model was a large integrated company that can „own, manage, and directly control” its
assets. In the 1950s and 1960s, the rallying cry was diversification to broaden corporate bases and
take advantage of economies of scale. By diversifying, companies expected to protect their profits,
even though expansion required multiple layers of management. Subsequently, in the 1970s and
1980s, organisations attempting to compete globally were handicapped by a lack of agility that
resulted from bloated management structures. To increase their flexibility and creativity, many large
companies developed a new strategy of focusing on their core business, which required identifying
critical processes and deciding which of those could be outsourced (SCRC, 2006).
Only in the 1990s, after the restoration of Latvia’s independence, the accounting services again
could develop as an independent type of business (Sneidere, Bumane, and Lascenko, 2013).
At present, outsourcing has become a global phenomenon that has revolutionised the business
environment. Outsourcing is more present than ever, and the type of impact that this field can have
on the economy lies with each state. Investing in infrastructure, education, openness to innovation,
and innovation itself can make a difference in the long run (Popovici, Moraru, 2018).
The 2016 International Federation of Accountants Global SMP Survey asked practitioners from
small and medium-sized practices across the globe about their challenges, how various
environmental factors may affect them over the next five years, their 2016 revenues and projected
2017 revenues and the consulting services they provided. It additionally reports on practitioners’
views on the impact of challenges that their small and medium-sized corporate customers faced.
Besides, it introduced questions on personnel and staffing issues, technology challenges, collection
ratios, and employee utilisation ratios (IFAC, 2017).
Data (Fig. 1) enables us to see that respondents rated eight factors to indicate the degree to
which they believe each element can impact their practice over the next five years. Consistent with
2014 and 2015, the Regulatory Environment continued to be viewed as the most impactful with 56 %
of respondents anticipating that it will have a high or very high impact. Technology developments at
52 % up from 43 % in 2015 were viewed as having the next highest potential impact on SMEs. The
percentage of respondents that rated the anticipated implications of Capability to Adapt to New Client
Needs as high or very high (45 % up from 36 % in 2015), and Perceived Trust and Credibility of the
Profession (43 %, up from 35 % in 2015) increased substantially in comparison to 2015. For all four
of the environmental factors noted, sensitivity to the factors increased in 2016, falling more in line
with 2014 survey results. (IFAC, 2017).
257
Proceedings of the 2019 International Conference “ECONOMIC SCIENCE FOR RURAL DEVELOPMENT” No 52
Jelgava, LLU ESAF, 9-10 May 2019, pp. 256-263
DOI: 10.22616/ESRD.2019.130
43%
Percieved Trust and Credibility
of the Accountancy Profession
40%
Political Instability
48%
Competition (e.g., Other
Practicies or Professions
Mergers, Acquisitions, and
Consolidation in the
Accountancy Industry
33%
45%
Capability to Adapt New Client
Needs
56%
Regulatory Environment
52%
Technology Developments
38%
Globalization
0% 10% 20% 30% 40% 50% 60% 70%
2016
2015
2014
Source: author’s construction based on IFAC, 2017
Fig. 1. Factors impacting SMPS over next five years- comparison of 2016, 2015, 2014
(sum of high & very high impact)
The Framework for International Education Standards for Professional Accountants and Aspiring
Professional Accountants (2015) defines such requirements for the accountancy profession:
preparing, analysing, and reporting relevant and faithfully represented financial and nonfinancial
information; partnering in decision-making and in formulating and implementing organisational
strategies; developing and examining relevant tax information (Bruna I. et al, 2017). According to
those theoretical statements, the author will analyse the regulation of the accountant’s profession as
an essential quality provider to ensure accountancy service.
Analysis of accountants’ profession in European Countries
After data analysis of the European Commission regulated professions database (European
Commission, 2019), the author found that three different generic names of accountants’ professions
exist in 18 European Union Member States: 1) Accountant/ Tax Advisor includes 38 regulated
professions, 2) Auditor/ Accountant includes 40 regulated professions, and 3) public finance
accountants include three regulated professions, which are incorporated in the European database
as Auditors and Accountants together. Names of professions differ, and we can find more than 10
types of professions for an accountant (Table 1).
From data (Table 1), we can see that professions are very different, and there are No common
names in, for example, the generic name of the profession (auditor/accountant). There are Chartered
Accountants and Auditors in Austria, but in the Netherlands, there is auditor/accountant. Moreover,
many other differences are observed in European countries.
There are three main types of regulation in European countries: reserves of activities, reserves of
activities and protected title, and protected title (without reserves of activities).
258
Proceedings of the 2019 International Conference “ECONOMIC SCIENCE FOR RURAL DEVELOPMENT” No 52
Jelgava, LLU ESAF, 9-10 May 2019, pp. 256-263
DOI: 10.22616/ESRD.2019.130
There are three qualification level types: SEC – diploma post-secondary education; PS3 – diploma
of the post-secondary level (3-4 years), and attestation of competence just in the Czech Republic.
The author found that there are specific rules for outsourcing accountants just in Norway: external
accountants must be authorised by the Financial Supervisory Authority of Norway (Finanstilsynet)
and shall conduct their client’s duties according to the accounting and bookkeeping legislation.
External accountants shall do its business by sound accounting practice. External accountants shall
prepare reports and information to their clients that they must provide by law or regulation. These
include annual accounts, value-added tax reports, reports for tax and national insurance, etc.
(European Commission, 2019).
The author did not find information about the regulation of outsourcing business in Europe and
made conclusions that in the countries were regulated accountants’ professions were regulated, one
for outsourcing companies should be as well.
In Latvia, the Law on Accounting stipulates that „an accountant is an individual, whose
qualification corresponds to the fourth or the third level qualification of an accountant determined by
the Cabinet of Ministers and whose expertise is attested by a relevant educational document (diploma
or certificate) as well as such an individual, whose expertise in relevant accounting issues is certified
by experience or an appropriate certificate, and which carries out the duties of an accountant. In his
turn, „an outsourced accountant is an individual, who undertakes to provide or provides a customer
with an accounting service which meets the requirements of an accountant based on a written
agreement with a company (other than an employment contract)” (Saeima, 1992).
In Latvia, there are No mandatory requirements regarding education for a practising accountant.
Public authorities of the Republic of Latvia should genuinely look at the accountancy profession to
determine the level of qualification and experience required to establish and ensure that skilled
accountants manage a company’s financial statements (Millere, Faitusa, Grima, Baldacchino, 2018).
Amendments to the Law on Accounting are planned with a licencing program for outsourcing
accountants this year.
Like other forms of outsourcing, finance and accounting outsourcing (FAO) has evolved
significantly in recent years. These changes centre on three areas. First, the types of finance and
administration processes that companies are outsourcing have expanded beyond payables and
payroll processing to include processes such as data analyses. Secondly, the management of the
relationship between the FAO buyer and the FAO provider has become more efficient. Thirdly, the
rise of cloud computing has added new wrinkles not only to FAO relationships but also to the decision
of whether to outsource or not (Krell, 2011).
In the next part of the research, the author will find the advantages and disadvantages of cloud
accounting or cloud computing as a modern challenge for each accountant.
