Why Offshore Outsourcing Fails?

In the past, several offshore projects failed due to various reasons; but now the early adapters learned their mistakes, horned their skills in offshore vendor selection, project management, project execution and now succeeding in their offshore projects. You too can succeed in your offshore efforts and gain all the benefits of it. Following are some the reasons you should know for offshore projects failure and plan before you start it.

Unclear Scope of Project

Outsourcing company must explain the project goals, vision and scope to the offshore vendor clearly and put those in the contract. If not the offshore vendor may not satisfy the outsourcing company’s expectations, worst the offshore vendor may have different view on the project.

Timeline and Delivery
Too often businesses rush into offshore projects, because they think that they can be saving significant cost, without defining proper timeline and delivery of the project and communicating that information to the offshore service provider.

Failure of Service Provider
Though rare, failure of a service provider to provide the promised performance may cause offshore project to fail. The expected performance of the offshore vendor’s team may significantly impact the quality of the delivered project

Cultural Differences
People from different cultures have different ways of viewing the same problem and often this is a cause for misunderstanding in offshore project. In fact majority of businesses that offshore IT and BPO projects quote cultural differences to be the primary problem they face in offshore projects. Often the company is unable to understand the work philosophy of the offshore service provider and this leads to inability to work together in harmony.

Cost as the Only criteria
Cost should not be the only motivation to offshore projects. With cost being the only reason for outsourcing, it is not clear if the service provider will indeed be able to justify to the project or provide the performance the company. Often outsourcing to the lowest bidder may not be the right choice and the company may have to spend more money in the future to correct the inferior quality of work supplied by the service provider.

Hidden Costs
At the start of the project the company may have expected certain amount of cost saving but with passing time hidden costs may arise. Change in technology or management style may lead to increased costs the business may not wish to bear and may end the contract with offshore provider.

Cost of Overseeing the Project
It is important for the outsourcing business to check the quality and performance of the offshore service provider and thus the attention and time employees spend on the offshore project management will cost the company. If not budgeted before starting the project then any cost savings in the project may not be achievable and you may end up losing money.

Retention of Key Personnel
Frequent turnover of key personnel in the outsourced team leads to increase in time and effort required to transfer knowledge and train new employees. This is specifically true in all most all the offshore providers based in India where the employee retention rate is less than 90%.

Noncompliance with Government Regulations
In any outsourcing, government rules and laws of both countries need to be kept in mind. Transparency in such issues is especially important for accounting audits and for US Patriot Act and the Sarbanes-Oxley Act.

Communication Problems
Offshore service providers are located in a different time zone from the client may cause problems in communicating in real time. Also there is often a chance of misunderstanding e-mails or understanding messages and slow responses from offshore providers. This may derail the project. Communication issues are the chief reason for the failure of many offshore projects. In fact research studies show that over 10% of projects are delayed because of communication problems.

Early issues
Any time two companies’ work in a project, early problems and issues will occur, offshore projects are no different. Without understanding and addressing to fix the issues, both the company and offshore vendor may find it difficult and discourage to work through them and this may finally lead to the failure of the offshore project.

While offshore outsourcing is a powerful way to cut costs, improve quality, and refocus on core business, offshore outsourcing initiatives often fall short of management's expectations due to the reasons mentioned above. However this does not mean companies shouldn’t follow offshore outsourcing, with proper offshore project management companies can have greater success in their offshore outsourcing.