Outsourcing

Outsourcing is a business practice in which companies use external providers to carry out business processes that would otherwise be handled internally.^[1][2][3] Outsourcing sometimes involves transferring employees and assets from one firm to another.

The term outsourcing, which came from the phrase outside resourcing, originated no later than 1981 at a time when industrial jobs in the United States were being moved overseas, contributing to the economic and cultural collapse of small, industrial towns.^[4][5][6] In some contexts, the term smartsourcing is also used.^[7]

The concept, which The Economist says has "made its presence felt since the time of the Second World War",^[8] often involves the contracting out of a business process (e.g., payroll processing, claims processing), operational, and/or non-core functions, such as manufacturing, facility management, call center/call center support.

The practice of handing over control of public services to private enterprises (privatization), even if conducted on a limited, short-term basis,^[9] may also be described as outsourcing.^[10]

Outsourcing includes both foreign and domestic contracting,^[11] and therefore should not be confused with offshoring which is relocating a business process to another country but does not imply or preclude another company.^[12] In practice, the concepts can be intertwined, i.e. offshore outsourcing, and can be individually or jointly, partially or completely reversed,^[13] as described by terms such as reshoring, inshoring, and insourcing.

Global labor arbitrage can provide major financial savings from lower international labor rates, which could be a major motivation for offshoring. Cost savings from economies of scale and specialization can also motivate outsourcing, even if not offshoring. Since about 2015 indirect revenue benefits have increasingly become additional motivators.^[14][15]

Another motivation is speed to market. To make this work, a new process was developed: "outsource the outsourcing process".^[16] Details of managing DuPont's chief information officer Cinda Hallman's $4 billion 10-year outsourcing contract with Computer Sciences Corporation and Accenture were outsourced, thus avoiding "inventing a process if we'd done it in-house". A term subsequently developed to describe this is midsourcing.^[17][18][19]

Outsourcing can offer greater budget flexibility and control by allowing organizations to pay for the services and business functions they need, when they need them. It is often perceived to reduce hiring and training specialized staff, to make available specialized expertise, and to decrease capital, operating expenses,^[20] and risk.

"Do what you do best and outsource the rest" has become an internationally recognized business tagline first "coined and developed"^[21] in the 1990s by management consultant Peter Drucker. The slogan was primarily used to advocate outsourcing as a viable business strategy. Drucker began explaining the concept of "outsourcing" as early as 1989 in his Wall Street Journal article entitled "Sell the Mailroom".^[22]

From Drucker's perspective, a company should only seek to subcontract in those areas in which it demonstrated no special ability.^[23] The business strategy outlined by his slogan recommended that companies should take advantage of a specialist provider's knowledge and economies of scale to improve performance and achieve the service needed.^[24]

In 2009, by way of recognition, Peter Drucker posthumously received a significant honor when he was inducted into the Outsourcing Hall of Fame for his outstanding work in the field.^[23]

The biggest difference between outsourcing and in-house provision is with regards to the difference in ownership: outsourcing usually presupposes the integration of business processes under a different ownership, over which the client business has minimal or no control. This requires the use of outsourcing relationship management.^[25]

Sometimes the effect of what looks like outsourcing from one side and insourcing from the other side can be unexpected; The New York Times reported in 2001 that "6.4 million Americans .. worked for foreign companies as of 2001, [but] more jobs are being outsourced than" [the reverse].^[26]

While U.S. companies do not outsource to reduce high top level executive or managerial costs,^[27] they primarily outsource to reduce peripheral and "non-core" business expenses.^[28] Further reasons are higher taxes, high energy costs, and excessive government regulation or mandates.

Mandated benefits like social security, Medicare, and safety protection (e.g. Occupational Safety and Health Administration regulations) are also motivators.^[29] By contrast, executive pay in the U.S. in 2007, which could exceed 400 times more than average workers—a gap 20 times bigger than it was in 1965,^[27] is not a factor.^[30]

Other reasons include reducing and controlling operating costs,^[31] improving company focus, gaining access to world-class capabilities, tax credits,^[32] freeing internal resources for other purposes, streamlining or increasing efficiency for time-consuming functions, and maximizing use of external resources. For small businesses, contracting/subcontracting/"outsourcing" might be done to improve work-life balance.^[33]