259
Proceedings of the 2019 International Conference “ECONOMIC SCIENCE FOR RURAL DEVELOPMENT” No 52
Jelgava, LLU ESAF, 9-10 May 2019, pp. 256-263
DOI: 10.22616/ESRD.2019.130
Table 1
Regulated accountants’ profession in European Countries in 2019
State
Austria
Profession
Generic name of
profession
Type of regulation
Qualification level
Certified Accountant
(Buchhalter)
Public Finance
Accountant
Reserves of activities
DSE – Diploma
(post-secondary
education)
Chartered Accountants
and Auditors
Auditor/Accountant
Reserves of activities
PS3 – Diploma of the
post-secondary level
(3-4 years)
Senior Accountants
Payroll Accountant
Accountant/Tax
advisor
Reserves of activities
DSE – Diploma
(post-secondary
education)
Bulgaria
Certified Public
Accountant (auditor)
Reserves of activities
PS3 – Diploma of the
post-secondary level
(3-4 years)
Cyprus
Certified Public
Accountant
Reserves of activities
PS3 – Diploma of the
post-secondary level
(3-4 years
Germany
Accountant
Undefined
PS3 – Diploma of the
post-secondary level
(3-4 years)
Malta
Accountant
Reserves of activities
and protected title
Not applicable
Auditor/Accountant
Reserves of activities
and protected title
PS3 – Diploma of the
post-secondary level
(3-4 years)
Auditor/Accountant
Reserves of activities
and protected title
PS3 – Diploma of the
post-secondary level
(3-4 years)
Belgium
Accounting Professional
Accounting
Professionals/Tax-experts
Accountant
Reserves of activities
and protected title
PS3 – Diploma of the
post-secondary level
(3-4 years)
Czech
Republic
Accounting consulting,
bookkeeping, tax
accounting
Reserves of activities
Attestation of
competence
France
Account / chartered
account / bookkeeper /
certified public account
Reserves of activities
and protected title
PSM – Diploma from
post-secondary level
(more than 4 years)
Hungary
Chartered Accountant
Reserves of activities
DSE – Diploma
(post-secondary
education
Auditor/Accountant
Netherlands
Accountant/Tax
advisor
Iceland
Chartered Accountant
Reserves of activities
PS3 – Diploma of the
post-secondary level
(3-4 years)
Ireland
Certified Public
Accountant
Chartered
Accountant/Auditor
Incorporated Public
Accountant
Chartered Certified
Accountant
Accountants designation
is regulated by a
professional body which
is recognised in a
unique form by the
State
PS3 – Diploma of the
post-secondary level
(3-4 years)
Dottore commercialistaAccountant
Italy
Reserves of activities
Esperto contabileAccountancy Expert
PSM – Diploma from
post-secondary level
(more than 4 years)
PS3 – Diploma of the
post-secondary level
(3-4 years)
260
Proceedings of the 2019 International Conference “ECONOMIC SCIENCE FOR RURAL DEVELOPMENT” No 52
Jelgava, LLU ESAF, 9-10 May 2019, pp. 256-263
DOI: 10.22616/ESRD.2019.130
State
Profession
Generic name of
profession
Type of regulation
Qualification level
Luxemburg
Accountant
Reserves of activities
and protected title
SEC – Certificate
attesting the
completion of a
secondary course
Norway
External Accountant
Reserves of activities
PS3 – Diploma of the
post-secondary level
(3-4 years)
Portugal
Certified Accountant
Reserves of activities
and protected title
PS3 – Diploma of the
post-secondary level
(3-4 years)
Licensed Accountant
Reserves of activities
and protected title
Romania
Chartered Accountant
United
Kingdom
SEC – Certificate
attesting the
completion of a
secondary course
PS3 – Diploma of the
post-secondary level
(3-4 years)
Chartered Management
Accountant
Protected title (without
reserves of activities)
PS3 – Diploma of the
post-secondary level
(3-4 years)
Chartered Public Finance
Accountant
Protected title (without
reserves of activities)
PS3 – Diploma of the
post-secondary level
(3-4 years)
Protected title (without
reserves of activities)
PS3 – Diploma of the
post-secondary level
(3-4 years)
Chartered Certified
Accountant
Auditor/Accountant
Source: Developed by the author based on the European Commission regulated professions database, 2019
Cloud accounting advantages
The study by PricewaterhouseCoopers (2014) shows that although the evaluation trend of cloud
technology is significant in the last decade, the accounting standards have evolved too, but without
a practical guide for users of cloud applications (Prichici and Ionescu, 2015). In the rapidly changing
global economy, robotics process automation has become one of the most critical fastest growing
concepts. Digital value co-creation within service businesses and networks sets the value for end
customer experience within more efficient operations by focusing on core business development with
the use of modern technology (Kedziora and Kiviranta, 2018). Automation has been an essential
component of business process management (Laycock and Hartmann, 2005).
With cloud computing, a business can have financial information as of up to the hour, even a
minute that can be fully accessible and managed by their accountant. One of the most significant
technological trends now is the emergence of cloud technology (Khanom, 2017). Cloud computing is
the new paradigm that has changed traditional computer business schemes: static, close, centralised,
and proprietary methods cannot cope with the new requirements that have emerged. Still, this new
scenario poses some opportunities to use and new problems to be faced (Ruiz-Agundez et al., 2011).
There are three most common myths about cloud accounting. The first myth: storing data on a
PC is safer than in the cloud. The third myth: could accounting services are too expensive. For cloud
accounting service providers, security is among the critical factors for successful service offering.
Huge funds are being invested in setting up data centres and training staff to meet all the security
standards set by the European Union and worldwide. The second myth: the data in the cloud are
freely accessible to the controlling authorities. In reality, it is impossible both in a legal, practical and
moral aesthetic point of view. All legal details are included in an agreement signed between the cloud
accounting service provider and a customer. One of the rare occasions, when the controlling
authorities have access to the data of a company, is when the employees of the company authorise
261
Proceedings of the 2019 International Conference “ECONOMIC SCIENCE FOR RURAL DEVELOPMENT” No 52
Jelgava, LLU ESAF, 9-10 May 2019, pp. 256-263
DOI: 10.22616/ESRD.2019.130
that access during an inspection. The third myth: cloud accounting services are too expensive. The
cost of cloud services or the IT structure of an enterprise depends on the corporate data security
strategy, business model, and organisational needs. Any enterprise should evaluate whether the
enterprise needs to buy its own servers because perhaps other systems will be operated on those
servers apart from accounting system or the enterprise can entrust IT server infrastructure to cloud
service providers (Slaidins, 2017).
The author agreed with researchers (Slaidins V, 2017.; Prichici and Ionescu, 2015) and concluded
the following advantages of cloud accounting as cloud computing allows companies to efficiently and
economically:
use IT through the model „use as you need and pay as you go”;
work remotely, because accounting outsourcing provider can connect to a database, view, and
enter accounting data of a company;
advantages for managers and accountants – an accountant can create a report on different
expenses, and a manager will see it in the cloud without additional files and E-mails.
The main disadvantage for cloud accounting will be faced at the places without high-quality
Internet or with unsTable Internet and quality of cloud service which depends on experience and
technologies.
The accounting profession will face significant changes in the next three decades, and professional
organisations, their members, and educational institutions should respond. The three changes,
namely, evolving smart and digital technology, continued globalisation of reporting/disclosure
standards, and new forms of regulation, are also significant challenges for the profession (Islam,
2017).
Creating questions for survey of outsourcing accountants in the three Baltic
States
After theoretical research, the author continued with one practical issue. The survey is aimed at
understanding the specific challenges and opportunities faced by accounting outsourcing companies
in Latvia, Lithuania, and Estonia. The author decided to include questions from the 2016 International
Federation of Accountants (IFAC) Global SMP Survey (IFAC, 2017); some changes are made to make
it more accessible type of survey for small countries.
Question 1. Respondents should report the size of a company: self-employed – one accountant;
2-5 partners and staff; 6-10 partners and staff; 11-20 partners and staff; 21 or more partners and
staff.
Question 2. Respondents should report the extent to which their SMEs were presently facing 11
challenges. Challenges include attracting new customers; rising costs; keeping up with new
regulations and standards; differentiating from competition; experiencing pressure to lower fees;
managing cash flow and late payments, retaining existing customers, serving customers operating
internationally; succession planning; personnel and staffing issues; technology developments can be
evaluated in scale from low to very high challenge.
Question 3. Respondents should report on technology issues of an accounting company: investing
in and staying current with software; achieving a digital, paperless environment; determining what
technology is best for the practice; managing privacy and security risks; investing in and staying
current with hardware; advances in data analytics, including availability and use of big data; moving
to the cloud.
262
Proceedings of the 2019 International Conference “ECONOMIC SCIENCE FOR RURAL DEVELOPMENT” No 52
Jelgava, LLU ESAF, 9-10 May 2019, pp. 256-263
DOI: 10.22616/ESRD.2019.130
Conclusions, proposals, recommendations
In Latvia, there are No mandatory requirements regarding education for a practising accountant
and outsourcing accountants, accountant’s profession is not a regulated profession like in other
18 countries in Europe. The author found that only in Norway there are specific rules for
outsourcing accountants or external accountants.
