The capabilities of offshore information technology vendor

One of strategies chosen by firms to increase firm's efficiency is the outsourcing of one or more firm's functions. Information technology (IT) is the most outsourced function. Due to the large number of highly capable IT vendors in developing countries, many firms in developed countries outsource their IT function to vendors in developing countries to reap the benefits i.e. lower cost. Although the amount of global IT outsourcing is enormous, IT vendors in Indonesia have not been able to take a significant share. The critical factor that inhibits Indonesian IT providers to compete in the global IT outsourcing market is related to the provider's low capability, and therefore studying on the IT provider's capability is valuable for Indonesia. This paper is aimed to model the IT provider's capability in different stages of a vendor and client relationship. The stages in the relationship of a vendor and a client include a transactional and a relational stage. Each stage has its unique features and challenges so that it requires unique capabilities. The critical substantive capabilities at the transactional stage include client relationship, process, and project management capabilities. The critical substantive capabilities at the relational stage include client business understanding, process, client relationship, human resources management, and project management capabilities. The development of substantive capabilities from the transactional stage to the relational stage is influenced by firm's dynamic capabilities.