World Savvy: The challenge of outsourcing across cultures

Maybe if you had lived in a cave in a remote area of the world and had no bars showing on your cell phone, you would not know that the two presidential candidates in the US hurled insults at each other for outsourcing US jobs overseas. Mitt Romney allegedly did this while he was a principal of a private equity firm, and Barack Obama allegedly did this by putting money into companies that then shipped jobs overseas. Apparently, both sides even referred to the other as the “outsourcer in chief.” There is likely more fiction than fact to either accusation, but it does reveal that “outsourcing” is not a polite term to use in business. You will now be more likely to be vilified than lauded if you use it in polite political conversation.

Many localization firms have joined other parts of American and Western business in “outsourcing” to find a cheaper place to handle language work. It made total sense if language work was being done in the country that spoke a particular language (why do Latvian in Chicago when you can have it done in Riga?) but has become less so with manufacturing, medical transcriptions and IT work in general. And when the outsourcing craze started, America wasn’t mired in a recession with high unemployment. But now it is a political issue. Finally, China and India are not as much cheaper as they used to be.

Lower costs overseas were the prime motivator of outsourcing, of course, and better technology to communicate made it seem more feasible. McDonald’s restaurants have even outsourced taking orders from the drive-thru. The shopper would push the button, give the order to someone elsewhere, not in the store, who would then punch in the order for the cooking and wait staff to see. To date, the call centers accepting orders have been in the United States, but in lower cost areas. McDonald’s noted that “sending orders directly to a call center and back to the grill could also allow McDonald’s employees to focus on delivering better customer service,” according to the CBS News article “Outsourcing Drive Thru?”

But by simply focusing on the cost, many companies learned that there are hidden economic if not social costs to outsourcing.

For example, know what PDI is? It means Power Distance Index, and it is a measure on a scale of up to 120 of how a person in a country would react to an authoritarian figure. Countries with a high PDI would have people more willing to accept an authoritarian power figure in a paternalistic way. People in higher PDI countries are less likely to question authority and are more willing to accept instructions from those in higher positions.

Here is a list of the top seven outsource-providing countries in 2009, and their PDI scores (originally put together at for the year 2009: India (77), Thailand (64), Mexico (81), China (80), Indonesia (78), Malaysia (104), Philippines (94). Western countries have much lower PDIs, with the United States at 40, Belgium at 60 and Austria at 11.

Basically these indices mean that unless you recognize the cultural differences between high and low countries you are bound for disappointment. A project manager from a low PDI country might call and ask “Will the project be ready by Thursday?” The counterpart in a high PDI country might respond, “Yes, it might be ready.” But that doesn’t mean it would be. Project managers in low PDI countries expect straight answers, however. In the vernacular, does mañana really mean mañana?

A great cartoon I once saw illustrates this perfectly. The manager is seen talking to a bunch of his employees with a cheerful look on his face and tells them “Now, I’d like you all to know that as your boss I’ve decided to outsource myself to India. That way, the likelihood of all my decisions being correct will be greatly enhanced.”

Medical transcription is a huge area of outsourcing. After doctors see a patient, they dictate their medical notes, including the prognosis. To save costs, hospitals outsource, but not without potential problems.

Back in 2003, the San Francisco Chronicle’s David Lazarus noted that a “woman in Pakistan doing cut-rate clerical work for UCSF Medical Center threatened to post patients’ confidential files on the Internet unless she was paid more money. To show she was serious, the woman sent UCSF an e-mail earlier this month with actual patient records attached.” While US laws maintain strict standards to protect patients’ medical data, those US laws are virtually unenforceable overseas. The American Association for Medical Transcription estimates that about 10% of all US medical transcription is being done abroad, though it’s hard to tell for sure seeing as how the outsourcing of medical transcription is often far down the chain. In this case, the transcription firm UCSF used sent this work to a subcontractor in Florida. She in turn delegated it to a guy in Texas, who got a woman in Pakistan to do it and then did not pay her properly. So, obviously, she got mad.

The original subcontractor sorted it out, but this type of thing could potentially happen again, and not just in the medical industry. There is always the issue of intellectual property loss to consider in calculating the cost of outsourcing. Don DePalma of Common Sense Advisory said that from an IT outsourcing perspective, the biggest problem is that many companies “went too far with outsourcing, sending a lot of intellectual property out the door with the applications that they outsource. What happens is that they outsource not only the development of an application or major IT component, but also the institutional knowledge about it. This has led to anxiety about the loss of critical IT competencies. Companies will have to recover that knowledge.”

And then there is the service aspect of outsourcing call centers. True story. I had to go to Columbus, Ohio, to give a speech. I called Holiday Inn Express and asked for a reservation at a hotel near where I was to be the next day. It was obvious that I was speaking to someone who was not local. He said, “I’m sorry, sir, but we don’t have any rooms available in Columbus that night. But we have plenty of rooms in Cincinnati!” That city is over 100 miles away.

All is not lost, however. It is possible to take a balanced approach to this, especially if you know what you’re doing. According to Ben Sargent at Common Sense Advisory, “Lionbridge used to pitch the concept of smart-shoring — a combination of offshore, onshore and near-shore resourcing to balance cost, expertise, proximity and geopolitical risk. McKinsey also talks about balanced global sourcing whereby you want to avoid any critical supply or capability from being overly concentrated in one country or another; for instance, don’t become solely reliant on Chinese factories or Indian software developers.”