Main advantages of cloud accounting are possibilities of remote work and a universal system for
accountants and managers. Investments in infrastructure and investments in the education of
staff are the most critical factors for improving outsourcing services and be able to implement the
latest IT.
The author decided to include part of questions from the 2016 International Federation of
Accountants Global SMP Survey. The author defined three significant questions for the Accounting
Outsourcing Survey in Latvia, Lithuania, and Estonia.
Bibliography
Bruna, I., Senkus, K., Subaciene, R., Sneidere, R. (2017.) Evaluation of Perception of the Accountant’s Role
at the Enterprise in Latvia and Lithuania. European Research Studies Journal, Volume XX, Issue 3A,
pp. 143-163.
European Commission (2019). European Commission Regulated Professions. Accountant profession.
Retrieved: http://ec.europa.eu/growth/tools-databases/regprof/index.cfm Access:10.02.2019.
The 2016 IFAC Global SMP Survey (2017). Retrieved:
http://www.ifac.org/system/files/publications/files/2016-IFAC-Global-SMP-Survey.pdf Access: 11.02.2019.
International Federation of Accountants (2017). Handbook of International Education Pronouncements.
Retrieved: http://www.ifac.org/publications-resources/2017-handbook-international-educationpronouncements. Access 06.02.2019.
Islam, M.A. (2017). Future of Accounting Profession: Three Major Changes and Implications for Teaching
and Research. Retrieved: https://www.ifac.org/global-knowledge-gateway/businessreporting/discussion/future-accounting-profession-three-major Access: 06.02.2019.
Kedziora D., Kiviranta H.M. (2018). Digital Business Value Creation with Robotic Process Automation in
Northern and Central Europe. Management Volume 13(2) Summer 2018. pp.161.-174
Khanom T. (2017) Cloud Accounting: A Theoretical Overview. IOSR Journal of Business and Management.
Volume 19, Issue 6. Ver.V.(June 2017)., pp.31-38.
Krell E. (2018) Finance and Accounting Outsourcing Assessing and Planning for Success. Chartered
Professional Accountants of Canada. p.19.
Millere I., Faitusa I., Grima S., BaldacchiNo P.J. A (2018). Comparative Analysis of the Latvian and Maltese
Regulatory and Professional Requirements for Accountants. New Challenges of Economic and Business
Development – 2018: Productivity and Economic Growth: International Scientific Conference, May 10-12,
2018, Riga, Latvia: Proceedings Riga: University of Latvia, 2018. pp.463-473
Millere I. (2011). Gramatvedibas attistiba Latvija. LU Akademiskais apgads, pp.181.-182.
Popovici N., Moraru C. (2018). Outsourcing Management: Outsourcing Services Worldwide and in Romania.
„Ovidius” University Annals, Economic Sciences Series. Volume XVIII, Issue 1/2018.
Prichici C., Ionescu B.S. (2015) Cloud Accounting-a New paradigm of Accounting Policies. SEA- Practical
Application of Science. Volume III, Issue I (7)/2015. pp.489-496.
Ruiz-Agundez I., Penya Y.K., Bringas P.G. (2011). A Flexible Accounting Model for Cloud Computing.
Conference paper. May 2011. Retrieved: http://www.researchgate.net/publication/224248659. Access:
12.02.2019.
Saeima (1992). LR Law „On Accounting” (with amendments to 01.01.2018). Retrieved: https://likumi.lv/
doc.php?id=66460. Access: 06.02.2018.
Slaidins V. (2017). Makonpakalpojumi gramatvediba – miti un realitate. Bilance Nr.20 (416) Oktobris 16,
2017., pp.24.-27.
Sneidere R., Bumane I., Lascenko J. (2013). Accounting Outsourcing Services in Latvia: Problems and
Possible Solutions. Economics and Management:2013 18(1), p.26.-38.
SCRC (Supply Chain Resource Cooperative) SME (2006). A Brief History of Outsourcing. June 1, 2006.
Retrieved: https://scm.ncsu.edu/scm-articles/article/a-brief-history-of-outsourcing. Access:10.02.2019.
Stolowy, H. &, Ding, Y. (2017). Financial Accounting and Reporting: a Global Perspective. 5th Edition.
Hampshire, United Kingdom, Cengage Learning EMEA, p. 660.
263
Copyright of Economic Science for Rural Development Conference Proceedings is the
property of Latvian University of Agriculture, Faculty of Economics and its content may not
be copied or emailed to multiple sites or posted to a listserv without the copyright holder’s
express written permission. However, users may print, download, or email articles for
individual use.
International Journal of Technology 10(4): 841-853
ISSN 2086-9614
© IJTech 2019
CAPABILITIES IN MANAGING OFFSHORE IT OUTSOURCING CHALLENGES
AND THE INFLUENCE ON OUTSOURCING SUCCESS FROM THE IT VENDOR
PERSPECTIVE
Yogi Yusuf Wibisono1*, Rajesri Govindaraju1, Dradjad Irianto1, Iman Sudirman1
1
Industrial Engineering Department, Bandung Institute of Technology, Jalan Ganesha 10 Bandung,
40116, Indonesia
(Received: October 2017 / Revised: March 2018 / Accepted: September 2018)
ABSTRACT
An IT vendor requires excellent capabilities to achieve success in offshore IT (information
technology) outsourcing. This study aims to contribute to IT outsourcing research by identifying
IT vendor capabilities from the perspective of offshore IT outsourcing challenges. A model is
proposed that explains the relationship between capabilities in managing offshore IT outsourcing
challenges (i.e., interaction capability, management capability, and capability to managing the
distance involved) and the impact of these capabilities on outsourcing success. The proposed
model is empirically tested by Partial Least Squares Structural Equation Modelling (PLS-SEM)
for validation, with 64 samples obtained from a survey of Indonesian IT vendors with experience
in conducting offshore IT outsourcing projects. The results indicate that interaction capability
consisting of communication and coordination has a positive impact on outsourcing success, and
that this capability is in turn influenced by management capability. This includes management
support, talent management and the ability to manage distances, in addition to cultural
understanding and managing the temporal distance.
Keywords: Capability to manage distance; Interaction capability; IT vendor capabilities;
Management capability; Outsourcing success
1.
INTRODUCTION
Outsourcing is a process of transferring one or more company functions to other companies, by
hich he endo compan nde ake he clien f nc ion . One of he mo o o ced
functions is that of information technology (IT), such as application development, application
management, data center operations, systems development and maintenance, web design, and ecommerce development (Peslak, 2011; Nuwangi et al., 2014). Companies that outsource their IT
function are motivated by cost reduction, a focus on core competencies, performance
improvement, and access to the latest technology (Lacity et al., 2009). Outsourcing practice can
involve a client and a vendor from different countries, which is called offshore outsourcing or
offshoring. In the context of offshore IT outsourcing, India and China are nowadays the most
popular IT outsourcing destinations in the world, as it is easy to find a highly capable IT vendor
in these countries (Stettler et al., 2014). In the case of Indonesia, the volume of its IT service
exports is low compared to India and China due to a lack of capabilities (Stettler et al., 2014).
Therefore, it is important to study the capabilities of IT vendors in this country.
The capability of the IT vendor
is
a critical
factor for
IT outsourcing success
*Corresponding a thor s email: yogi@unpar.ac.id, Tel, +62-22-2032655 Fax. +62-22-2032700
Permalink/DOI: https://doi.org/10.14716/ijtech.v10i4.885
842
Capabilities in Managing Offshore IT Outsourcing Challenges and the Influence
on Outsourcing Success from the IT Vendor Perspective
(Lacity et al.,2010). The client considers this capability in its IT vendor selection to ensure that
the selected vendor has the ability to conduct its outsourced IT function. Previous studies have
investigated the IT vendor capabilities required in conducting IT outsourcing. Some have
identified these from the technical perspective, such as the study conducted by Krishnan and
Kellner (1999), which showed the importance of software development process capabilities in
influencing IT project performance. Other studies, such as that of Jarvenpaa and Mao (2008),
adopted the operational perspective to identify the IT vendor capabilities that are needed to
provide a service or product. From this perspective, IT vendors should have process, clientspecific, and human resource capabilities.