Two organizations may enter into a contractual agreement involving an exchange of services, expertise, and payments. Outsourcing is said to help firms to perform well in their core competencies, fuel innovation, and mitigate a shortage of skill or expertise in the areas where they want to outsource.^[34] Established good practices include covering exit arrangements within an outsourcing agreement, with an exit period and a mutual commitment to maintaining continuity until the exit phase is completed.^[35]

Following the adding of management layers in the 1950s and 1960s to support expansion for the sake of economy of scale, corporations found that agility and added profits could be obtained by focusing on core strengths; the 1970s and 1980s were the beginnings of what later was named outsourcing.^[36] Kodak's 1989 "outsourcing most of its information technology systems"^[37] was followed by others during the 1990s.^[37]

In 2013, the International Association of Outsourcing Professionals gave recognition to Electronic Data Systems Corporation's Morton H. Meyerson^[38] who, in 1967, proposed the business model that eventually became known as outsourcing.^[39]

The growth of offshoring of IT-enabled services, although not universally accepted,^[40][41] both to subsidiaries and to outside companies (offshore outsourcing) is linked to the availability of large amounts of reliable and affordable communication infrastructure following the telecommunication and Internet expansion of the late 1990s.^[42] Services making use of low-cost countries included:

• back-office and administrative functions, such as finance and accounting, HR, and legal
• call centers and other customer-facing departments, such as marketing and sales services
• IT infrastructure and application development
• knowledge services, including engineering support,^[43] product design, research and development, and analytics

In the early 21st century, businesses increasingly outsourced to suppliers outside their own country, sometimes referred to as offshoring or offshore outsourcing. Other options subsequently emerged including: nearshoring, crowdsourcing, multisourcing,^[44][45] strategic alliances/strategic partnerships, strategic outsourcing.^[46]

Forbes considered the 2016 U.S. presidential election "the most disruptive change agent for the outsourcing industry",^[47] especially the renewed "invest in America" goal highlighted in campaigning, but the magazine tepidly reversed direction in 2019 as to the outcome for employment.^[48] In the case of armament acquisition, section 323 of the National Defense Authorization Act for 2014 requires military personnel "to solicit information from all U.S.-owned arsenals regarding the capability of that arsenal to fulfill the manufacturing requirement" when undertaking a make-or-buy analysis.^[49]

Furthermore, there are growing legal requirements for data protection, where obligations and implementation details must be understood by both sides.^[50][51] This includes dealing with customer rights.^[52]

UK government policy notes that certain services must remain in-house, citing the development of policy, stewardship of tax spend and retention of certain critical knowledge as examples. Guidance states that specific criteria must govern the identification of such services, and that "everything else" could potentially be outsourced.^[53]

Inflation, high domestic interest rates, and economic growth pushed India's IT salaries 10–15%, making some jobs relatively "too" expensive, compared to other offshoring destinations. Areas for advancing within the value chain included research and development, equity analysis, tax-return processing, radiological analysis, and medical transcription.

Although offshoring initially focused on manufacturing, white-collar offshoring/outsourcing has grown rapidly since the early 21st century. The digital workforce of countries like India and China are only paid a fraction of what would be minimum wage in the United States. On average, software engineers in India are getting paid between 250,000 and 1,500,000 rupees (US$4,000 to US$23,000) per year as opposed to $40,000–$100,000 in countries such as the U.S. and Canada.^[54] Closer to the U.S., Costa Rica has become a major source for the advantages of a highly educated labor force, a large bilingual population, stable democratic government, and similar time zones as the U.S. It takes only a few hours to travel between Costa Rica and U.S. Companies such as Intel, Procter & Gamble, HP, Gensler, Amazon and Bank of America have big operations in Costa Rica.^[55]

Unlike outsourced manufacturing, outsourced white collar workers have flextime and can choose their working hours, and for which companies to work. Clients benefit from remote work, reduced office space, management salary, and employee benefits as these individuals are independent contractors.^[56]

Ending a government outsourcing arrangement poses difficulties.^[57]

There are many outsourcing models, with variations^[58] by country,^[59] year^[60][61] and industry.^[62] Japanese companies often outsource to China, particularly to formerly Japanese-occupied cities.^[63] German companies have outsourced to Eastern European countries with German-language affiliation, such as Poland and Romania.^[64] French companies outsource to North Africa for similar reasons. For Australian IT companies, Indonesia is one of the major choice of offshoring destination. Near-shore location, common time zone and adequate IT work force are the reasons for offshoring IT services to Indonesia.^[65]

