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Why are different services outsourced to different countries?


  • 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)


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.

Suggested Citation

  • Runjuan Liu & Dorothee J Feils & Barry Scholnick, 2011. "Why are different services outsourced to different countries?," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 42(4), pages 558-571, May.
  • Handle: RePEc:pal:jintbs:v:42:y:2011:i:4:p:558-571

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    References listed on IDEAS

    1. Demirguc-Kunt, Asli & Huizinga, Harry, 2004. "Market discipline and deposit insurance," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 375-399, March.
    2. Demirguc-Kunt, Asli & Karacaovali, Baybars & Laeven, Luc, 2005. "Deposit insurance around the world : a comprehensive database," Policy Research Working Paper Series 3628, The World Bank.
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    Cited by:

    1. Anca Cristea, 2015. "The effect of communication costs on trade in headquarter services," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 151(2), pages 255-289, May.
    2. Niccolò Pisani & Joan Enric Ricart, 2016. "Offshoring of Services: A Review of the Literature and Organizing Framework," Management International Review, Springer, vol. 56(3), pages 385-424, June.
    3. Julien Gooris & Carine Peeters, 2014. "Fragmenting global business processes: A protection for proprietary information," Working Papers 2014-12, CEPII research center.
    4. Weifeng Zhai & Shiling Sun & Guangxing Zhang, 2016. "Reshoring of American manufacturing companies from China," Operations Management Research, Springer, vol. 9(3), pages 62-74, December.
    5. Castellani, Davide & De Benedictis, Luca & Horgos, Daniel, 2013. "Can we really trust offshoring indices?," Structural Change and Economic Dynamics, Elsevier, vol. 25(C), pages 159-172.
    6. Martin Falk, 2012. "Determinants of Greenfield Investment in Knowledge Intensive Business Services," FIW Research Reports series IV-002, FIW.
    7. repec:bla:presci:v:96:y:2017:i:2:p:299-323 is not listed on IDEAS
    8. Ngoasong, Michael Zisuh, 2014. "How international oil and gas companies respond to local content policies in petroleum-producing developing countries: A narrative enquiry," Energy Policy, Elsevier, vol. 73(C), pages 471-479.
    9. van Hoorn, Andre, 2016. "How much does job autonomy vary across countries and other extra-organizational contexts?," MPRA Paper 80010, University Library of Munich, Germany.
    10. Baier, Elisabeth & Rammer, Christian & Schubert, Torben, 2015. "The Impact of Captive Innovation Offshoring on the Effectiveness of Organizational Adaptation," Journal of International Management, Elsevier, vol. 21(2), pages 150-165.
    11. Cecilia Jona-Lasinio, 2015. "Service off-shoring and productivity growth in the European economies," Review of Economics and Institutions, Università di Perugia, vol. 6(2).
    12. Julien Gooris & Carine Peeters, 2012. "Home-Host Country Distance and Governance Choices in Service Offshoring," Working Papers ECARES ECARES 2012-007, ULB -- Universite Libre de Bruxelles.
    13. Meyer, Chris R. & Skaggs, Bruce C. & Nair, Sudhir & Cohen, David G., 2015. "Customer Interaction Uncertainty, Knowledge, and Service Firm Internationalization," Journal of International Management, Elsevier, vol. 21(3), pages 249-259.
    14. Baier , Elisabeth & Rammer , Christian & Schubert , Torben, 2013. "The Impact of Innovation Off-shoring on Organizational Adaptability," Papers in Innovation Studies 2013/44, Lund University, CIRCLE - Center for Innovation, Research and Competences in the Learning Economy.
    15. López, Andrés & Niembro, Andrés & Ramos, Daniela, 2014. "Latin America’s competitive position in knowledge-intensive services trade," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    16. Martin Falk, 2013. "New empirical findings for international investment in intangible assets," WWWforEurope Working Papers series 30, WWWforEurope.
    17. Gooris, Julien & Peeters, Carine, 2014. "Home–Host Country Distance in Offshore Governance Choices," Journal of International Management, Elsevier, vol. 20(1), pages 73-86.
    18. Manning, Stephan, 2013. "New Silicon Valleys or a new species? Commoditization of knowledge work and the rise of knowledge services clusters," Research Policy, Elsevier, vol. 42(2), pages 379-390.
    19. Clampit, Jack & Kedia, Ben & Fabian, Frances & Gaffney, Nolan, 2015. "Offshoring satisfaction: The role of partnership credibility and cultural complementarity," Journal of World Business, Elsevier, vol. 50(1), pages 79-93.
    20. Verwaal, Ernst, 2017. "Global outsourcing, explorative innovation and firm financial performance: A knowledge-exchange based perspective," Journal of World Business, Elsevier, vol. 52(1), pages 17-27.
    21. repec:wsr:ecbook:2010:i:iv-002 is not listed on IDEAS
    22. Schmeisser, Bjoern, 2013. "A Systematic Review of Literature on Offshoring of Value Chain Activities," Journal of International Management, Elsevier, vol. 19(4), pages 390-406.

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