Although the IT vendor capabilities identified in earlier studies have an impact on IT outsourcing
success, this study will identify those required from the perspective of offshore IT outsourcing
challenges. The IT vendor should develop not only technical and operational capabilities, but also
ones related to the ability to deal with the challenges encountered in IT outsourcing. These
challenges can hinder the IT vendor from achieving outsourcing success if they are not addressed.
Therefore, this study will focus on identifying offshore IT outsourcing challenges and the related
capabilities required. A model will also be developed that describes the relationship between IT
vendor capabilities and outsourcing success.
This paper is organized as follows. In section 2, we present the methods used to analyze the
challenges in offshore outsourcing and the related capabilities; the proposed model; the
questionnaire development, and the data collection. In section 3, we present the results and
discuss the research findings. The paper is summarized in the final section.
2.
METHODS
The method used consists of the following four steps: identification of IT vendor capabilities;
model development; questionnaire development; and data collection. These steps are explained
below.
1) Identification of IT vendor capabilities. In this step we identify the capabilities needed to deal
with the challenges in offshore IT outsourcing. We review previous studies to identify the
challenges and implications faced by IT vendors when they deal with IT outsourcing project
from overseas clients. Based on these challenges, we identify the capabilities that an IT
vendor should possess. This step is detailed in section 2.1.
2) Model development. We hypothesize the relationship between the capabilities identified in
the previous step and outsourcing success. The hypotheses are shown in the research model.
Model development is explained in section 2.2.
3) Questionnaire development. Questionnaires are developed to measure IT vendor capabilities
and outsourcing success. This development is presented in section 2.3.
4) Data collection. After developing the questionnaires, they were used to collect data through
their distribution to eligible respondents. Explanation of the data collection is given in section
2.4.
2.1. Identification of IT Vendor Capabilities
IT vendors need to possess certain capabilities when dealing with IT outsourcing. In this study,
we define these as a vendor’s ability to address the challenges of offshore IT outsourcing. The
challenges are identified based on three components: IT-related challenges; outsourcing-related
challenges; and offshore-related challenges.
Wibisono et al.
843
2.1.1. IT-related challenges and associated capabilities
IT development projects are knowledge-intensive. The knowledge includes that of client
requirements, the functional domain, technical knowledge, and project knowledge. The vendor
and client have different, but complementary, knowledge. The vendor possesses technical and
project knowledge, while the client possesses requirement and business domain knowledge (Xu
& Yao, 2013). The difference in knowledge ownership between vendor and client requires both
sides to exchange what they know. Agerfalk et al. (2005) identified communication as an essential
activity in distributed software development; this enables the vendor and client to build mutual
understanding (Swar et al., 2012).
IT development is beset by uncertainty due to the uniqueness of products, the volatility of
functional specifications, or incomplete specifications (Govindaraju et al., 2015). This
uncertainty includes requirement uncertainty and technological uncertainty. To deal with this, it
is necessary for the vendor as the developer, and the client as the customer or user, to establish
coordination when undertaking an IT project. This coordination plays an important role in
distributed software development (Agerfalk et al., 2005). Leischnig et al. (2014) suggest that
coordination can build consensus about task requirements.
Based on the description above, we identify that IT-related challenges include the dispersion of
knowledge ownership and the uncertainty of requirements. To address these challenges,
interaction between a vendor and a client during IT project execution is necessary, which we call
interaction capability. This consists of the ability to communicate and coordinate with the client
in the project.
2.1.2. Outsourcing-related challenges and associated capabilities
Outsourcing represents an inter-organizational relationship that involves a vendor company as a
server, and a client company as a recipient. The relationship between vendor and client can be
classified into two groups, namely a transactional relationship based on a formal contract, and a
partnership based on trust (Morgan & Hunt, 1994). The business relationship between a vendor
and a client is increasingly that of a partnership rather than one of a transactional relationship
(Grover et al., 1996). Thus the challenge in inter-organizational business relationships is related
to building a partnership characterized by a close and long-term inter-organizational relationship.
This relationship depends on trust and commitment (Morgan & Hunt, 1994). Trust is a critical
factor in building a long-term relationship and plays a role in maintaining the stability of the interorganizational relationship. The study by Doney and Cannon (1997) showed that trained vendor
staff can build customer trust. Customers feel more confident with vendors when their staffs are
skillful and able to deliver their promises. Building client trust and commitment to the
relationship needs top management involvement. Lee and Kim (1999) show that top management
support influences partnership outsourcing success and that the ability of top management to
support partnership outsourcing contributes to trust building. In the context of IT outsourcing, the
availability of trained staff determines the success of IT development. Trained staff who possess
superior application knowledge, communication skills, high motivation, and are dependable are
an essential input for IT projects. The study by Raman et al. (2013) shows that talented
management influence the quality of partnership building.
Based on the description above, we identify that outsourcing-related challenges include the
building of a long-term relationship with partners. Building a close and long-term relationship
i h he clien eq i e he endo o e abli h he clien
and ho commi men o he
relationship. To address outsourcing-related challenges, a vendor company should possess the
ability to manage talented staff and support the relationship. We call these abilities management
capability.
844
Capabilities in Managing Offshore IT Outsourcing Challenges and the Influence
on Outsourcing Success from the IT Vendor Perspective
2.1.3. Offshore-related challenges and associated capabilities
The offshore context presents challenges regarding the distance between a vendor and a client.
This is a central issue in global software development and can lead to interaction problems
(Carmel & Agarwal, 2001). One type of distance is cultural distance. The provider should
nde and he clien c l e o p e en comm nica ion p oblem . C l al nde anding
enables the provider and client to align their values, ethics, business practices and communication
styles. This alignment facilitates effective interaction. The offshore project involves a vendor and
a client who come from different countries; this distance can lead to time zone differences, which
mean the work time overlap between the provider and client is reduced, and that direct interaction
decreases. Herbsleb et al. (2001) show that team members dispersed in many locations needed
longer to complete a project than those in the same location.
An offshore IT vendor needs to develop the capabilities to reduce the effect of distance between
he compan and i fo eign clien . P e io
die ha e di c ed companie effo o alle ia e
cultural or temporal distance. A company can manage its project team members by assigning
staff who have foreign language skills and good cultural understanding of clients to the project
team. Carmel and Agarwal (2001) believe that outsourcing project team members who possess
understanding of the client’s culture can contribute to an improved adaptation process. Holmstrom
et al. (2006) conducted a study to identify IT vendor practices in overcoming offshore outsourcing
challenges. These embraced onshore personnel placement, flexible work time management, and
work time adjustment. The effort to alleviate cultural distance has also been addressed in previous
studies. Mao et al. (2008) suggest that IT providers should make an effort to blend cultures by
creating shared values, norms and beliefs. Cultural blending increases the degree of control of
the client and can facilitate desirable client behaviour, while discouraging opportunism. Ang and
Inkpen (2008) empha i e he impo ance of c l al in elligence; i.e., an indi id al capabili
to function and manage in different cultural settings in the context of offshoring ventures.
Based on the offshore challenges discussed, an IT vendor should have understanding of the
clien c l e and he capabili o manage he empo al di ance. We call hi capabili ha of
managing distance.
A summary of the offshore IT outsourcing challenges and related capabilities is given in Table
1.
2.2. Model Development
We develop a model that depicts the relationship between IT vendor capabilities and outsourcing
success. In general, outsourcing success is considered as the extent of the benefit achieved from
outsourcing (Grover et al., 1996). We define outsourcing success more specifically by adopting
Homburg et al.’s (2003) definition. From the perspective of the vendor, it is the extent to which
they achieve the effectiveness of the project and satisfy the client.
The interaction between a vendor and a client can determine the success of an outsourcing project.
According to Gunasekaran et al. (2015), outsourcing success depends on vendor and client
interaction, such as knowledge and resource exchange, collaboration and cooperation. Previous
studies have shown that there is a strong positive correlation between this interaction and
achievement of outsourcing success (Grover et al., 1996). The study by Swar et al. (2012)
confirms the important role of communication in achieving IT outsourcing success, while Han et
al. (2013) conclude that relationship management also determines such success. The study by
Leischnig et al. (2014) shows that interaction has a positive impact on inter-organizational
relationship success. Therefore, we hypothesize that:
Wibisono et al.
845
H1: Interaction capability has a positive impact on outsourcing success.
