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.