International Sourcing in Portuguese Companies Evidence from Portuguese Micro Data

Outsourcing is one of the main drivers behind economic globalization, especially international outsourcing. In general terms it refers to the process of moving stages of production to external providers, either domestic (usually labelled as domestic outsourcing) or international (commonly labelled as offshoring or simply outsourcing). Over time, technological advances in transportation and ICT developments, led to a substantial rise in this phenomenon, growing in extent and nature, from simple to more complex tasks related to both manufactures and services supply. International outsourcing is usually expected to reduce production costs and to increase efficiency, however it has received substantial attention from policy makers for its potential negative consequences on the labour market. This paper combines Portuguese firm-level data from the International Sourcing surveys and longitudinal administrative business record data, to explore the impacts of the sourcing status on a variety of firms’ performance measures specially focusing on employment, competitiveness and productivity. The results suggest that international sourcing has an ambiguous effect on firm level total employment, but a positive effect on both the subset of workers that receive a salary (a proxy to employees) and on R&D jobs, coupled with an increasing effect on firm level total labour costs. Alongside these results, our findings also show that offshoring has a positive causal effect on both firm-level export intensity and trade balance, however the efficiency gains hypothesis was not confirmed. In fact, the results show that newly offshoring firms experienced lower labour productivity growth with a negative effect on both capital stock and capital per person employed.