Table 1 IT vendor capabilities
Component
Challenge
Knowledge dispersion
Information
Technology
Requirement and
technological
uncertainties
Implication
Communication
Coordination
Capability
Interaction
capability
Management support
Outsourcing
Long-term
relationship building
Cultural distance
Offshore
Temporal distance
Talent management
Management
capability
Cultural
understanding
Managing the
temporal difference
Capability to
manage
distance
Sources
Agerfalk et al.
(2005); Swar et
al. (2012); Xu
and Yao (2013);
Leischnig et al.
(2014);
Govindaraju et
al. (2015)
Morgan and
Hunt (1994);
Grover et al.
(1996); Doney
and Cannon
(1997); Lee and
Kim (1999);
Raman et al.
(2013)
Carmel and
Agarwal (2001);
Herbsleb et al.
(2001);
Holmstrom et al.
(2006); Mao et
al. (2008); Ang
and Inkpen
(2008)
Each organization involved in the inter-organizational relationship will bring its resources into
the interaction; these resources have no impact on success if they are not used. In the context of
IT outsourcing, the use of resources is realized when IT is being developed, and at that stage
interaction occurs. The study by Ai et al. (2012) shows that interaction such as knowledge
exchange and coordination makes an essential contribution to transforming internal capabilities,
such as those of skilled staff, helping to achieve IT global sourcing success. Gunasekaran et al.
(2015) assert that a managerial factor such as the commitment to outsourcing could influence the
interaction between a vendor and a client, while the study by Lee and Kim (1999) confirms that
top management support has an impact on partnerships. The capability of a company in providing,
placing, and maintaining competent personnel in the outsourcing project can influence the
partnership (Raman et al., 2013). Based on this, we hypothesize that:
H2: Management capability has a positive impact on interaction capability.
In the context of offshore outsourcing, the distance between a vendor and a client can lead to
interaction problems. Previous studies have shown the impact of distance on interaction. The
study by Herbsleb and Moitra (2001) found that cultural and temporal distance brought about
coordination and communication problems. Cultural, temporal and geographical distances
influence communication, coordination and control (Holmstrom et al., 2006). Gunasekaran et al.
(2015) assert that a contextual factor such as environmental heterogeneity can influence vendor
and client interaction. The ability to deal with such distance could alleviate this negative effect
on interaction. Therefore, we hypothesize that:
846
Capabilities in Managing Offshore IT Outsourcing Challenges and the Influence
on Outsourcing Success from the IT Vendor Perspective
H3: Capability to manage distance has a positive impact on interaction capability.
Figure 1 shows the proposed model, depicting three hypothesized structural relationships and the
dimensions of IT vendor capabilities. In the model, we consider management capability,
capability to manage distance, and interaction capability as the second-order constructs (double
line rectangle). The oval represents the first-order construct.
Figure 1 Proposed model
2.3. Questionnaire Development
Because of the abstract nature of the variables involved in the model, we defined them
operationally before the development of the questionnaires. Based on the operational definition
of the variable, we developed the survey instruments or questionnaires. The questionnaires were
designed to measure management support, talent management, cultural understanding, managing
temporal distance, communication, coordination, and outsourcing success. The capabilities of
interaction, managing distance and management were not measured directly because they are
second-order variables.
We referred to previous studies when designing the questionnaires. Table 2 shows the operational
definition and the number of indicators of each variable.
2.4. Data Collection
We adopted the survey method to examine the research model. Yin (2003) suggests that this
me hod can be ed a a e ea ch a eg hen a d i cha ac e i ed b he ho m ch fo m
of question, the control of behavioural event is not required, and the focus is on contemporary
events. Because the study is intended to examine the extent of the relationship between the
capabilities of the IT vendor and outsourcing success, the survey method is appropriate for this
study. We consider an offshore IT outsourcing project as the unit of analysis.
We collected data by distributing questionnaires online and offline to 103 Indonesian IT
companies from the middle of June 2017 until the middle of October 2017. Eligible respondents
were those working in Indonesian IT companies and who were involved in undetaking IT projects
for overseas clients. To ensure the eligibility of respondents, the questionnaire included a question
about the offshore IT outsourcing project that the respondent was involved in and their position
in the project. Because our unit of analysis is the offshore IT outsourcing project, and each
company may be involved in more than one such project, a company may provide more than one
response. We obtained 64 completed questionnaires from 36 companies. The demographic
profiles of the samples are displayed in Table 3.
Wibisono et al.
847
Table 2 Operational definition of the variables
Variable
Outsourcing
success
Communication
Coordination
Management
support
Talent
management
Cultural
understanding
Managing the
temporal distance
3.
Operational definition
Number of
indicators
The extent to which the IT vendor achieves
the effectiveness of the project. and satisfies
the client
Sharing of valuable information between the
vendor and client.
Managing the interdependency between the
vendor and the client in completing the
determined tasks.
The degree of effort from top management
in supporting the inter-organizational
relationship.
The ability of the IT vendor in providing,
placing, and maintaining competent
personnel in the project.
The ability of the IT vendor to understand
and adap o he clien c l e.
The ability of the IT vendor to deal with the
time zone difference.
Sources
3
Homburg et al. (2003)
4
Swar et al. (2012)
3
Leischnig et al. (2014)
3
Lee & Kim (1999)
4
Raman et al. (2013)
4
Ang & Inkpen (2008)
3
Holmstrom et al. (2006)
RESULTS AND DISCUSSION
In this section, we present the results of the PLS-SEM analysis and discuss the study findings.
The section consists of measurement and structural model examination, together with discussion.
Table 3 Demographic sample profiles
No.
1.
Clien co n
of origin
2.
Project duration
3.
Project value
4.
Project team size
5.
Position of the
respondent
Profile
Asia (Hong Kong, India, Japan, Malaysia,
Qatar, Singapore)
Australia
Europe (Belgium, Croatia, England,
Germany, Netherlands, Spain, Sweden)
North America (US, Mexico)
< 3 months
3 – < 6 months
6 12 months
> 12 months
< Rp. 250 m.
Rp. 250 m. – < Rp. 500 m.
Rp. 500 m. Rp. 1000 m.
> Rp. 1000 m.
3 5 people
6 8 people
> 8 people
CEO / managing director
Project manager
Team member
Frequency
32
Percentage
50.00
5
14
7.81
21.88
13
18
20
14
12
28
10
15
11
40
18
6
10
30
24
20.31
28.13
31.25
21.88
18.75
43.75
15.63
23.44
17.19
62.50
28.13
9.38
15.63
46.88
37.50
3.1. Model Measurement Examination
We use the Partial Least Squares Structural Equation Modelling (PLS-SEM) technique to
examine the model because of the small sample size. Hair et al. (2014) state that PLS-SEM can
be used for such a small sample and for non-normal distribution. Determination of the sample
size depends on a minimum number of arrows that point to a latent variable in the model. Rule
848
Capabilities in Managing Offshore IT Outsourcing Challenges and the Influence
on Outsourcing Success from the IT Vendor Perspective
of thumb suggests that the minimum number of samples should be ten times the maximum
number of arrowheads pointing at a latent variable (Hair et al., 2014). The minimum number of
arrows that point to a latent variable in our model is two. This means we need at least 20 samples;
we have 64, so the sample size is adequate.
Our model involves a higher-order model, in which the second order construct is the interaction
capability, with its first-order constructs including communication and coordination;
management capability, with its first-order constructs including management support and talent
management; and the capability to manage distance, with its first-order constructs including
cultural understanding and managing temporal differences. Each first-order construct has
manifest variables or indicators. The model is a reflective-reflective type model. Because the
model has the same orientation, a repeated indicators approach can be implemented by assigning
all the indicators from the lower order constructs to the higher order constructs (Hair et al., 2014).
Examination of the model involves two stages. The first is the examination of the measurement
model. The results indicate that each scale of the constructs has composite reliability scores and
average variance extracted (AVE) greater than 0.70 and 0.50 respectively. Hence, the test of
convergent validity is acceptable. Table 4 shows the composite reliability scores and the AVE of
the constructs.