Another approach is to differentiate between tactical and strategic outsourcing models. Tactical models include:

• Staff augmentation
• Project-based
• To gain expertise not available in-house

Strategic consultancy includes for business process improvement.^[66]

When offshore outsourcing knowledge work, firms heavily rely on the availability of technical personnel at offshore locations. One of the challenges in offshoring engineering innovation is a reduction in quality.^[67]

Co-sourcing is a hybrid of internal staff supplemented by an external service provider.^[68][69] Co-sourcing can minimize sourcing risks, increase transparency, clarity and lend toward better control than fully outsourced.^[70]

Co-sourcing services can supplement internal audit staff with specialized skills such as information risk management or integrity services, or help during peak periods, or similarly for other areas such as software development or human resources.

Identity management co-sourcing is when on-site hardware^[71][72] interacts with outside identity services.

This contrasts with an "all in-the-cloud" service scenario, where the identity service is built, hosted and operated by the service provider in an externally hosted, cloud computing infrastructure.

Offshore software R&D is the provision of software development services by a supplier (whether external or internal) located in a different country from the one where the software will be used. The global software R&D services market, as contrasted to information technology outsourcing (ITO) and business process outsourcing (BPO), is rather young and currently is at a relatively early stage of development.^[73]

Canada, India, Ireland, and Israel were the four leading countries as of 2003.^[73] Although many countries have participated in the offshore outsourcing of software development, their involvement in co-sourced and outsourced Research & Development (R&D) was somewhat limited. Canada, the second largest by 2009, had 21%.^[74]

As of 2018, the top three were deemed by one "research-based policy analysis and commentary from leading economists" as China, India and Israel."^[75]

Gartner Group adds in Russia, but does not make clear whether this is pure R&D or run-of-the-mill IT outsourcing.^[76]

Focusing on software quality metrics is a good way to maintain track of how well a project is performing.^{[77][better source needed]}

Globalization and complex supply chains, along with greater physical distance between higher management and the production-floor employees often requires a change in management methodologies, as inspection and feedback may not be as direct and frequent as in internal processes. This often requires the assimilation of new communication methods such as voice over IP, instant messaging, and issue tracking systems, new time management methods such as time tracking software, and new cost- and schedule-assessment tools such as cost estimation software.^[78][79][80]

The term "transition methodology"^[81] describes the process of migrating knowledge, systems, and operating capabilities between the two sides.^[82]

In the area of call-center outsourcing, especially when combined with offshoring,^[83] agents may speak with different linguistic features such as accents, word use and phraseology, which may impede comprehension.^{[84][85][86][87]}

In 1979, Nobel laureate Oliver E. Williamson wrote that the governance structure is the "framework within which the integrity of a transaction is decided", and that "because contracts are varied and complex, governance structures vary with the nature of the transaction".^[88] University of Tennessee researchers have been studying complex outsourcing relationships since 2003. Emerging thinking regarding strategic outsourcing is focusing on creating a contract structure in which the parties have a vested interest in managing what are often highly complex business arrangements in a more collaborative, aligned, flexible, and credible way.^[89][90]

Reduced security, sometimes related to lower loyalty^[91] may occur, even when 'outsourced' staff change their legal status but not their desk. While security and compliance issues are supposed to be addressed through the contract between the client and the suppliers, fraud cases have been reported.

In April 2005, a high-profile case involved the theft of $350,000 from four Citibank customers when call-center workers acquired the passwords to customer accounts and transferred the money to their own accounts opened under fictitious names. Citibank did not find out about the problem until the American customers noticed discrepancies with their accounts and notified the bank.^[92]

Richard Baldwin's 2006 The Great Unbundling work was followed in 2012 by Globalization's Second Acceleration (the Second Unbundling) and in 2016 by The Great Convergence: Information Technology and the New Globalization.^[93] It is here, rather than in manufacturing, that the bits economy can advance in ways that the economy of atoms and things cannot: an early 1990s Newsweek ran a half page cartoon showing someone who had just ordered a pizza online, and was seeking help to download it.^{[citation needed]}

