Culture Gap and Outsourcing Business


Outsourcing business is becoming one of the most popular methods of the international business conduct. With the growing development of IT technologies and mainstream simplification of the international commercial cooperation, the importance and popularity of this business model is becoming predominant, especially in  IT-oriented, engineering, legal, and auditing services (Baldwin 2006). While the influencing factors are always taken into consideration by the project managers of the companies, recent practice precisely indicates that one of the most important determinants of the successful project realization is the cultural environment of the country where the outsourcing facilities and staff are located ( Mankiw & Swagel 2005).

The aim of this paper is to examine the influence of the cultural peculiarities of the Oriental and East-European centres of outsourcing workforce concentration.  With the regard to the research model, auditing services and software development industries were chosen as the most popular fields in outsourcing. The paper elucidates whether the influence of the discussed factors is really determinative, what types of effect is exercised on the project implementation processes, and what actions can be done by the project managers in order to enhance the positive influence of the cultural characteristics and reduce the negative one.


The globalization and internationalization of business inevitably lead to the immense increase of the outsourcing business sector. The most popular areas includes IT development, legal, accounting, and auditing services, engineering, Human Resource management, and other business industries. As opposed to the insourcing practice, outsourcing projects always involves a third party for the fulfilment of a contract, and quite often this entity is located overseas. To illustrate, the vast majority of all IT-related contracts concluded between the United States businesses entities are practically carried out by Indian, Pakistani, Russian, or Chinese software developers. The reasons of this practice are different, but predominantly, the US contractors minimize the total costs of the project in such a way since it is considerably less expensive to hire overseas development than to employ a cost-consuming in-house staff (Grossman & Helpman 2005).

The present research is relevant for the needs of business in general for two primary reasons. First and foremost, it is practical since international business outsourcing institutions will be capable of full realization of the importance of cultural gaps among the contracting and contracted countries. Second, the research will give grounds for the subsequent outsourcing business-related studies.

With regard to the importance of the chosen research proposal, it should be accentuated that the successful development of both domestic and international business activities is dynamic and flexible in its nature. The global business community has realized that  with help of the internet-based delivery systems it is both cheaper and less time-consuming to subcontract the partial or full performance of a specific contract to the outsourcing business unit located overseas. The data of the National Bureau of Statistics explicitly indicates that 77% of all IT-related contracts concluded within the jurisdiction of the United States of America are ultimately fulfilled on the territories of China, Russian Federation, India, or Pakistan. The reason for this is that the software development staff is considerably cheaper and with the same level of professional expertise than their US colleagues. Considering the scopes of the business turnover, all aspects of the project management shall be profoundly analysed to ensure that nothing inhibits the fulfilment of the project in the long run. The unanimous scholarly and practitioners opinion is that the cultural and ethical characteristics always determinate the environment of the project.

Overall, the research will be valuable for the business and scholarly communities since it explores the business area which has not been profoundly studied previously and although provides explicit answers to the research questions; it also formulates new practical questions significant for the needs of the scholar community.

Research Questions and Research Objectives

The key determinants of the research questions are the needs of the practice.

Therefore, with regard to the necessities of the modern outsourcing business practice the following research questions do seem to be apt:

-          Is the influence of the cultural gap significant to the realization of the projects?

In other words, no one really disputes the fact that the influence is indeed exercised. The rationale of this question is whether this impact is significant enough so that it may imperil the execution of the project.

-          Is the influence exercised exclusively negative in its nature?

Some nations are known to be extreme workaholics (Baldwin 2006). To illustrate, the current redaction of the Labour Law of China stipulates that the forking week lasts 60-80 hours in contrast to the USA where the law prescribes that working more than 40 hours is considered extra-work. Traditionally, the Chinese are more laborious than their US colleagues, and this factor should be taken into account. In other words, while evaluating the cultural sphere of the targeted country, it is necessary to find out whether positive cultural elements exist there.

-          What strategies can be launched by the managers of the project to reduce scopes of the negative influence of the cultural gap and to increase the positive effect?

This part of the research is the most needed for the business practitioners since full realization of this concept will ultimately enable the community to increase the accrued revenues and reduce the total costs of the project.

Respectively, the research objectives are:

-          To demonstrate that the cultural gap is indeed important in the context of the international outsourcing business;

-          To identify the major types of the negative and positive cultural influence on the working performance;

-        To determine the main strategies and approaches to help managers of the company to make use of positive aspects of the cultural gap and reduce the negative affect thereof.

Literature Review

Although the research topic is brand new, intense academic debates have been waged by the scholar community. The group of economists led by Baldwin (2008) and Grossman and Helpman (2005) vigorously advocate the opinion that indeed the influence of the cultural factors is vitally important for the successful performance of the international outsourcing transaction. On the other hand, their inveterate academic opponents Parry (2009) and Mankiw (2005) are firmly opined that albeit the impact is indeed exercised, it is not determinative, and the attention of the managers and the researchers should be focused on other factors.

The most exploratory and detailed surveys with regard to the present issue were conducted by Weidenbaum (2005) and Cunningham (2002). These authors extensively discoursed on the cultural impact on the development of the outsourcing business, but only superficially researched the aspects connected with the strategies and managerial approaches which can be utilized to raise the effectiveness of the research facilities.

The research questions and objectives have been inferred from the synthesis of the discussed literature and practical evidences since they are among the most crying needs of the entire outsourcing industry.


With regard to the research methods of this paper, the twofold approach was followed. The first stage involves the analysis, systematization, and encapsulation of the currently available scholarly opinion upon the subject in question.  Considering the dynamic character and constant modifications of the outsourcing business industry, the most plausible sources are those that have been recently published (Grossman & Helpman 2005). The research design involves the study of the books, articles, and web-sources on the targeted research subject.

In order to comprehend the peculiarities of the national mentality and other relevant factors which influence the development of the outsourcing business institution it seems to be relevant to address the opinion of the local labour law scholars and labour culture experts.  Logically and with recourse to the expert opinion, the factors influencing the working process can be identified.

The second part of the research methods is the collection of data, i.e. the combination of the qualitative and quantitative methods of business research. To accomplish this goal, the most suitable strategy seems to be the analysis of the contemporary case practice.  To be more exact, two companies from the auditing outsourcing field and two business entities from the software development world will be taken. In order to collect the required data and to find out whether the company is affected financially, it is necessary to analyse published annual financial statements and exercise a comparative analysis before and after the outsourcing unit was implicated. Besides, the relevant research option is the published statements of the company key figures, including the CEO and project managers. Lastly, the opinion of the business research oriented and non-governmental organizations are to be highly considered.

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