Table 4 Composite reliability scores and AVE of the constructs
Construct
Outsourcing success (OS)
Interaction capability (CI)
Capability to manage distance (CMD)
Management capability (MC)
Communication (Com)
Coordination (Coor)
Cultural understanding (CU)
Management support (MS)
Managing temporal distance (MTD)
Talent management (TM)
Composite Reliability
0.884
0.923
0.919
0.912
0.915
0.938
0.913
0.864
0.892
0.923
Average Variance
Extracted (AVE)
0.717
0.633
0.625
0.602
0.730
0.835
0.727
0.681
0.736
0.751
The results also indicate that the measurement model has discriminant validity. Table 5 shows
the discriminant validity results using the Fornell-Larcker criterion. The diagonal elements
ep e en he q a e oo of each con
c AVE, and he non-diagonal elements represent the
correlations between the latent variables. The bold value represents the highest value that a
construct has by comparing all the values in its row and column. A measurement model meets
this criterion if the values of the square root of AVE of each construct are higher than the
correlations between constructs, except between the higher-order construct (HOC) and the lowerorder constructs (LOC), as well as between the LOCs themselves (Hair et al., 2014). We find that
the measurement model has met the Fornell-Larcker criterion; thus we have a discriminantvalidated measurement.
3.2. Structural Model Examination
The structural model portrays the theorized relationship between constructs. Our model posits
three structural relationships, namely interaction capability and outsourcing success;
management capability and interaction capability; and capability to manage distance and
interaction capability. The posited relationships were tested with PLS-SEM and the results of the
analysis are shown in Table 6.
Wibisono et al.
849
Table 5 Fornell-Larcker criterion
CI
CMD
Com
Coor
CU
MC
MS
MTD
OS
TM
CI
0.796
0.740
0.914
0.898
0.737
0.793
0.771
0.613
0.701
0.690
CMD
Com
Coor
CU
MC
MS
MTD
OS
TM
0.790
0.676
0.662
0.948
0.773
0.722
0.897
0.574
0.695
0.855
0.641
0.623
0.677
0.648
0.630
0.558
0.595
0.914
0.712
0.761
0.753
0.476
0.719
0.653
0.853
0.779
0.704
0.711
0.630
0.718
0.776
0.874
0.629
0.740
0.941
0.825
0.619
0.642
0.657
0.858
0.396
0.542
0.847
0.698
0.866
The results indicate a positive and significant relationship between the interaction capabilities
and outsourcing success, with a path coefficient of 0.701 at the significance level of 0.01; thus
H1 is supported by the empirical data. Management capability and capability to manage distance
have a positive impact on interaction capability, with path coefficients of 0.550 and 0.315 at
significance levels of 0.01 and 0.05 respectively. Hence H2 and H3 are also supported by the
empirical data. The tested model has a moderate degree of accuracy for outsourcing success and
interaction capability, with an adjusted R2 values of 0.492 and 0.669 respectively.
Table 6 Significance of the structural relationships
Hypothesis
H1
H2
H3
Interaction capability o
Outsourcing success
Management capability o
Interaction capability
Capability to manage distance
o Interaction capability
Path
Coefficient
T
Statistic
P
Value
Conclusion
0.701
9.641
0.000
Supported***
0.550
4.121
0.000
Supported***
0.315
1.994
0.047
Supported**
***
significance level of 0.01; **significance level of 0.05
The results also show that each second-order construct (interaction capability, management
capability, and capability to manage distance) has a factor loading above 0.7 at the significance
level of 0.01. These results indicate that communication and coordination are dimensions of
interaction capability; management support and talent management are dimensions of
management capability; and cultural understanding and managing temporal distance are
dimensions of the capability to manage distance. Table 7 shows the significance level of the firstorder constructs and their second-order construct relationship.
Table 7 Significance of first-order constructs and their second-order construct relationship
First-order constructs and their second-order
construct relationship
Interaction capability o Communication
Interaction capability o Coordination
Management capability o Management support
Management capability o Talent management
Capability to manage distance o Cultural
understanding
Capability to manage distance o Managing the
temporal distance
0.914
0.898
0.874
0.941
T
Statistic
34.912
32.486
22.719
43.193
P
Value
0.000
0.000
0.000
0.000
0.948
64.709
0.000
0.897
28.787
0.000
Factor loading
850
Capabilities in Managing Offshore IT Outsourcing Challenges and the Influence
on Outsourcing Success from the IT Vendor Perspective
Based on the results of the statistical analysis, we conclude that all the structural relationships
and dimensions of each second-order construct are significant and supported by the empirical
data. Therefore, the final model that embraces all the significant relationships is the same as the
proposed model.
3.3. Discussion
The p po e of hi
d i o iden if IT endo capabili ie f om he pe pective of offshore
outsourcing challenges and to examine the contribution of these capabilities to outsourcing
success. The results show that IT vendors should possess and develop interaction and distancerelated management capabilities. These have a positive impact on achieving outsourcing success.
The interaction capability has a direct impact on outsourcing success, and that of managing
distance has a significant indirect impact on outsourcing success, at levels of 0.386 and 0.221
respectively.
The significant effect of interaction capability on outsourcing success shown in this research is
consistent with previous studies. The results of the study conducted by Grover et al. (1996)
showed that outsourcing success was determined by interaction between the provider and client,
with a correlation degree of 0.63. Relationship management capability has been shown to increase
information system quality, with a correlation coefficient of 0.733 (Goles, 2003). In addition, the
study of Leischnig et al. (2014) showed that interaction had a positive impact on interorganizational relationship success, with a correlation degree of 0.77.
The significant relationship between management capability and interaction capability is also
consistent with the previous studies. The findings of the study conducted by Raman et al. (2013)
showed that a firm’s capabilities in managing critical employees had a positive impact on
partnership quality, with a correlation coefficient of 0.40. The significance of the relationship
between management support and relationship quality was also displayed by Gupta and Sushil’s
(2014) study.
The findings on the significant contribution of the capability to manage distance to interaction
capability is also consistent with previous studies. The results of the study by Johnson et al. (1996)
showed that cultural sensitivity could increase the effectiveness of communication in
international alliances, with a correlation coefficient of 0.447. The study by Holmstrom et al.
(2006) found that cultural, temporal and geographical distance influenced communication,
coordination and control.
From this study, we also have a portrait of the Indonesian IT companies dealing with the
challenges of offshore IT outsourcing. The companies involved in the study have achieved
success in conducting offshore IT outsourcing projects. From the responses of respondents on the
questionnaires, we can obtain the score of each variable in the model. The score for outsourcing
success is 6.167, out of a maximum score of 7. The success in dealing with offshore IT
outsourcing projects is supported by the high capabilities of management, the capabilities to
manage distance, and interaction capabilities. The scores for those capabilities respectively are
5.98, 5.90 and 5.82 out of a maximum of 7.
The high level of their capabilities does not entirely indicate that they have good capabilities to
deal with all offshore IT outsourcing projects. The bias in these findings is influenced by the
tendency of the respondents to respond in the questionnaires based on their successful offshore
IT outsourcing projects. To complement the survey results, we conducted interviews with two IT
companies. We interviewed the VP of a leading IT vendor in Indonesia, who explained that
although overall the company had good results in dealing with projects for overseas clients, it
also had unsuccessful results. The failure to complete projects successfully was caused by a lack
of ability to interact with clients. When the company carried out this project, it could not
communicate well with the client. This situation made it difficult for them to understand their
Wibisono et al.
851
requirements. The poor interaction was influenced by the lack of management support in
preparing the team for this. The team did not have enough knowledge of the clien b ine ,
which caused inhibitions when communicating with them.
The second interview with another IT vendor enhanced our understanding of the failure to
accomplish offshore IT outsourcing projects. The failure experienced by this company was
influenced by cultural differences. The client came from an end-user company which had
different behavior to the IT company. They were accustomed to working in detail, whereas the
client worked in the opposite way. Because the company project team could not adapt to the
behavior of the client, it could not establish good coordination with the client, which is important
for smooth interaction.
From the survey of 64 projects, the empirical data confirm that high management capability,
interaction capability, and the capability to manage temporal distance are the success factors of
IT outsourcing. We can also learn from the two companies which had unsuccessful projects,
which show the negative impact of the lack of management support in preparing the project team
and the lack of cultural adaptation in interaction, and eventually outsourcing success. Therefore,
these findings confirm the proposed model, that management capability and the capability to
manage distance have an impact on interaction capability and eventually influence outsourcing
success.
