Proceedings of 30th International Business Research Conference

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Proceedings of 30th International Business Research Conference
20 - 22 April 2015, Flora Grand Hotel, Dubai, UAE, ISBN: 978-1-922069-74-0
Business Process Outsourcing: Exploring the
Performance of Software Development Companies in
Asian and Middle East Markets
Gayathri Goonaratne and Sanjaka Wanniarachchi
Software development industry is becoming one of the most vital businesses to the
economy and working on outsourcing projects provides great support to current market
growth in Asia and the Middle East. Business strategies adopted to increase the
earnings and maintain the performance on the development industry depend on each
company’s innovation ideas. The majority of strategies in use are taking into account the
country’s competitive advantage.
The outsourcing industry which is booming in the Asian and the Gulf region does not
have a clearly defined pathway regarding the processes that are to be pursued in a
marketing manner. My study sought to develop an understanding of the outsourcing
processes including minor objectives, performance factor in the current offshore software
development industry.
According to Clark et al. (1998), currently we are living in a “Software-first world”.
Continuous improvement of global demand for the product makes better growth of the
software outsourcing industry
This presentation reports on findings from a small scale research study that involved
working in partnership with a software development company based in Asia and in the
Middle East. To elicit information about the way the company manages their processes
of outsourcing software projects, a number of techniques were used including semistructured interviews and questionnaires with open-ended questions. The data was
analysed using qualitative techniques, in particular, the thematic analysis approach.
The study established among other things, the processes that the company uses in
dealing with offshore outsourced projects. The presentation will highlight the perceived
advantages and disadvantages of engaging in offshore projects, including issues
companies are currently facing, for example, the challenges to compete in the rapidly
developing industry. In addition, the presentation will include a discussion of the
effectiveness of the emerging software firms in the outsourcing industry. .
An attempt will be made to discuss how the findings from my study link with the existing
literature, for example, a study conducted by Guerrero and Eterovic (2004). I hope this
will provide a platform for further discussions around the concept of off shore outsourcing
projects, an area of great potential interest to different stakeholders who are likely to be
in attendance at the conference.
Despite this being a case study, the findings provide important insights into the current
situation regarding companies involved in outsourcing projects in various software
companies. This information might be useful to other stakeholders and there is potential
for further research ideas to emanate from the discussions.
Key Words: Off shore Projects, Outsourcing, Challenges, Rapid Development,
Techniques.
___________________________________________________________________
Dr.Gayathri Goonaratne*, Asst. Professor, Faculty of Management, Middle East College, Knowledge
Oasis Muscat, PO.Box 79, Al Rusayl, PC: 124, Sultanate of Oman. E-mail –
gcgoonaratne@hotmail.com *Corresponding Author
Mr. Sanjaka Wanniarachchi, PhD Student Aldersgate College Philippines, E-mail –
sanjaka.wanni@gmail.com
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Proceedings of 30th International Business Research Conference
20 - 22 April 2015, Flora Grand Hotel, Dubai, UAE, ISBN: 978-1-922069-74-0
1.0 INTRODUCTION
With the Industrial revolution, IT development carries a vital role for every sector in the
development industry. Outsourcing of some parts in software development process or
some special task commonly known as “Software Offshoring” and this method has high
growth in last decade (Wilkocks et. A., 2005).
Considering the general factors affecting to the software outsourcing, competitive
skilled labour force will be the key advantage for perform in this industry. Also,
sufficient resources related to the software development works will offer more profit.
Further, insufficient knowledge on new tools & techniques, and communication barriers
at the fixing the client‟s requirements cause to slow down the whole process.
The world accepted software development practises and standard is crucial for
international software development industry (Guerrero and Eterovic 2004). Providing
the required service through network is not the only challenge, promoting the
development products, business related issues; technological issues may have an
negative impact on the software developing company.
Tremendous internet connection has opened new venture for Asian and Middle
Eastern software development industry and surfing new technology, cost effective
communication, maintenance of distance sites is now easier. Even though
development infrastructure was build-up, some inappropriate policy framework,
sometimes legal protection of intellectual property rights is not supported for future
activities.
Outsourcing is not a new concept. Outsourcing some of the day‟s workload is very
usual for majority sectors such as printing and fleet management. Nevertheless, IT
Outsourcing is slightly different from usual business and the job is straightforward.
Practically, outsourcing decision is depend on the quality of the facility provided by
outsourcer and trusted relationship in between client and the outsourcing company.
