The Extra Cost of Business Process Outsourcing -a study at Volvo Cars Corporation

Abstract

Service offshoring of IT-enabled services has been labeled as the new wave of globalization. However, research has shown that every second offshored project never reaches the expected cost savings, simply because companies fail to include extra costs that are additional to the contract costs. Furthermore, several studies have acknowledged that distance- culture- and language differences affect the financial success of offshored processes as well as the magnitude of extra costs. Thus, the purpose of this study is to scrutinize and label extra costs that Volvo Cars encounter, as well as to further investigate how offshore-specific factors affect extra costs when they offshore outsource business processes. Moreover, the study is conducted in an explanatory nature with exploratory elements, and by means of a qualitative approach. In order to analyze the empirical findings, theories related to extra costs and to offshore-specific challenges have been investigated and reviewed. Hence, it could be concluded from the study that Volvo Cars has encountered nine different extra costs, as well as that all the extra costs were influenced by different offshore-specific factors in various ways.