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Contingent Effects of Quality Signaling: Evidence from the Indian Offshore IT Services Industry

Author

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  • Guodong (Gordon) Gao

    (Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742)

  • Anandasivam Gopal

    (Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742)

  • Ritu Agarwal

    (Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742)

Abstract

We examine the heterogeneous returns to third-party quality signals in the context of the Indian software services industry. Prior theory has argued that quality certification is important in markets characterized by information asymmetry. However, there is limited understanding of the contingent factors that influence the efficacy of the quality signal. We focus on capability maturity model (CMM) certification, which is granted on the basis of a rigorous audit of software vendor's internal quality-oriented software construction practices, as a signal of unobservable quality. Drawing upon prior research in strategy and economics, we theorize that the impacts of CMM certification on a vendor's export performance are conditional on factors reflecting the vendor's strategy (diversification and location) and its competitive environment (the extent of CMM penetration in the vendor's competition). Analysis of panel data supports our predictions related to the contingent value of CMM certification, and shows that a software service provider gains more from certification in terms of its software exports when its service offerings are diversified, when it chooses to locate away from a cluster of other software service firms, and when the extent of CMM penetration in the competition is low. This study extends prior research in the information value of a quality signal on a firm's demand side that has, for the most part, focused solely on direct effects. We discuss the implications of our findings for the strategic trade-offs that managers of software service firms need to make.

Suggested Citation

  • Guodong (Gordon) Gao & Anandasivam Gopal & Ritu Agarwal, 2010. "Contingent Effects of Quality Signaling: Evidence from the Indian Offshore IT Services Industry," Management Science, INFORMS, vol. 56(6), pages 1012-1029, June.
    • Handle: RePEc:inm:ormnsc:v:56:y:2010:i:6:p:1012-1029
    DOI: 10.1287/mnsc.1100.1162
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    6. Joseph A. Clougherty, & Michał Grajek, & Oz Shy, 2016. "Taking ‘some’ of the mimicry out of the adoption process: Quality management and strategic substitution," ESMT Research Working Papers ESMT-16-05, ESMT European School of Management and Technology.
    7. Clougherty, Joseph A. & Grajek, Michal & Shy, Oz, 2016. "Taking ‘Some’ of the Mimicry Out of the Adoption Process: Quality-Management and Strategic Substitution," CEPR Discussion Papers 11661, C.E.P.R. Discussion Papers.
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    10. Mingfeng Lin & Paulo Goes, 2012. "The Appeal of Third-party Certifications: Information Unraveling in Natural Experiments," Working Papers 12-02, NET Institute.
    11. Sarah Cheah & Cristiano Bellavitis & Alessandro Muscio, 2021. "The impact of technology complexity on the financial performance of R&D projects: evidence from Singapore," The Journal of Technology Transfer, Springer, vol. 46(2), pages 431-458, April.
    12. Karthik, D. & Upadhyayula, Rajesh, 2011. "Performance Implications of Diversification in Professional Service Firms: The Role of Synergies," IIMA Working Papers WP2011-01-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
    13. Upadhyayula, Rajesh S. & Dhandapani, Karthik & Karna, Amit, 2017. "The Role of Cluster Presence and Quality Certification in Internationalization and Performance of Offshore Service Providers," Journal of International Management, Elsevier, vol. 23(1), pages 72-86.
    14. Karthik, D. & Upadhyayula, Rajesh & Basant, Rakesh, 2015. "Strategic Paths and Performance of Born Globals: A Study of Indian IT Firms," IIMA Working Papers WP2015-03-36, Indian Institute of Management Ahmedabad, Research and Publication Department.
    15. Achutha Jois & Somnath Chakrabarti, 2024. "Complacency Leading to Reduced Competitive Intensity in the Indian Information Technology Services Sector Resulting in Diminished Market Opportunity," Global Business Review, International Management Institute, vol. 25(1), pages 7-21, February.
    16. Swagato Chatterjee, 2020. "Signalling Service Quality through Price and Certifications," Global Business Review, International Management Institute, vol. 21(1), pages 279-293, February.
    17. Goel, Rajeev K. & Nelson, Michael A., 2020. "Do external quality certifications improve firms’ conduct? International evidence from manufacturing and service industries," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 97-104.
    18. Lam, Hugo K.S. & Yeung, Andy C.L. & Cheng, T.C.E. & Humphreys, Paul K., 2016. "Corporate environmental initiatives in the Chinese context: Performance implications and contextual factors," International Journal of Production Economics, Elsevier, vol. 180(C), pages 48-56.
    19. Basant, Rakesh & Chandra, Pankaj & Upadhyayula, Rajesh, 2011. "Knowledge Flows and Capability Building in the Indian IT Sector: A Comparative Analysis of Cluster and Non-Cluster Locations," IIMA Working Papers WP2011-10-02, Indian Institute of Management Ahmedabad, Research and Publication Department.
    20. Keongtae Kim & Sunil Mithas & Jonathan Whitaker & Prasanto K. Roy, 2014. "Research Note —Industry-Specific Human Capital and Wages: Evidence from the Business Process Outsourcing Industry," Information Systems Research, INFORMS, vol. 25(3), pages 618-638, September.
    21. Upadhyayula, Rajesh & Karthik, D. & Karna, Amit, 2015. "Role of Clusters and Certification in the Internationalization of Offshoring Service Providers from Emerging Markets: A Study of Indian IT firms," IIMA Working Papers WP2015-03-35, Indian Institute of Management Ahmedabad, Research and Publication Department.
    22. Hoang, Phi & McGuire, William & Prakash, Aseem, 2016. "Is there Life after Death?: The Enduring Effects of the 33/50 Program on Emission Reductions," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235556, Agricultural and Applied Economics Association.

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