Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Transfer of Services Abroad No Surefire Success: Controlling Avoids Rude Awakening

30.06.2008
Accounting in Prague, software development in Bangalore or a call center in Istanbul. The transfer of services into low-income countries, in neo-German offshoring, is getting more and more popular.

That’s not surprising as it promises to lower the costs by 50 percent. But a successful offshoring of services is truly no surefire success. Backshoring of the provision of services back home gives proof of that. A US-study shows sobering results: 78 percent of companies with experiences in offshoring, had to stop at least one or even more projects.

Is offshoring really the solution for cost problems in global markets? What problems do companies expect when transferring the provision of services abroad? These are the questions with which Professor Hoffjan’s Chair for Controlling at Technische Universität Dortmund deals with. Together with his PhD student Michael Brandau he interviewed companies from Germany, Switzerland and East Europe with experiences in offshoring.

Why do companies transfer the provision of services to low-income countries? The main reason clearly is “cost reduction”. One company, for example, was able to reduce its expenditure by about 30 percent by offshoring accounting transactions. But the advantages of low costs in providing services can often only be realized in combination with adequately qualified staff. The study shows: many companies from different trades are also looking for qualified specialists abroad. Hence, the motive “access to experts / know-how” is in second place when offshoring is concerned.

What jobs are transferred into low-income countries? There is a clear trend towards transferring skill-intensive services like, for example, order processing of software. Services which include direct contact with customers, for example, call centers are scarcely often provided offshore.

In what amount are services provided offshore? Complete business tasks or project are scarcely transferred. There rather is an obvious tendency towards transferring subservices to low-income countries. In accounting, for example, booking and data input are done in offshore-centers. Whereas the responsibility for the accuracy of the date and the business know-how remains in the country subsidiaries.

Which business model do companies choose with regard to offshoring? Half of the interviewed companies see offshoring as a permanent strategic investment and, thus, establish their own subcompanies (35 percent) or joint ventures (20 percent) abroad. In case of internal transfer, the subcompanies are partially upgraded to profit centers as companies try to copy the success factors of offshore suppliers and use them themselves. Only 45 percent of the companies choose the business model “offshore outsourcing”.

What problems occur when transferring services into distant regions? The difficulties primarily concern communication between the employees of the company headquarters and the employees at the offshore site. That is why misunderstandings happen and the job descriptions are not understood by the offshore employees. That especially applies to complex, not standardized operations. Misunderstandings are often just communicated with delay and employees at offshore sites generally have less queries or are hesitant to give feedbacks. This can be put down to the different understanding of hierarchy of the offshore employees. Moreover, the country risk which companies with subsidiary corporations are confronted with, is of great importance. Overall the problems and risks have partly been considerably underestimated by the companies in their project planning.

In most cases the consequences are not a long time coming: additional work and hidden additional control and communication costs. To prevent these surprises, the use of controlling would be advisable. But in some companies controlling does currently not even deal with offshoring. Sometimes controlling is not credited the necessary competence to examine special projects with technical development-based character like, for example, software programming. Consequently, arising problems are becoming obvious not until the project is already running or after starting the offshoring. Then the companies have to improvise, as no scenarios for dealing with problems have been developed in advance.

During the expert interviews there was no indication that a validity check is done prior to a transfer decision. Obviously it is believed that the costs are kept under control by contractual regulations, for example, fixed-price contracts – often a false conclusion.

The hidden costs of offshore activities are inadequately documented by the companies, so that there can currently only be speculations about the actual savings of offshoring. “As controlling structures are missing, the companies can not precisely say how much of the savings is nullified due to communication problems and the resulting additional costs” stated Michael Brandau from Technische Universität Dortmund.

The euphoria about the low wage costs abroad seems to make some companies neglect their commercial caution. Without sound information the journey abroad can quickly turn into blind flying. Therefore it is hardly surprising that some companies make awkward experiences with regard to offshoring. Potential communication problems and hidden costs should be on the company’s radar screens and included in the budget overview prior to the transfer.

Ole Luennemann | alfa
Further information:
http://www.uni-dortmund.de

More articles from Business and Finance:

nachricht Microtechnology industry is hiring – positive developments of past years continue
09.04.2018 | IVAM Fachverband für Mikrotechnik

nachricht RWI/ISL-Container Throughput Index with minor decline on a high overall level
20.03.2018 | RWI – Leibniz-Institut für Wirtschaftsforschung

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Future electronic components to be printed like newspapers

A new manufacturing technique uses a process similar to newspaper printing to form smoother and more flexible metals for making ultrafast electronic devices.

The low-cost process, developed by Purdue University researchers, combines tools already used in industry for manufacturing metals on a large scale, but uses...

Im Focus: First evidence on the source of extragalactic particles

For the first time ever, scientists have determined the cosmic origin of highest-energy neutrinos. A research group led by IceCube scientist Elisa Resconi, spokesperson of the Collaborative Research Center SFB1258 at the Technical University of Munich (TUM), provides an important piece of evidence that the particles detected by the IceCube neutrino telescope at the South Pole originate from a galaxy four billion light-years away from Earth.

To rule out other origins with certainty, the team led by neutrino physicist Elisa Resconi from the Technical University of Munich and multi-wavelength...

Im Focus: Magnetic vortices: Two independent magnetic skyrmion phases discovered in a single material

For the first time a team of researchers have discovered two different phases of magnetic skyrmions in a single material. Physicists of the Technical Universities of Munich and Dresden and the University of Cologne can now better study and understand the properties of these magnetic structures, which are important for both basic research and applications.

Whirlpools are an everyday experience in a bath tub: When the water is drained a circular vortex is formed. Typically, such whirls are rather stable. Similar...

Im Focus: Breaking the bond: To take part or not?

Physicists working with Roland Wester at the University of Innsbruck have investigated if and how chemical reactions can be influenced by targeted vibrational excitation of the reactants. They were able to demonstrate that excitation with a laser beam does not affect the efficiency of a chemical exchange reaction and that the excited molecular group acts only as a spectator in the reaction.

A frequently used reaction in organic chemistry is nucleophilic substitution. It plays, for example, an important role in in the synthesis of new chemical...

Im Focus: New 2D Spectroscopy Methods

Optical spectroscopy allows investigating the energy structure and dynamic properties of complex quantum systems. Researchers from the University of Würzburg present two new approaches of coherent two-dimensional spectroscopy.

"Put an excitation into the system and observe how it evolves." According to physicist Professor Tobias Brixner, this is the credo of optical spectroscopy....

All Focus news of the innovation-report >>>

Anzeige

Anzeige

VideoLinks
Industry & Economy
Event News

Leading experts in Diabetes, Metabolism and Biomedical Engineering discuss Precision Medicine

13.07.2018 | Event News

Conference on Laser Polishing – LaP: Fine Tuning for Surfaces

12.07.2018 | Event News

11th European Wood-based Panel Symposium 2018: Meeting point for the wood-based materials industry

03.07.2018 | Event News

 
Latest News

A smart safe rechargeable zinc ion battery based on sol-gel transition electrolytes

20.07.2018 | Power and Electrical Engineering

Reversing cause and effect is no trouble for quantum computers

20.07.2018 | Information Technology

Princeton-UPenn research team finds physics treasure hidden in a wallpaper pattern

20.07.2018 | Materials Sciences

VideoLinks
Science & Research
Overview of more VideoLinks >>>