Offshore Outsourcing: The Risk of Keeping Mum

Abstract

Offshore outsourcing has become a popular trend recently because it offers companies potential benefits, such as a qualified work force at an inexpensive cost and continuous operation. The top six potential locations for offshoring services—based on financial attractiveness, worker skills and availability, and business environment— are reportedly all Asian countries, namely, India, China, Malaysia, Philippines, Singapore,and Thailand [1]. The average programming cost in Asia, for instance, is 5–12 times lower than in the West and is expected to remain at least four times lower in 2015 [3]. Although international outsourcing seems very promising, there are several serious risks; prominent among them are the impact of cross-cultural factors. In this column, we focus on one of the risks, namely, the mum effect (or code of silence), which has not received much attention in the context of offshoring. The mum effect occurs when one or more stakeholders who have information indicating a project is failing decide to remain silent and let the project continue [4]. In the past, the mum effect has been attributed as the cause of failure of some multimillion-dollar software projects. A classic case is the CONFIRM project, which resulted in a $125 million disaster [5]. It was later found that the management team deliberately covered up major technical and performance problems and the auditors who discovered it failed to speak out. Since offshoring is a recent phenomenon, reports of such major failures from the mum effect have not surfaced yet. Here, we investigate whether cultural differences between Asia and the West can increase the risk of the mum effect.