4.
CONCLUSION
This study makes two crucial contributions. First, it contributes to the outsourcing literature by
identifying IT vendor capabilities in the offshore outsourcing context, from the perspective of
offshore outsourcing challenges. Second, it proposes a research model that shows the relationship
between IT vendor capabilities and their influence on outsourcing success. Based on the results
obtained from the study, we conclude that to achieve offshore outsourcing success, the IT vendor
should build interaction capability, and enhance the capability to manage distance as well as
management capability.
The study recommends that IT vendors involved in offshore outsourcing ensure that there is
support from top management by providing adequate resources and preparing highly qualified
aff fo off ho e IT p ojec . I al o enco age p ac i ione o lea n and adap o hei clien
culture for smooth interaction between them.
There are some limitations to this study. First, we involve only the vendor side to evaluate
outsourcing success, which may cause bias. We also use client satisfaction as one of the
outsourcing success indicators. The ideal is that we should involve the client side in the study,
but it is difficult to involve both sides. Second, the study does not consider all the interaction
aspects that should be developed by the IT vendor. This limitation may lead to moderate
predictive accuracy of interaction capability in outsourcing success, with R2 at 0.492. Third, we
identified IT vendor capabilities from the perspective of challenges in offshore IT outsourcing,
which mean that other important capabilities were not considered in the research. To increase the
predictive accuracy, future studies should consider other capabilities, such as that to design
specific business process, because the development of IT should be aligned with the business
process.
5.
ACKNOWLEDGEMENT
The authors wish to thank Direktorat Riset dan Pengabdian Masyarakat Direktorat Jenderal
Penguatan Riset dan Pengembangan Kementerian Riset, Teknologi, dan Pendidikan Tinggi, who
funded this research through Hibah Disertasi Doktor No.1598/K4/KM/2017.
852
6.
Capabilities in Managing Offshore IT Outsourcing Challenges and the Influence
on Outsourcing Success from the IT Vendor Perspective
REFERENCES
Agerfalk, P.J., Fitzgerald, B., Holmstrom, H., Lings, B., Lundell, B., Conchuir, E., 2005. A
Framework for Considering Opportunities and Threats in Distributed Software
Development. In: The International Workshops on Distributed Software Development
(DiSD 2005)
Ai, S., Du, R., Abbott, P., Zheng, Y., 2012. Internal and Contextual Factors, Knowledge
Processes and Performance: F om he Chine e P o ide Perspective. Expert Systems with
Applications, Volume 39, pp. 4464 4472
Ang, S., Inkpen, A.C., 2008. Cultural Intelligence and Offshore Outsourcing Success: A
Framework of Firm-level Intercultural Capability. Decision Sciences, Volume 39(3), pp.
337 358
Carmel, E., Agarwal, R., 2001. Tactical Approaches for Alleviating Distance in Global Software
Development. IEEE Software, Volume March/April, pp. 22 29
Doney, P.M., Cannon, J.P., 1997. An Examination of the Nature of Trust in Buyer-seller
Relationships. Journal of Marketing, Volume 61(2), pp. 35 51
Goles, T., 2003. Vendor Capabilities and Outsourcing Success: A Resource-based View.
Wirtschaftsinformatik, Volume 45(2), pp. 199 206
Govindaraju, R., Bramagara, A., Gondodiwiryo, L., Simatupang, T., 2015. Requirement
Volatility, Standardization and Kknowledge Integration in Software Projects: An Empirical
Analysis on Outsourced IS Development Projects. Journal of ICT Research and
Applications, Volume 9(1), pp. 68 87
Grover, V., Cheon, M.J., Teng, J.T.C,. 1996. The Effect of Service Quality and Partnership on
the Outsourcing of Information Systems Functions. Journal of Management Information
Systems, Volume 12(4), pp. 89 116
Gunasekaran, A., Irani, Z., Choy, K.L., Filippi, L., Papadopoulos, T., 2015. Performance
Measures and Metrics in Outsourcing Decisions: A Review for Research and Applications.
International Journal of Production Economics, Volume 161, pp. 153 166
Gupta, V., Sushil, 2014. Influence of Relationship Quality on IS/IT Outsourcing Success: Indian
Vendors’ Perspective. Journal of Information Technology Management, Volume 25(3), pp.
1 19
Hair, J.F., Hult, G.T.M., Ringle, C.M., Sarstedt, M., 2014. A Premier on Partial Least Squares
Structural Equation Modeling (PLS-SEM). SAGE Publications Asia-Pacific Pte. Ltd.,
Singapore
Han, H.S., Lee, J.N., Chun, J.U., Seo, Y.W., 2013. Complementarity between Client and Vendor
IT Capabilities: An Empirical Investigation in IT Outsourcing Projects. Decision Support
Systems, Volume 56(3), pp. 777 791
Herbsleb, J.D., Mockus, A., Finholt, T.A., Grinter, R.E., 2001. An Empirical Study of Global
Software Development: Distance and Speed. In: The Proceedings of the 23rd International
Conference on Software Engineering (ICSE)
Herbsleb, J.D., Moitra, D., 2001. Global Software Development. IEEE Software, Volume
March/April 2001, pp. 16 20
Holmstrom, H., Ó Conchuir, E., Agerfalk, P.J., Fitzgerald, B., 2006. Global Software
Development Challenges: A Case Study on Temporal, Geographical and Social-cultural
Distance. In: The IEEE International Conference on Global Software Engineering
Homburg, C., Giering, A., Menon, A., 2003. Relationship Characteristics as Moderators of the
Satisfaction-loyalty Link: Findings in a Business-to-Business Context. Journal of Business to-Business Marketing, Volume 10(3), pp. 35 62
Jarvenpaa, S.L., Mao, J.Y., 2008. Operational Capabilities Development in Mediated Offshore
Software Services Models. Journal of Information Technology, Volume 23, pp. 3 17
Wibisono et al.
853
Johnson, J.L., Cullen, J.B., Sakano, T., Takenouchi, H., 1996. Setting the Stage for Trust and
Strategic Integration in Japanese-U.S. Cooperative Alliances. Journal of International
Business Studies, Volume 27(5), pp. 981 1004
Krishnan, M.S., Kellner, M.I., 1999. Measuring Process Consistency: Implicatons for Reducing
Software Defects. IEEE Transactions on Software Engineering, Volume 25(6), pp. 800-815
Lacity, M.C., Khan, S.A., Willcocks, L.P., 2009. A Review of the IT Outsourcing Literature:
Insights for Practices. Journal of Strategic Information Systems, Volume 18, pp. 130 146
Lacity, M.C., Khan, S., Yan, A., Willcocks, L.P., 2010. A Review of the IT Outsourcing
Empirical Literature and Future Research Directions. Journal of Information Technology,
Volume 25(4), pp. 395 433
Lee, J.N., Kim, Y.G., 1999. Effect of Partnership Quality on IS Outsourcing Success: Conceptual
Framework and Empirical Validation. Journal of Management Information Systems, Volume
15(4), pp. 29 61
Leischnig, A., Gigenmueller, A., Lohmann, S., 2014. On the Role of Alliance Management
Capability, Organizational Compatibility, and Interaction Quality in Interorganizational
Technology Transfer. Journal of Business Research, Volume 67(6), pp. 1049 1057
Mao, J.Y., Lee, J.N., Deng, C.P., 2008. Vendors’ Perspecitves on Trust and Control in Offshore
Information Systems Outsourcing. Information and Management, Volume 45(7), pp. 482
492
Morgan, R.M., Hunt, S.D., 1994. The Commitment-Trust Theory of Relationship Marketing.
Journal of Marketing, Volume 58(3), pp. 20 38
Nuwangi, S.M., Sedera, D., Srivastava, S.C., Murphy, G., 2014. Intra-organizational Information
Asymmetry in Offshore ISD Outsourcing. VINE: The Journal of Information and Knowledge
Management Systems, Volume 44(1), pp. 94 120
Peslak, A.R., 2011. Outsourcing and Offshore Outsourcing of Information Technology in Major
Corporations. Management Research Review, Volume 35(1), pp. 14 31
Raman, R., Chadee, D., Roxas, B., Michailova, S., 2013. Effects of Partnership Quality, Talent
Management, and Global Mindset on Performance of Offshore IT Service Providers in India.
