Nearshore IT Sourcing for Small- and Medium-Sized Enterprises: An Exploratory Study of Swiss SMEs Sourcing from Russia and Ukraine

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1 Nearshore IT Sourcing for Small- and Medium-Sized Enterprises: An Exploratory Study of Swiss SMEs Sourcing from Russia and Ukraine DISSERTATION of the University of St. Gallen, Graduate School of Business Administration, Economics, Law and Social Sciences (HSG) to obtain the title of Doctor Oeconomiae submitted by Lena Martschenko from Ukraine Approved on the application of Prof. Dr. Martin Hilb and Prof. Dr. Urs Fueglistaller Dissertation no Difo-Druck GmbH, Bamberg 2008

2 Abstract Zusammenfassung Preface List Of Figures List Of Tables IV VI IX XI XVII XIX 1 Introduction Problem Definition The New Geography of the IT Industry Challenges for Small- and Medium-Sized Enterprises Research Objective Research Methodology Definitions Information Technology (IT) IT Sourcing 12

3 XII IT Outsourcing Nearshore IT Sourcing Small- and Medium-Sized Enterprises (SMEs) Industry Definition Limitations 28 2 Theoretical Background History and Development The Early Development of Outsourcing The 1960s The 1980s The 1990s The Beginning of Off- and Nearshoring IT Outsourcing Today The Motives for and Opportunities of Nearshore IT Sourcing Main Motives Strategic Motives Operational Motives Nearshore Advantages Compared with Offshore IT Sourcing Risks and Remedies Overview Communication Risks Quality Risks Strategic Risks Safety Risks Monitoring Risks The Phase Concept for the Nearshore IT Sourcing Process... 46

4 XIII The Phase Model The Analysis of the Actual State Overview The Phases of the Actual State Analysis The Business and Process Analysis The Environmental and Market Analysis The Make-or-Buy Decision Phase Overview The Process Sequence Identification of Potential Sourcing Services The Cost-benefit Analysis 60 x Sourcing Decision Frameworks The Implementation Phase The Process Cycle The Requirement Analysis Partner Selection and Contract Implementation Theoretical Conclusions 85 3 Empirical Part Methodology Research Questions Research Object The Selection of Cases Data Collection Data Analysis The Nearshore IT Sourcing Sites The "Client" Site: Nearshore IT Sourcing in Switzerland 91

5 XIV The Economic Relevance of the Software Sector in Switzerland The Rise of Nearshore IT Sourcing: From Software Development to Software Production Exploiting Cost Advantages in Nearshore Countries Russia as a Nearshore "Vendor" Site Russia's Market for Software Development Russia's Nearshore IT Services Value as a Nearshore IT Sourcing Site The Specifics of Selecting a Russian Supplier Implications for Western Clients Ukraine as a Nearshore "Vendor" Site Ukraine's Market for Software Development Value as a Nearshore IT Sourcing Site Implications for Western Clients Case Nr. 1: A Wholly-owned Subsidiary A Brief Overview of the Company The Phases of the Nearshore IT Sourcing Process Analysis of the Actual State The Make-or-Buy Decision Phase The Implementation Phase Conclusions Case Nr. 2: A Wholly-owned Subsidiary A Brief Overview of the Company The Phases of the Nearshore IT Sourcing Process Analysis of the Actual State The Make-or-Buy Decision Phase 124

6 XV The Implementation Phase Conclusions : Case Nr. 3: Contractual Obligation A Brief Overview of the Company The Phases of the Nearshore IT Sourcing Process Analysis of the Actual State The Make-or-Buy Decision Phase The Implementation Phase Conclusions Case Nr. 4: Subcontracting ' A Brief Overview of the Company The Phases of the Nearshore IT Sourcing Process " Analysis of the Actual State The Make-or-Buy Decision Phase The Implementation Phase Conclusions Empirical Results The Characteristics of the Cases The Make-or-Buy Decision Phase Identifying Potential Sourcing Services Nearshore Motives and Opportunities The Implementation Phase The Requirements Analysis The Nearshore IT Sourcing Model Partner-/ Employee- and Site Selection The Process-specific Aspects Coordination Methods & Technologies Nearshore Risks & Remedies Key Success Factors and Limitations 157

7 XVI 4 Final Results and Implications Theoretical Implications Nearshore IT Sourcing: Classification, Characteristics, Stakeholders, Prospects, Risks and Remedies The Phase Concept of Nearshore IT Sourcing and Tools for Supporting the Decision-Making Process Analysis of the Actual State The Make-or-Buy Decision The Implementation Phase Results from the Empirical Study' Future Research Implications for the Business Community 168

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