Identify the exact requirement of client will leads to a successful project while
insufficient understanding of the requirement causes failure the entire project. In order
to identify the requirements, communication barriers may be a considerable issue at
the current situation of development environment. Managing a consistent information
exchange will grow the quality and demand of the final product and it may diminish the
interruption and uncertainty with the client.
In the last decade, Asia and Middle East have fast track software development
industry. Entrance to the Western European market through the concept of IT
outsourcing became success, because of competitive advantage of the nation and
successful marketing strategy, that Asian and Middle Eastern companies has used to
enter the target market.
There is another category in outsourcing which is called the Offshore outsourcing. At
the early stage of off shoring, maintenance and communication has big issue and
globalization make better solution for overcome related problems on behalf of new
technology. Globalization made real completion in this industry and today industry
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Proceedings of 30th International Business Research Conference
20 - 22 April 2015, Flora Grand Hotel, Dubai, UAE, ISBN: 978-1-922069-74-0
became a cost-cutting concept of technology since difference of Wages. This
advantage has effects to both client and offshore company as fortune. Skilled
personals in the comparatively low wages country will get this benefit as a big
opportunity for access to the international market and increase the market share.
1.1 SIGNIFICANCE OF THE STUDY
In the early stage of software development industry, most companies tend to develop
their day-to-day software needs and this is popularly known as “In house software
development”. Nevertheless, in order to consider the productivity and effectiveness
for the main business, most companies‟ contract out their software needs to Third
Party Companies and concentrate main business rather than intervening with
software developments. This outsourcing decision has n created a new venture for
Software offshore companies and today most software companies performing in the
international market as software leaders and this industry has taken part of the
economy in the country as well.
1.2 STATEMENT OF PURPOSE
There are identified key purposes to clarify from the beginning to the end of this
research under the topic of Software offshore and perform in the current software
development market. Business strategies that industry deploys their abilities to
support for national and international market analysis is very important to have a
clear understanding of the demand and supply of the Software development
industry. Understanding the software strategies and business strategies for
successfully perform in the industry, resource utilization on software outsourcing
concept, identify current trend for software outsourcing and opportunities that are
gained by software development companies with the intention of maintaining market
share will be evaluated by using diversified particle situations.
Also, the researcher has acknowledged very specific features related to software off
shoring companies and effectiveness for their current market share. Finding the facts
on those features associated with research topic will be considered. In line with this
the following features are important.
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Dissimilar divisions incorporate with software industry (Stand-alone systems,
IT Services, Business models and co-operate critical Systems like Medical
instruments etc.)
Methodology that company has use to keep their own uniqueness
Capacity of the industry related Skills such as project management skill,
technical knowledge and Marketing skills etc.
Innovativeness of the company and capital investment.
Manage Industry Standard and compete in the domestic market.
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Proceedings of 30th International Business Research Conference
20 - 22 April 2015, Flora Grand Hotel, Dubai, UAE, ISBN: 978-1-922069-74-0
2.0 LITERATURE REVIEW
The research study consists of many theoretical background and definition from
different authors for some subject matter. Skilled labour force and competitive
education system in Asian and Middle East creates an enabling environment for
knowledge-based products. Establishing and managing a software development firm
is easy task. Nevertheless, enter to the completion and perform to keep the market
share is not an easy task
Managing existing software development relationships and select the qualified
supplier is vital for long survival in the software development industry. Software
development institute (SEI) in Carnegie Mellon University introduced Capability
Maturity Model (CMM) and this pointed out the standards of a successful supplier as
well as required standards of particular software products (Khosrowpour 1996).
Outsourcing of IT based products and services are becoming a successful method in
modern information technology (Dibbern et al. 2004). Entering to the international
business can easily pull off through IT outsourcing and offshore software
development. Expanding the outsource activities will be cost effective when using
the competitive advantage of the country. Lower cost countries have taken these
opportunities for endure with international business and supports to the excising
market share. The basic driving force behind the offshore software development is,
shrink the software development expenditures (Gopal et al. 2002)
Software product characteristics can be based on the nature of the development. It
could be under service category or product category. Hoch et al. (2000) pointed out
dissimilar characteristics of software professional services and software products.
According to his survey a clear a clear difference is shown between the 2 areas.
Table 1 shows clear difference between professional service business and Software
products.
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Proceedings of 30th International Business Research Conference
20 - 22 April 2015, Flora Grand Hotel, Dubai, UAE, ISBN: 978-1-922069-74-0
Table 1: difference between professional service business and. Software products
Source: Hoch et al. (2000), p.46.
