Cross Cultural RisksIn today’s world, where companies’ competitiveness lies majorly in sourcing, cross culture is becoming increasingly relevant. According to Charles Gay and James Essinger in their book, “Managing Strategic Sourcing”, if you are flying on a BA aircraft, you are probably actually not flying on it. The plane has the BA livery, the crew wear the BA uniforms and the cabin staff dress in the corporate style, but what you are really traveling on is a service that has been outsourced in its entirety. A Danish shipping company, Maersk, provides the aircraft, crew and cabin staff. The in-flight catering is outsourced to Gate Gourmet, and the chances are that even your ticket was bought through an independent agent.

Though there are several other reasons, cost-cutting is a major motive and many companies like to take advantage of salary arbitrage. It is no secret that an employee in the US might require 100$ an hour for a particular IT job, while an employee with similar skill sets might only require 20$ an hour in India. However, while outsourcing or offshoring, it is important that the companies do not blindly assume the remaining 80$ per hour as profit. Because, in reality, to just find a suitable vendor for the operations costs around 0.2 -2% of the entire worth of the project. In addition, there are also additional ‘hidden’ factors that affect cost of the process like raising infrastructure, employee attrition rate of other countries and communication costs.

Often there are situations where the foreign employees do not fully understand American business and customer expectations. In a 2004 survey involving U.S. customers, it was found that approximately two-thirds (~67%) of them would reduce their purchases, or cease purchasing altogether from companies who used offshore customer agents (Anton and Setting). Dell has also recently shut down its call center operations in Mohali as the company felt that the call center was unable to meet the customer expectations. Moreover, the company was fast-paced and there was a huge gap between the company’s products and call center’s understanding. Some of the companies also point out that U.S customers are unable to understand the thick Indian accent and their customers do not like responses read out of a script.

Power distribution and responsibility:

People working in western countries, in general, tend to take up ownership for the job they are working on. There is a strong sense of accountability and it could be attributed to increased competition and higher focus on career. On the contrary, eastern countries tend to be slightly more relaxed and do not take up ownership. At times, this leads to delayed deliverables and causes frustration among the clients.

In countries like India, power is hierarchical and employees tend to follow orders without a lot of questioning. However, in countries like USA, power is equally distributed and employees work closely with their bosses. This difference could also stem from the earlier discussed differences in responsibility. As each employee is more committed, the need to micro manage or exert power becomes more redundant. On the other hand, if the vendor side employees are more lethargic, power needs to be exerted to get the work done. Therefore, it makes it difficult for the clients to trust their offshore employees with vital requirements. In addition, the hierarchical structure on the vendor side requires constant follow-up and makes it difficult for clients to co-work.

Communication Differences:

According to a research article, “Beyond Models of National Culture in Information Systems Research”, culture differs not just from country to country, it also depends majorly on the region, language and organization level. This increases the gap between clients and vendors as interpretations of the message can be different and because the conversations are through tele-communication, it adds to the risk of changing the shade of meaning. Even technically, countries follow different ways to convey their requirement and more often than not, a requirement can be easily misunderstood. Sometimes, suggestions from either side, not put in a diplomatic way, can be misconstrued and can lead to increased tension between client and vendor.

Stay tuned to the next part of this blog to learn more on how cross-cultural risks can be tackled.

Janani Balu

Janani Balu

Manager of Advisory Services at Neo Group
Janani is Manager of Advisory Services at NeoGroup and provides strategical globalization solutions to organizations. She has expertise in data analysis, market research and Financial Planning and Analysis. Prior to working with NeoGroup, she was working as a Financial Analyst with JDA software and holds an MBA degree from Thunderbird School of Global Management.
Janani Balu