Communication in Offshoring Relationships

Spend Matters welcomes a guest post from Vantage Partners. Click here for Part 1 of this series on managing performance in offshoring relationships.

Failure to communicate about service issues may exacerbate problems.
In a 2010 survey, the majority (57%) of respondents who said cultural differences impact their ability to effectively manage performance also noted that directness of communication poses a challenge in their relationship (Vantage Partners, Managing Offshoring Relationships: Governance in Global Deals, 2010). In general, customers believe they tend to communicate directly, but that their provider communicates indirectly, perhaps avoiding discussion of problems for fear of being penalized. For example, 58% of U.S. customers said their offshore provider prefers indirect communication, while only 16% described their own organization that way. Providers that deliver to the U.S. have a different view: only 28% said they prefer to communicate indirectly (see Figure 1).

Figure 1: U.S. customers view their offshore provider differently from how providers view themselves

Some providers, however, do ascribe indirect communication to their native culture and believe it can get in the way of effective relationship management. Irina Kiptikova, a Belarus native and PR manager at IBA Group, says improving the way her organization manages its offshoring relationship begins with addressing a key cultural attribute: "Get rid of the reserved character typical of Belarusians; encourage more communication." These perceived communication differences, however, may point to understandings within one culture that do not translate well to an overseas partner.

What a customer may perceive as indirect communication may seem to providers to be a natural approach to communication. "In Japan, because 90% of the population is Japanese by ancestry, people share the same thought process," says Tetsuto Nishiyama, a Japanese native and assistant manager at OMRON Corporation. "That often leads them to communicate requirements indirectly. For instance, they might say, 'I'll leave the GUI design up to you,' which really means 'I'll leave the GUI design up to you, but I want to review it before you finalize.' That would be understood by a Japanese person, but not by a foreigner." A failure to recognize different approaches to communication and discuss how to deal with them makes it difficult to manage performance effectively.

One potential impact of indirect communication on performance is the reduced likelihood of being able to resolve a problem collaboratively while the problem is still manageable and there is sufficient time to address it. For example, in an IT deal, when network or database issues are not communicated directly, the customer may have less of an opportunity to adjust its business plans or communicate revised expectations internally. A customer unaware of the issue is also unable to contribute to resolving the problem itself.

"Cultural differences add to performance issues because of suppliers' reluctance to report issues whether or not they lead to a service level issue because it makes them feel like they're not performing to customer's expectations," says Gary Zeiss, Esq., Vice President of Corporate Transactional Group at LawScribe. "Add to that a 45-day lag time to find out what problems are in the reporting structure and many [customer] organizations' discomfort in dealing with that lag time. It's important to communicate issues as they arise and not just wait for the formal reporting structure."

Customers, however, may not make it easy for providers to raise performance issues. Customers generally do not embrace negative news; their strong reaction thereby contributes to providers' reluctance to come forward. Additionally, an instinct to find fault and blame leads to quick application of penalties or service credits, further reinforcing providers' hesitance to discuss problems early. Customers should recognize that they contribute to effective service delivery by communicating requirements clearly, managing commitments as demand forecasts evolve, and collaborating to solve problems when they arise. The inability or unwillingness of customers to engage their provider in a discussion about what each party can do to improve performance exacerbates the cultural challenges they face in their offshoring deals.

The next part of this series will address dealing with conflict in offshoring relationships.

- Danny Ertel, Partner, and Sara Enlow, Principal, at Vantage Partners

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