2.1 HIGH TECHNOLOGY PRODUCTS AND MARKET
EFFECTIVENESS
Over the past three to four years of Asian and Middle East IT industry has increased
the country‟s recognition under emerging software outsource destination and
availability of high skilled IT professionals, competitive cost with infrastructure facility
in Software activity, in the support of related qualitative advantages of the country
provided great prospect. This led towards focusing on high-end software
development products (Medini et al. 2008).
Developing high-end customised software and managing remote client is at present
taking place. Customized software development mediates a close communication
between the Software Engineers and the clients, because software products are
often very large and complex [Arora et al., 2001].
There are so many other ways from different researchers for relationships and
network in the foreign market. “In the market entry process networks are of great
importance, especially for small software companies” (Coviello and Munro, 1997). As
Lindqvist (1991) pointed out, “the firm‟s network relationships are determinant when
deciding which markets to enter and which foreign entry forms to choose.” Further,
Johanson and Mattson (1997) explain, relationships with related companies are very
crucial in order to enter to the international market and maintaining cultural
characteristics.
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Proceedings of 30th International Business Research Conference
20 - 22 April 2015, Flora Grand Hotel, Dubai, UAE, ISBN: 978-1-922069-74-0
3.0 RESEARCH METHODOLOGY
Analysis the data according to the researcher greatest knowledge was very effective
with the purpose of better data analysis. “whatever the nature of the data, the task of
interpretation falls squarely on the shoulders of the researcher” (Moser, 1971 cited in
Chisnall, 2001, p. 421).
In this research content, researcher has mainly concerned the area of software
companies those doing outsource projects and Services and their market share is
investigated. Further, pre identified important activities on behalf of perform in the
emerging market has analysed and growth prospect for Asian and Middle East
Software industry was studied under related policy framework.
From September until December 2014 researcher has visited to a number of
Software Development companies to carry out case study and gather information.
The main purpose of this visit is how IT companies perform in there industry while
doing outsource projects of overseas. It was evident that use model of Bell (1997) to
make software export decision. Figure 6 shows this model developed by Bell (1997)
Figure 1: The export decision [Bell, 1997]
Market
Selection
Entry mode
selection
Operationalizing the
market strategy
Case Study
This case study of one of the best Sri Lanka software companies involved in
outsourcing IT projects. The company which was established in Sri Lanka has not
moved to many countries in the South East Asia and to several countries in the
Middle East.
Questionnaire
According to Saunders et al (2007) questionnaire can define as “a data collection
method which each person is asked to respond to the same set of questions in a
pre-determined order” (Saunders et al., 2007 p 354).Researcher has exercised
unique steps to generate questions and format it.this research has used selfadministered delivery & collection and email questionnaire methods, in order to find
the data. A total number of 100 open ended and close ended questions were
provided to the middle management employees of 10 selected software
development companies in the South Asia and Middle East.
Interviews
In order to collect the most valuable data, researcher hope to go for an interview with
private contacts and this contact will create valuable link to access company
information up to certain limits. In addition, researcher has limited, when selecting
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Proceedings of 30th International Business Research Conference
20 - 22 April 2015, Flora Grand Hotel, Dubai, UAE, ISBN: 978-1-922069-74-0
the number of organization for carry out the interviews and obeyed to qualitative
grounded theory method (Strauss and Corbin 1990) as well.
The interviews were conducted on the higher management of the above mentioned
10 groups. While some were conducted face to face or via video conferencing. The
researcher faced few difficulties in obtaining appointments from these individuals.
Sampling Frame
Collecting data from entire IT offshore firms is impossible. Therefore, researcher
considers only the 10 selected companies, which is related to the research topic and
Software development firms, those doing offshore Software development activities
which consider as research population. “If the entire population is manageable size,
it is possible to collect all the data from it” (Saunders et al 2008, p.206).
Apart from case study Company, subject related background sample information
was collect from selected Asian countries and Middle East is used as main sample
from the case study. Selecting this particular sample has help to overcome the
research questions and final goal of the current research. Additionally, verity of
sample has help to maximize the research findings and get through the research
purpose.
Secondary Research
Secondary research provides incredible savings on time and cost for research.
Researcher expect to collect secondary data through different sources like previous
research documents, books, journals, articles and recognized websites etc.
Secondary data very important to making decisions for current situations and this
data make available good environment for present research.