Journal of International Management, Volume 19(4), pp. 333 346
Stettler, E., Mirza, F., Ali, I., Mohal, M., 2014. The Rising Stars of IT Outsourcing. ATKearney,
Chicago
Swar, B., Moon, J., Oh, J., Rhee, C., 2012. Determinants of Relationship Quality for IS/IT
Outsourcing Success in Public Sector. Information Systems Frontiers, Volume 14(2), pp.
457 475
Xu, P., Yao, Y., 2013. Knowledge Sharing in Offshore Software Development: A Vendor
Perspective. Journal of Global Information Technology Management, Volume 16(1), pp. 58
84
Yin, R.K., 2003. Case Study Research: Design and Methods (Third ed.). SAGE Publications,
Thousand Oaks, California
Copyright of International Journal of Technology is the property of Universitas Indonesia,
International Journal of Technology and its content may not be copied or emailed to multiple
sites or posted to a listserv without the copyright holder’s express written permission.
However, users may print, download, or email articles for individual use.
Downtime
Edge computing
environments: What
you need to know
From Pixar to GovTech:
The inside story of
Singapore’s AI whizz
Buyer’s guide
to application
modernisation
Editor’s comment
Building a robot ship
to navigate the high
seas and follow the
route of the Mayflower
Coronavirus poses
challenges for BPO
and IT services
delivered from India
Bans on limited
company contractors
hold firm despite
deferral of IR35 reforms
News
Home
O
rganisations that receive business process outsourcing
(BPO) services from India face major challenges following the country’s Covid-19 lockdown, but IT services are
less affected as companies’ investments over the years pay off.
India’s lockdown, announced on 24 March, saw the government
ask 1.3 billion people to stay at home for at least three weeks.
Although thousands of miles away, UK businesses, already with
their own coronavirus challenges, now have to worry about the
challenges faced by firms that do work on their behalf from India.
Although disruption is inevitable, the larger IT suppliers that
deliver from India are well equipped to continue to deliver services in the lockdown. But BPO suppliers and smaller IT players
face major hurdles.
India’s lockdown has been a shock for many of the UK’s largest
businesses, including most of the big banks.
With UK business offshoring work in India in huge volumes, the
knock-on effect of this development is inevitable. Large UK companies have for years shipped roles to India, whether in call-centre
COMPUTERWEEKLY.COM
21-27 APRIL 202
Following the announcement of the lockdown by India’s pri
minister, Narendra Modi, a message from Nasscom, the ind
try body that represents suppliers in India, warned its memb
of the challenges ahead.
Nasscom president Debjani Ghosh wrote: “While the prime m
ister acknowledged the need to have the bare minimum of peo
in offices to support mission-critical work, he strongly reinforc
the need for all companies to increase work from home for t
next few weeks. He also acknowledged some of the logistic issu
CHALLENGES AHEAD
operations or IT support. On the back of this, large Indian IT sup
ers, such as Tata Consultancy Services (TCS), Infosys and Wip
as well as BPO firms such as Genpact, have grown to beco
global giants over the last two decades.
Meanwhile, service providers in the West, such as Accent
and Capgemini, have established operations in India to take
share of the growing market.
UK businesses receiving business process outsourcing and IT services from India will face disruption during
the Covid-19 pandemic, but IT services from large IT suppliers should be less affected, writes Karl Flinders
Coronavirus poses challenges for BPO
and IT services delivered from India
ANALY
Downtime
Edge computing
environments: What
you need to know
From Pixar to GovTech:
The inside story of
Singapore’s AI whizz
Buyer’s guide
to application
modernisation
Editor’s comment
Building a robot ship
to navigate the high
seas and follow the
route of the Mayflower
Coronavirus poses
challenges for BPO
and IT services
delivered from India
Bans on limited
company contractors
hold firm despite
deferral of IR35 reforms
News
Home
being faced due to a lack of coordination in the states and we will
work with his office to follow up on that.
“However, with all these developments, we would urge members to prepare for a complete lockdown and move all your assets
immediately, where possible, to enable employees to work from
home. Please assume that only a handful of staff will be allowed
to come to the office to support the mission-critical functions and
operate datacentres.”
And it is not just Indian heritage companies that are being
affected. Accenture has about 200,000 workers in India and
Capgemini nearly 100,000. These staff are often serving customers in the West, with large customer bases in the UK and the US.
Barry Matthews, partner at outsourcing advisers ISG, said there
are risks for both BPO and IT services because suppliers have not
Accenture has about 200,000 workers in
India and Capgemini has nearly 100,000
COMPUTERWEEKLY.COM
21-27 APRIL 202
He added that customers working with the big Indian supplie
such as TCS, and the Western suppliers delivering from Ind
are likely to be impacted less, because these IT companies ha
the skills and capability to enable effective remote working.
But the lockdown has inevitably caused major concerns for bu
nesses using services from India. According to human resourc
specialist New Street Group, many UK businesses are tryi
SKILLS AND CAPABILITY
planned for this situation. “How do you plan for tens of thousan
of workers to suddenly have to work from home?” he said.
Matthews said BPO is likely to be harder hit than IT services,
it is hard to tell because “it will be almost impossible for either
maintain current services levels”.
KRIANGK
ANALY
Downtime
Edge computing
environments: What
you need to know
From Pixar to GovTech:
The inside story of
Singapore’s AI whizz
Buyer’s guide
to application
modernisation
Editor’s comment
Building a robot ship
to navigate the high
seas and follow the
route of the Mayflower
Coronavirus poses
challenges for BPO
and IT services
delivered from India
Bans on limited
company contractors
hold firm despite
deferral of IR35 reforms
News
Home
❯UK Labour MP calls for politicians to lead by example during coronavirus outbreak.
But India might be better prepared to deal with IT service delivery amid the lockdown thanks to investments made to enable
people to work remotely. Also, the large IT services companies
have global delivery networks that can make up for lost capacity
by switching locations for support delivery.
BPO, on the other hand, which is all about data processing,
poses very different challenges. People can’t do their work from
ANDREW MCINTEE, NEW STREET GROUP
“FOR MANY UK BUSINESSES,
THE PROBLEMS IN INDIA RISK KEY
FUNCTIONS GOING OFFLINE”
to re-shore work from India to the UK following the lockdown.
Andrew McIntee, managing director at New Street Group, said:
“For many UK businesses, the problems in India risk key functions
going offline. That has added to the chaos at many UK operations
and delivery centres in recent days.
“It has resulted in a surge in demand for hiring professionals like
business process change specialists, who can help redirect work
from India back to the UK, where companies have greater flexibility in both workforce and workplace strategy.”
It is easy to jump to the conclusion that the best idea is to repatriate work to the UK, and for companies using BPO services from
India, this might be a good strategy.
COMPUTERWEEKLY.COM
21-27 APRIL 202
Lewis said that with BPO, there is a further challenge with priva
concerns. “BPO is all about IT-enabled data processing, and v
often the offshore operations are dealing with personal data a
consent has to be given to process personal data from hom
he said. “There is a lot of personal data processed quite legi
mately. The offshore company is the data processor employi
people at centres that have been through due diligence by th
customers. Working from home from an unsecured connecti
could be a real problem.
“Similarly, staff in India providing voice support to customers
corporates in the UK cannot work from home because they
be unable to access the information about customers they nee
But while these services face huge disruption, IT services ne
not, said Schumacher. “IT service providers have invested he
ily in enabling staff to work from home over the years,” he sa
“Some of them are up to about 90% in terms of the proporti
MAJOR PRIVACY CONCERNS
home because of data security issues – strict rules about prote
ing the data of corporate customers. “BPO services are a mu
bigger issue because they can’t be done from home,” said Pe
Schumacher, CEO at the Value Leadership Group, which speci
ises in advising companies on outsourcing.
Corporate lawyer Mark Lewis, who specialises in IT outsourci
contracts, agreed, saying: “Instinctively, this must be a probl
and particularly in BPO. If UK businesses are struggling to c
nect their staff and get them working remotely, it is the same
India but on a much larg…
Purchase answer to see full
attachment