08 May 2009

The Cultural challenge (for outsourcing companies)

After their successes with outsourcing services, Indian IT Services firms are growing their consulting business. In Europe, and in particular mainland western countries like Germany and France, one of their key challenges is to convince European executives that they have acquired internally enough “local” culture to provide adapted services. This is only a matter of time and the first Indian firms to achieve this will build a strong competitive advantage.

Andreas Floth from PA Consulting Group, the international management, systems and technology consultancy, said back in 2004: “The growth of ‘nearshoring’ in Central and Eastern Europe offers exciting opportunities in Western Europe for provision of IT development and business process outsourcing. Their standard of IT literacy and expertise is very high, and both supply and demand of IT knowledge in the acceding countries will increase steadily. ‘Near-shore’ outsourcing also appeals to cautious CIOs who want to maintain control over IT assets.
However, service providers must improve significantly to meet expectations.” Three years later, we can say that the Indian consulting firms have taken on board this competition threat. In fact, some of them have started recruiting and opening up support and technical sites in Eastern Europe, bringing with them their technical skills and experience. However, success is not just about technologies and how to implement them. It is also about a deep understanding of the customers and their business, social and political environment.

According to Gartner Indian offshore service providers face three big challenges if they hope to be seen as equals with traditional European providers (all consulting firms with a long history in Europe):

1. “European Providers Enjoy Entrenched Mind Share
Traditional European local or multinational providers enjoy greater mind share among European buyers. Their long-term presence and investments have demonstrated a commitment to each of the European countries and have underlined a European strategy. Until recently, with the exception of the U.K., many European companies believed the Indian providers had an opportunistic approach to Europe. By increasing local hires, the Indian companies will take the first step on a long, slow path toward gaining European buyers' trust and confidence. A growing number of providers are starting to demonstrate capabilities that will help organizations look beyond cost savings to achieve other benefits, including access to scarce skills, resource agility, productivity gains, process improvements or innovation.

2. European Companies Are Reluctant to Publicly Acknowledge Offshoring
Continental European buyers' reluctance to acknowledge their use of offshore services does not help providers that want to leverage their success to win more deals, particularly when they are trying to gain traction in certain industries or countries. This silence about the use of offshore services also disguises the extent to which companies use offshore resources. Some continental European companies have signed deals with traditional service providers for offshore services, so that it is not obvious to the market that they are moving work overseas. Many traditional service providers have decreased their European operations in favor of increased offshore delivery capability. Some offshore providers, therefore, are justified in claiming that they are the local employers of the future as they scale up their local network of skills.

3. A Large Labor Pool Can Become Unwieldy
Indian and traditional providers are building scale offshore, in India and elsewhere. For the Indian providers to continue their strong growth, they must move away from labor-intensive methods of responding to strong demand. Effective operations in the future must also be able to offer process automation, including repeatable solutions and utility delivery models, or these providers risk building up an unsustainable and unwieldy resource pool.”

The second and third challenges are more concerning the outsourcing activities (not the topic of this article but nevertheless important). The first challenge about mind share however is also valid for the consulting business, in fact even more so I would say. In the same article, “Gartner advises Indian offshore service providers to establish local (onshore and/or nearshore) delivery capabilities, not just sales offices. This is because buyers will seek consulting and delivery capabilities that understand their local markets and business environments, in addition to being able to address language and cultural issues. Indian offshore service providers must plan early to adapt their delivery model, taking into account nuances like automation of processes, more repeatable services and solutions, utility delivery approaches and true innovation.”

Unless you don’t mind taking 10+ years to get there, this local delivery capability means local recruitment among consultants and professionals with a significant European professional and cultural experience. These “locals” will help for:

Winning contracts. European executives need be comforted by the client-facing sales team that their consulting firm has the competences to deeply understand the given business. Having around the table a team of Indians looking and sounding like they’ve just landed from Mumbai might not do the trick.

Delivering successful projects with greater chances to exceed customer expectations. With top class knowledge of best practices and technical skills, a team of Indian consultants would probably manage to meet most project objectives (and usually with very competitive prices). However, in order to go beyond these objectives, the team would benefit having at least one member with local and specific knowledge of the customer’s business, social and cultural context.

It is important to realize that it is not only about the culture of given countries, it is ideally also about a specific market and/or organizational culture in line with the consulting firm’s strategy. If for example a consulting firm intends to provide services to the large food retailers (like Carrefour, Tesco and Asda) it needs to recruit professionals and consultants with relevant retail experience (i.e. worked for one of these retailers). Managing a chain of supermarkets in Europe carries specific cultural traits that would not be immediately assimilated by an Indian consultant with an Asiatic food retailing experience.

I will illustrate the importance of cultural differences with the reverse example of one of these European retailers (Carrefour) that had to adapt to the Chinese market for a rather odd but nonetheless important cultural habit: the Chinese grocery shopper likes to touch and smell fresh food before buying, and not only fruits and vegetables as in most European countries, but also rice, fish and meat! It is extremely unhygienic but Carrefour had to adapt their shop design and packaging practices or not sell these products. This is of course an extreme and easily identifiable market specificity but more insidious differences could have no less significant impact on a consulting project.


At 7:24 AM, Blogger Edwin Trevor-Roberts said...

What's your perspective on how this trend will affect individual workers, particularly in developed countries?

At 11:31 AM, Blogger Peter-Anthony Glick said...

Excellent question Edwin.
In fact, my answer probably could warrant its own new blog post. I don't want (and don't have the time now) to answer too hastily. I will give some thoughts first.
The only thing I will say now is that we might very well work in a global market, but this does not mean that cultural borders/barriers disappear altogether. We must think global and act local and not just at the company level but at the level of the individual worker as well.


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