4.0 DATA ANALYSIS AND FINDINGS
Market Selection
Companies use different markets time to time and they had change the different
market according to the economic situation in particular country. The Asian and
Middle East companies used to target the U.S market and European market but they
currently looking at the local projects as well. According to the several interviews
conducted with members of these software companies it was noted that it is very
easy to enter the U.S market and Europe market with the relationship marketing
strategy. Even though current economy in Europe is not much favour to earn more
profit
Once analysis step finished, data categorization will be involved and identification of
patterns on scrupulous topic has started. This categorization created subcategory
and Researcher can clear out the embrace data for research content and eliminate
data for research content explicitly. As a result, categorization has created, list of
important points and important findings related to the research questions as well as
research topic (Renner 2003).
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Proceedings of 30th International Business Research Conference
20 - 22 April 2015, Flora Grand Hotel, Dubai, UAE, ISBN: 978-1-922069-74-0
Researcher looks ahead to outline the findings through different diagrams and data
gathered through different articles and documents. Researcher has examined
software companies those are doing outsourcing projects and their market share has
inspected. Further, deeply analysed different strategies that software firms used for
perform in the market. According to the interview accomplished with several of these
organizations researcher realized that some information are not relevant to research
questions and research purpose. Figure 7 indicates the summary of the evaluation.
Figure 2: Significance of data collection through interviews*
Participants
8
6
4
2
Weak
Average
Good
Very Good Excellent
significance
5.0 CONCLUSION
In this research, researcher looks forward on different features company should have
in order to get the benefits for Sri Lankan software companies to perform in the
offshore software development market. According to the case companies researcher
has done comprehensive analysis by using theoretically and associated secondary
data. So, results from the literature review, data analysis and findings are match with
the practical case study.
At the literature review researcher found that, there are few effective drivers for
switch to outsource projects. Increased income level, selling ability to outsiders,
accelerate process efficiency, Internal resource utilization, Managing IT
complications, Insufficient Skills for IT related works and Cost reduction are took in
to account. With the findings according to the above derivers, researcher conclude
that these drivers are very effective for successful outsource decision and successful
offshore software development in the Asian and Middle Eastern region.
.
Researcher has examined from this Dissertation, vast verity of sources related to
Offshore development in IT industry and found that how far those findings are
important to perform in the Current IT Industry. As a case companies have provided
considerable amount of primary data and secondary data in order to make this
research success. Also a research finding has evaluated several Theoretical and
practice situations, related to the research topic. Researcher managed to brief all
these situations as follows. Also the certain limitations for more research topics are
pointed out as future references.
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Proceedings of 30th International Business Research Conference
20 - 22 April 2015, Flora Grand Hotel, Dubai, UAE, ISBN: 978-1-922069-74-0
Researcher has clearly identified that there are some special challenges Asian
Software companies to overcome. Compete in the international business
Environment with the concept of outsourcing is challenge. According to researcher‟s
finding on previous chapters, conclusion will be covered with specific features
improved by the research.
The research started with different objectives. Growth of current software
development trend in Asia and Middle East keeps increasing with fulfil the demand of
offshore projects from variety of sources. Sri Lanka has applied competitive
advantage of the country, in order to carry out the marketing on IT development
activates and cost effectiveness of the products has provided vital role to get the
opportunities from outsource concept. So, researcher conclude that comparatively
cheap labour cost, Low maintenance cost, IT infrastructure will be key points to
successively drive this market.
In addition to that, Research examined that, protecting the market against
completion with other low cost country will be talent in future. India, Philippines,
Pakistan etc. Also capturing some large part of the Market and sufficient innovation
in the new development will be must. Supports to the existing clients for future needs
with nominal fee offer advantage to hold the customers and build up the relationship
with relevant sector. According to the research questions, researcher discovered that
protecting market share could be keep on with following software standards, Quality,
Innovation Idea and technological knowledge on the subject will be take place.
Further, personal and business relationship with parties and also provide
considerable supports to get the recognition globally and this cause to increase the
market share in the competitive industry. Build up the relationship is not an easy
task. Study discovered that Social responsibility, adaptation with political needs,
Involvement of Top level management and Management decision would be good
points to accomplish this kind of purposes successfully.
In order to examine the strategies that used by companies to Perform in competition,
case companies conclude that marketing strategies, Business Development
strategies, HR related Strategies help to keep the performance up to date. As
marketing strategies, the case companies have used different partnership with
network companies and continuously contact them for keep the relationship. Human
resource is the Key advantage for the company future and Researcher
recommended that skilled workers with their hard work would be the main point to
success.