Step-in rights allow the client or a nominated third party the right to step-in and intervene, in particular to directly operate the outsourced services or to appoint a new operator. Circumstances where step-in rights may be contractually invoked may include supplier insolvency, a force majeure event which prevents or impedes the outsourced service provision, where the client believes that there is a substantial risk to the provision of the services, or where performance fails to meet a defined critical level of service.^[94] Suitable clauses in a contract may provide for the outsourced service provider to pay any additional costs which are faced by the client and specify that the provider's obligation to provide the services is annulled or suspended.^[95]

If a contract has a clause granting step-in rights,^[96] then there is a right, though not an obligation,^[97] to take over a task that is not going well, or even the entire project. When and How are important: "What is the process for stepping-in" must be clearly defined in the collateral warranty.^[98]

An example of when there is sometimes hesitancy about exercising this right was reported by the BBC in 2018, when Wealden District Council in East Sussex was "considering exercising 'step in rights' on its waste collection contract with Kier" due to issues of poor service.^[99] After some discussion in this case, a "recovery plan" was agreed with the contractor so that the step in rights were not actually exercised.^[100]

Stabler notes that in the event that step-in rights are taken up, it is important to establish which elements of a process are business-critical and ensure these are made top priority when implementing the step-in.^[94]

A number of outsourcings and offshorings that were deemed failures^{[101][102][67]} led to reversals^[103][104] signaled by use of terms such as insourcing and reshoring. The New York Times reported in 2017 that IBM "plans to hire 25,000 more workers in the United States over the next four years," overlapping India-based Infosys's "10,000 workers in the United States over the next two years."^[104] A clue to a tipping point having been reached was a short essay titled "Maybe You Shouldn't Outsource Everything After All"^[105] and the longer "That Job Sent to India May Now Go to Indiana."

Among problems encountered were supply-and-demand induced raises in salaries and lost benefits of similar-time-zone. Other issues were differences in language and culture.^[104][85] Another reason for a decrease in outsourcing is that many jobs that were subcontracted abroad have been replaced by technological advances.^[106]

According to a 2005 Deloitte Consulting survey, a quarter of the companies which had outsourced tasks reversed their strategy.^[106]

These reversals, however, did not undo the damage. New factories often:

• were in different locations
• needed different skill sets
• used more automation^[107]

Public opinion in the U.S. and other Western powers opposing outsourcing was particularly strengthened by the drastic increase in unemployment due to the 2008 financial crisis. From 2000 to 2010, the U.S. experienced a net loss of 687,000 jobs due to outsourcing, primarily in the computers and electronics sector. Public disenchantment with outsourcing has not only stirred political responses, as seen in the 2012 U.S. presidential campaigns, but it has also made companies more reluctant to outsource or offshore jobs.^[106]

A counterswing depicted by a 2016 Deloitte survey suggested that companies are no longer reluctant to outsource.^[108] Deloitte's survey identified three trends:

• Companies are broadening their approach to outsourcing as they begin to view it as more than a simple cost-cutting play
• Organizations are "redefining the ways they enter into outsourcing relationships and manage the ensuing risks".
• Organizations are changing the way they are managing their relationships with outsourcing providers to "maximize the value of those relationships".

Insourcing is the process of reversing an outsourcing, possibly using help from those not currently part of the in-house staff.^{[109][110][111]} Some authors call this backsourcing,^[112] reserving the term insourcing to refer simply to conducting certain activities in-house.

Outsourcing has gone through many iterations and reinventions, and some outsourcing contracts have been partially or fully reversed. Often the reason is to maintain control of critical production or competencies, and insourcing is used to reduce costs of taxes, labor and transportation.^[113] Sometimes there are problems with the outsourcing agreements, because of the pressure to bring jobs back to their home country, or simply because it has stopped being efficient to outsource particular tasks.^[114]

Studies conducted at companies confirm the positive impact of using insourcing on financial performance.^[115]

Regional insourcing, a related term, takes place when a company assigns work to a subsidiary that is within the same country. This differs from onshoring and reshoring, which may be either inside or outside the company. For this process, a company establishes satellite locations for specific entities of their business, making use of advantages one state may have over another, such as taxes, education, or workforce skill sets,^[116] This concept focuses on the delegating or reassigning of procedures, functions, or jobs from production within a business in one location to another internal entity that specializes in that operation. This allows companies to streamline production, boost competency, and increase their bottom line.

