From Offshore Outsourcing to Offshore Insourcing: Three Stories

Most large software companies are involved in offshore development of some sort, and now the trend is that small and medium sized companies are also going global. While empirical research suggests that offshoring are not always successful, evidence explaining the reasons for terminated collaborations is scarce, especially for small and medium sized companies. In this paper we explore the stories of three Scandinavian medium-sized software companies that have terminated their offshore outsourcing relationships and changed to offshore insourcing arrangements. The main reason for termination was disappointing low quality of the software delivered, being caused by insufficient domain knowledge, high turnover and a lack of motivation among the remote and external developers. We apply the theory of single-loop and double-loop learning in order to explain why the companies failed to correct the experienced problems, and the theory of escalating commitment to explain why the companies did not correct the failing course of action earlier. Finally we describe the change in the choice of the principle sourcing strategy from outsourcing to insourcing.