Main outsource oriented companies like North America, South America, Netherland,
Australia, Canada need continue investment on their software requirements. Supply
according to their growing demand is another challenge for Asian and Middle
Eastern companies and as a solution, companies have established their branches in
different geographical location to face the situation. But according to the study top
management conclude that, there are few problems when conducting workers in
these locations. Problems on Working visa, Illegal migration and creation on
overheads becoming destruction to company name and products. Examine these
issues, now company has limited the establishment in different geographical
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Proceedings of 30th International Business Research Conference
20 - 22 April 2015, Flora Grand Hotel, Dubai, UAE, ISBN: 978-1-922069-74-0
locations. Further Study has revealed that competition has increased between local
companies to get the opportunities. Moreover, manage the distance jobs across the
time was big challenge and cultural behaviours of local workers has created various
issues on the business enterprises. Continuously changing on customer needs and
maintain required software standards are challengeable.
6.0 Recommendation
Most companies are identified that targeting country is significant in order to make
project are viable. Considering the Emerging market, Asia and Middle East has
target projects from Top markets like Europe, North America, & South America.
Building relationship with the world is a big challenge. There should be a good
partnership in between countries to get project opportunities. Obtain and keep the
Market share is wholly differing from the other features of the company had.
Sufficient marketing strategy is must for survive in the Emerging market. In Sri
Lanka, major part of this purpose is accomplished by overseas officers and this
percentage was 61%. Also, 27% of companies manage to find the business direct
marketing via local officers.
In order to achieve the software company‟s business goals software products needs
to be user friendly, proper engagement with client requirements, like-minded and
software product has to be dedicated to particular company security system.
Outsourcing helps to concentrate core business activities without focus on non-core
activities within the company. However, there is a risk associated with long term
business relationships and business information. In this study researcher
recommended that working hard to achieve business goals mentioned above, will
help to perform in the IT offshore market and manage good market share with
economy. From the client side long term loyal relationship with offshore company
may easy to focus the core business activities in the company.
If the particular company had bad experience with outsourcing company in the past,
get the trust back is very difficult. If customer disappointed with outsourcing, this
recommendation will leads to lose many opportunities for whole software firms.
Basically, there are many reasons to outsource take in to account. Time to develop
in house, cost, working ability with unfamiliar tools and technological background
takes place. Studies advocate that, thinking on this reason and working with client
recommended.
Developing customer requirements with maximum effort, knowledge and skills also
recommend as a factor for perform in the emerging market. Successes or failure
depend on the workers talent and experience. Hire the talented professionals; keep
them as a happy employee and other HR requirements are practically recommend to
victorious future for the software firms.
According to the findings on a number of companies, Research has recommended
that internal politics may leads to crash the company. Some character collides,
Management changes, unconditional guidance, cultural issues, attitudes and power
struggles will be cause to break the concentration on main purposes, project
postponement and this kind of situation may leads to collapse the whole company.
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Proceedings of 30th International Business Research Conference
20 - 22 April 2015, Flora Grand Hotel, Dubai, UAE, ISBN: 978-1-922069-74-0
Highlight the success stories and maintain recognizable client list facilitates to get
more reliability with company and software projects. So, study recommended that
maintain grid of well-known clients and maintain company reliability on behalf of
client prestige among the business crowd will help to acquire good market share.
The time period of company has been working with offshore software projects
denoted that particular company has good stability on the market and researcher
recommended that keep the stability in the industry make good opportunity to
perform through the concept of software outsource. When select the company for
outsource requirement, search and find the information via company website is
usually happen. Researcher recommended that, update and maintains proper
company website also helps to build a good image on the software company and this
will be good communication between client and potential firm. Further, active
marketing campaign is must for spared the company brand name in business world.
Regular training on company staff, conducting knowledgeable workshops, managing
software standards, maintaining cording standards, stable development team also
truthfully recommended as considerable factor for keep the good market share and
perform in the emerging market with the concept of outsource.
In the software development industry, Project management skills and Management
ability is take place. Sound project management skills, Plane, Risk associated
management activities and communication skills help to project success. For the
successful projects strong project management skills is very important.
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Proceedings of 30th International Business Research Conference
20 - 22 April 2015, Flora Grand Hotel, Dubai, UAE, ISBN: 978-1-922069-74-0
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