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Why are different services outsourced to different countries?

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Author Info

  • Runjuan Liu

    (Alberta School of Business, University of Alberta, Edmonton, AB, Canada)

  • Dorothee J Feils

    (Alberta School of Business, University of Alberta, Edmonton, AB, Canada)

  • Barry Scholnick

    (Alberta School of Business, University of Alberta, Edmonton, AB, Canada)

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    Abstract

    The “tradability revolution” in services has led to a dramatic expansion of offshore outsourcing of services, allowing firms to take advantage of lower production costs in foreign countries. However, production costs alone cannot explain the location determinants of offshore outsourcing of services. In this paper, we argue that minimizing transaction costs is also an important determinant of the location of offshore outsourcing of services. We empirically analyze characteristics of services and characteristics of foreign countries that may impact on transaction costs in an outsourcing relationship and hence determine where services will be outsourced offshore. We derive measures of service characteristics – routineness, complexity and interactiveness – based on the tasks required to provide them. Further, we posit that there are interaction effects between service and country characteristics. Using Bureau of Economic Analysis data on US service outsourcing across 11 types of services to 31 countries between 1992 and 2005, we find that: (1) services that are more routine, less complex or less interactive are outsourced more to foreign countries; (2) services are outsourced more to countries with higher institutional quality and greater cultural proximity; (3) non-routine, complex and interactive services are outsourced relatively more to countries with a better institutional quality.

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    Bibliographic Info

    Article provided by Palgrave Macmillan in its journal Journal of International Business Studies.

    Volume (Year): 42 (2011)
    Issue (Month): 4 (May)
    Pages: 558-571

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    Handle: RePEc:pal:jintbs:v:42:y:2011:i:4:p:558-571

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    Cited by:
    1. Schmeisser, Bjoern, 2013. "A Systematic Review of Literature on Offshoring of Value Chain Activities," Journal of International Management, Elsevier, Elsevier, vol. 19(4), pages 390-406.
    2. Martin Falk, 2012. "Determinants of Greenfield Investment in Knowledge Intensive Business Services," FIW Research Reports series, FIW IV-002, FIW.
    3. Julien Gooris & Carine Peeters, 2012. "Home-Host Country Distance and Governance Choices in Service Offshoring," Working Papers ECARES, ULB -- Universite Libre de Bruxelles ECARES 2012-007, ULB -- Universite Libre de Bruxelles.
    4. Julien Gooris & Carine Peeters, 2013. "Home-Host Country Distance in Offshore Governance Chocies," Working Papers ECARES, ULB -- Universite Libre de Bruxelles ECARES 2013-13, ULB -- Universite Libre de Bruxelles.
    5. Davide, Castellani & De Benedictis, Luca & Horgos, Daniel, 2011. "Can we really trust offshoring indices?," Working Paper, Helmut Schmidt University, Hamburg 114/2011, Helmut Schmidt University, Hamburg, revised 21 Jun 2011.
    6. Manning, Stephan, 2013. "New Silicon Valleys or a new species? Commoditization of knowledge work and the rise of knowledge services clusters," Research Policy, Elsevier, Elsevier, vol. 42(2), pages 379-390.
    7. repec:wsr:ecbook:2010:i:iv-002 is not listed on IDEAS
    8. Baier , Elisabeth & Rammer , Christian & Schubert , Torben, 2013. "The Impact of Innovation Off-shoring on Organizational Adaptability," CIRCLE Electronic Working Papers, Lund University, CIRCLE - Center for Innovation, Research and Competences in the Learning Economy 2013/44, Lund University, CIRCLE - Center for Innovation, Research and Competences in the Learning Economy.
    9. Martin Falk, 2013. "New empirical findings for international investment in intangible assets," WWWforEurope Working Papers series, WWWforEurope 30, WWWforEurope.

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