Empirical Software Engineering

, Volume 19, Issue 5, pp 1225–1258 | Cite as

From offshore outsourcing to insourcing and partnerships: four failed outsourcing attempts

  • Nils Brede MoeEmail author
  • Darja Šmite
  • Geir Kjetil Hanssen
  • Hamish Barney


Most large software companies are involved in offshore development, now small- and medium-sized companies are starting to undertake global sourcing too. Empirical research suggests that offshoring is not always successful; however, only a few comprehensive failure stories have been reported. The objective of our study has been to understand why small and medium-sized companies terminate their offshore outsourcing relationships and what alternative arrangements they undertake afterwards. Therefore, we designed a multiple case study of four medium-sized Scandinavian software companies that have terminated their offshore outsourcing relationships. Our results are based on data collected through semi-structured interviews, informal dialogues and analysis of company documents. We found that all companies terminated their offshore contracts because of low quality of the software being developed. This was caused by an inability to build the necessary human and social capital. The companies reported challenges with domain knowledge, a lack of commitment of external developers, cultural clashes, poor communication and high turnover, which only amplified the problems. After termination all four companies changed their sourcing strategy from offshore outsourcing to offshore insourcing and partnerships. We conclude that successful offshore software development requires a change from a cost-driven focus to an intellectual capital-driven focus. To prevent continuous investments into contracts that are destined to fail, companies should look for signs of escalating commitments and terminate relationships that cannot be corrected. Those companies that choose outsourcing shall also take into account that mismatch between the size of the offshore contract relative to the vendor may have a negative effect on a relationship.


Global software engineering Global software development Distributed software development Offshoring Insourcing Backsouring Outsourcing Single-loop and double-loop learning Escalating commitment Intellectual capital Human capital Social capital Organizational capital SME Multiple-Case Study 



This research is funded partly by SINTEF ICT, and the Swedish Knowledge Foundation under the KK-Hög grant 2009/0249 and project BESQ+ under grant 2010/0311. We are grateful to the reviewers and Torgeir Dingsøyr who gave us valuable feedback.


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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  • Nils Brede Moe
    • 1
    Email author
  • Darja Šmite
    • 2
    • 3
  • Geir Kjetil Hanssen
    • 4
  • Hamish Barney
    • 5
  1. 1.SINTEFTrondheimNorway
  2. 2.Blekinge Institute of TechnologyKarlskronaSweden
  3. 3.University of LatviaRigaLatvia
  4. 4.SINTEFTrondheimNorway
  5. 5.University of New South WalesSydneyAustralia

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