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Enhancing Value in IT Services Offshoring: Real Options Matter

Author

Listed:
  • Chipalkatti Niranjan
  • Koch Bruce

    (Department of Accounting, Albers School of Businessand Economics, Seattle University, Seattle, WA, 98122, USA)

  • Buchanan Bonnie G.

    (Department of Finance, Albers School of Businessand Economics, Seattle University, Seattle, WA 98122, USA)

  • Doh Jonathan

    (Department of Management, School of Business, Villanova University, Villanova, PA 19085, USA)

Abstract

In a complex global business environment, more organizations are relying on offshoring to provide critical information technology services (ITS). While there can be substantial cost savings for the offshoring firm, the decision to offshore ITS involves a considerable degree of uncertainty and it is essential to understand the issues and hurdles that will be faced by the offshoring operation. Based on a sample of 189 firms from 34 industries (with most coming from the Asia-Pacific region) that have made at least one offshoring decision, we find that larger market capitalized firms are more likely to outsource offshore than smaller firms. Our results also indicate an initial decrease in downside risk with a diminution in the decline, as offshore intensity increases. We also find some evidence of offshoring’s contribution to growth premia. In considering contingencies to adopt in order to manage downside risk, a real-options framework is discussed. Our findings support the view of offshoring as a dynamic process firms use to create value by leveraging growth options and mitigating risk. By considering the real-options possibilities, the investor gets a better picture of the potential losses and gains which should lead to more prudent IT offshoring investment decisions.

Suggested Citation

  • Chipalkatti Niranjan & Koch Bruce & Buchanan Bonnie G. & Doh Jonathan, 2013. "Enhancing Value in IT Services Offshoring: Real Options Matter," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 8(1), pages 123-147, December.
    • Handle: RePEc:bpj:apjrin:v:8:y:2013:i:1:p:123-147:n:5
    DOI: 10.1515/apjri-2013-0019
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    References listed on IDEAS

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