This competitive strategy applies the classical argument of Adam Smith, which posits that two nations would benefit more from one another by trading the goods that they are more proficient at manufacturing.^[117][118]

To those who are concerned that nations may be losing a net number of jobs due to outsourcing, some^[119] point out that insourcing also occurs. A 2004 study^[120] in the U.S., the UK, and many other industrialized countries more jobs are insourced than outsourced. The New York Times disagreed, and wrote that free trade with low-wage countries is win-lose for many employees who find their jobs offshored or with stagnating wages.^[121]

The impact of offshore outsourcing, according to two estimates published by The Economist, showed unequal effect during the period studied 2004 to 2015, ranging from 150,000 to as high as 300,000 jobs lost per year.^[122]

In 2010, a group of manufacturers started the Reshoring Initiative, focusing on bringing manufacturing jobs for American companies back to the country. Their data indicated that 140,000 American jobs were lost in 2003 due to offshoring. Eleven years later in 2014, the U.S. recovered 10,000 of those offshored positions; this marked the highest net gain in 20 years.^[123] More than 90% of the jobs that American companies "offshored" and outsourced manufacturing to low cost countries such as China, Malaysia and Vietnam did not return.^[123]

The fluctuation of prefixes and names give rise to many more "cross-breeds" of insourcing. For example, "offshore insourcing" is "when companies set up their own "captive" process centers overseas, sometimes called a Captive Service,^[124] taking advantage of their cheaper surroundings while maintaining control of their back-office work and business processes."^[125] "Remote insourcing" refers to hiring developers to work in-house from virtual (remote) facilities.^[126]

A 2012 series of articles in The Atlantic^{[127][128][129][130]} highlighted a turning of the tide for parts of the U.S.'s manufacturing industry. Specific causes identified include rising third-world wages, recognition of hidden off-shoring costs, innovations in design/manufacture/assembly/time-to-market, increasing fuel and transportation costs, falling energy costs in the U.S., increasing U.S. labor productivity, and union flexibility. Hiring at GE's giant Appliance Park in Louisville, Kentucky, increased 90% during 2012.

More than one company uses a "100% U.S. Based" phrase, whether within or outside their envelopes. "100% US-based customer service available 24/7" is how, in 2024, Business Insider described the expectations of some customers.^[131]

From the standpoint of labor, outsourcing may represent a new threat, contributing to worker insecurity, and is reflective of the general process of globalization and economic polarization.^[132]

• Low-skilled work: Low-skill work outsourced to contractors who tend to employ migrant labor^[133] is causing a revival of radical trade union activity. In the UK, major hospitals, universities,^[134] ministries and corporations are being pressured.
• In-housing: In January 2020, Tim Orchard, the CEO of Imperial College Healthcare Trust, stated that the in-housing of over 1,000 Sodexo cleaners, caterers and porters across five NHS hospitals in London "will create additional cost pressures next year but we are confident that there are also benefits to unlock, arising from better team working, more co-ordinated planning and improved quality."^[135]
• U.S. base: On June 26, 2009, Jeff Immelt, the CEO of General Electric, called for the U.S. to increase its manufacturing base employment to 20% of the workforce, commenting that the U.S. has outsourced too much and can no longer rely on consumer spending to drive demand.^[136]

Western governments may attempt to compensate workers affected by outsourcing through various forms of legislation. In Europe, the Acquired Rights Directive attempts to address the issue. The directive is implemented differently in different nations. In the U.S., the Trade Adjustment Assistance Act is meant to provide compensation for workers directly affected by international trade agreements. Whether or not these policies provide the security and fair compensation they promise is debatable.

In response to the recession, U.S. president Barack Obama launched the SelectUSA program in 2011. In January 2012, Obama issued a Call to Action to Invest in America at the White House "Insourcing American Jobs" Forum.^[137] Obama met with representatives of Otis Elevator, Apple, DuPont, Master Lock, and others which had recently brought jobs back or made significant investments in the U.S.

Governments may legislate to authorise the outsourcing of specific functions or the work of specific government agencies, for example in the United Kingdom, the Social Security Administration Act 1992 (as amended) authorises the contracting-out of work-focussed interviews and documentary work,^[138] and the Contracting Out of Functions (Tribunal Staff) Order 2009 authorises the contracting-out of tribunals' administrative work.^[139]

A main feature of outsourcing influencing policy-making is the unpredictability it generates, including its defense/military ramifications,^[140] regarding the future of any particular sector or skill-group. The uncertainty of future conditions influences governance approaches to different aspects of long-term policies.

