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2.5.2. Dimensions that Constitute Nearshore

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Over the last decade many studies on global software development have documented that distance introduces difficulties. There are many reasons for these difficulties including communication, control and supervision, coordination, creating social bonds, and building trust (Carmel and Tjia, 2005). Distance from the client, far from being a non-issue, is re-emerging as important in developing a competitive global strategy. Ghemawat (2001), for example, argue that distance-related issues such as geographical positioning, cultural differences and a country’s economic development status make a sensitive difference in the success or failure of ventures undertaking international trade arrangements. The reduction in wage costs is without doubt significantly greater when offshoring services abroad than when nearshoring. Nevertheless, a conclusive statement about the relation between wage costs and transaction costs cannot be made. It can however be stated that transaction costs, in principle, are positively correlated with geographic distance (Trampel, 2004).

In addition, in many cases, nearshoring is linked to more than geographic proximity; many authors claim nearshore had an advantage over offshore in terms of Political/economic linkages and historical linkages. Political/economic dimensions mostly refer to trade agreements, such as EU or NAFTA. While historical linkages refer to colonial ties and Diaspora connections. Nearshoring could also be associated with linguistic factors, as do some Mexican Maquiladoras at the US-Mexican border that aim at taking advantage of the forty million Spanish speaking Americans. However, even though many nearshore destinations emphasis the language factor, few of them may be native speakers of the client language. Carmel and Tjia (2005) noted also a case of nearshoring involving infrastructure proximity, which is the case of Canada, a nearshore destination to the USA that has a uniquely US-compatible infrastructure. Some other nearshore dimensions could include travel time between client and destination, time zone similarities or similar business culture.

Still that one of the most main dimensions of nearshoring is the cultural similarity between the client and the vendor countries. In fact, cultural differences are very often considered as indirect determinants of transaction costs. In a study about offshore outsourcing, IBM Consulting Services identified differences in culture as the greatest risk (Trampel, 2004). The cooperation between offshore partners can fail based merely on divergent corporate cultures and philosophies. Different cultural backgrounds can further aggravate the situation. These differences have an important impact on transaction costs at the interfaces where the interaction between the offshorer and nearshorer is intensive and therefore complex. It is therefore important that the involved partners are aware of the differences and integrate them adequately. Intercultural problems are frequently the result of the partners presuming similarity concerning their cultures (Perlitz, 2000). It is difficult, however, to quantify costs that are based on cultural differences. In a survey among employees of 50 IBM-subsidiaries worldwide, Hofstede (1991) tried to measure differences in culture by applying the four dimensions above:

1. PDI: Power Distance Index describes the manner of a society when dealing with situations of inequality. A High Power Distance ranking indicates that inequalities of power and wealth have been allowed to grow within the society.

2. IDV: Individualism Index reflects to the importance to pursue individualistic objectives compared to collectivistic aims. A High Individualism ranking indicates that individuality and individual rights are paramount within the society. Individuals in these societies may tend to form a larger number of looser relationships.

3. MAS: Masculinity focuses on the degree the society reinforces, or does not reinforce, the traditional masculine work role model of male achievement, control, and power. A High Masculinity ranking indicates the country experiences a high degree of gender differentiation.

4. UAI: Uncertainty Avoidance Index focuses on the level of tolerance for uncertainty and ambiguity within the society. A High Uncertainty Avoidance ranking indicates the country has a low tolerance for uncertainty and ambiguity.

Table 1 : Hofstede’s Cultural Dimensions source : (Hofstede, 1991)

Hofstede’s study demonstrates that cultural boundaries cannot be put on a level with national borders. On the contrary, the dimensions, in Table1, show big cultural disparities between Germany and Portugal, despite their regional proximity. And despite Portugal is a country of the European union, Morocco has closer indexes to France and Germany. Moreover, IBM Consulting Services study confirmed better cultural adaptation behaviour of Indian employees, who are open to other cultures and are prepared to adapt to them. The cultural disparities are therefore far more complex than suggested by regional, political or religious differences (Trampel, 2004).

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