In particular, distinction is needed between

• cyclical unemployment – for which pump it up solutions have worked in the past, and
• structural unemployment – when "businesses and industries that employed them no longer exist, and their skills no longer have the value they once did."^[107]

A governance that attempts adapting to the changing environment will facilitate growth and a stable transition to new economic structures^[141] until the economic structures become detrimental to the social, political and cultural structures.

Automation increases output and allows for reduced cost per item. When these changes are not well synchronized, unemployment or underemployment is a likely result. When transportation costs remain unchanged, the negative effect may be permanent;^[107] jobs in protected sectors may no longer exist.^[142]

Studies suggest that the effect of U.S. outsourcing on Mexico is that for every 10% increase in U.S. wages, north Mexico cities along the border experienced wage rises of 2.5%, about 0.69% higher than in inner cities.^[143]

By contrast, higher rates of saving and investment in Asian countries, along with rising levels of education, studies suggest, fueled the 'Asian miracle' rather than improvements in productivity and industrial efficiency. There was also an increase in patenting and research and development expenditures.^[144]

Outsourcing results from an internationalization of labor markets as more tasks become tradable. According to leading economist Greg Mankiw, the labour market functions under the same forces as the market of goods, with the underlying implication that the greater the number of tasks available to being moved, the better for efficiency under the gains from trade. With technological progress, more tasks can be offshored at different stages of the overall corporate process.^[145]

The tradeoffs are not always balanced, and a 2004 viewer of the situation said "the total number of jobs realized in the United States from insourcing is far less than those lost through outsourcing."^[146]

Import competition has caused a de facto 'race-to-the-bottom' where countries lower environmental regulations to secure a competitive edge for their industries relative to other countries.

As Mexico competes with China over Canadian and American markets, its national Commission for Environmental Cooperation has not been active in enacting or enforcing regulations to prevent environmental damage from increasingly industrialized Export Processing Zones. Similarly, since the signing of the North American Free Trade Agreement, heavy industries have increasingly moved to the U.S., which has a comparative advantage due to its abundant presence of capital and well-developed technology. A further example of environmental de-regulation with the objective of protecting trade incentives have been the numerous exemptions to carbon taxes in European countries during the 1990s.

Although outsourcing can influence environmental de-regulatory trends, the added cost of preventing pollution does not majorly determine trade flows or industrialization.^[147]

Companies such as ET Water Systems (now a Jain Irrigation Systems company),^[148] GE Appliances and Caterpillar found that with the increase of labor costs in Japan and China, the cost of shipping and custom fees, it cost only about 10% more to manufacture in America.^[106] Advances in technology and automation such as 3D printing technologies^[149] have made bringing manufacturing back to the U.S., both cost effective and possible. Adidas, for example, plans to produce highly customized shoes with 3D printers in the U.S.^[150]

Outsourcing has contributed to further levelling of global inequalities as it has led to general trends of industrialization in the Global South and deindustrialization in the Global North.^[151]

Not all manufacturing should return to the U.S.^[152] The rise of the middle class in China, India and other countries has created markets for the products made in those countries. Just as the U.S. has a Made in USA program, other countries support products being made domestically. Localization, the process of manufacturing products for the local market, is an approach to keeping some manufacturing offshore and bringing some of it back. Besides the cost savings of manufacturing closer to the market, the lead time for adapting to changes in the market is faster.

The rise in industrial efficiency which characterized development in developed countries has occurred as a result of labor-saving technological improvements. Although these improvements do not directly reduce employment levels but rather increase output per unit of work, they can indirectly diminish the amount of labor required for fixed levels of output.^[153]

It has been suggested that "workers require more education and different skills, working with software rather than drill presses" rather than rely on limited growth labor requirements for non-tradable services.^[107]

The main driver for offshoring development work has been the greater availability of developers at a lower cost than in the home country. However, the rise in offshore development has taken place in parallel with an increased awareness of the importance of usability, and the user experience, in software. Outsourced development poses special problems for development, i.e. the more formal, contractual relationship between the supplier and client, and geographical separation place greater distance between the developers and users, which makes it harder to reflect the users' needs in the final product. This problem is exacerbated if the development is