Selecting the governance mode when offshoring knowledge-intensive activities

Abstract

The offshoring phenomenon has evolved in recent years, and can be understood from a threefold perspective: first, the evolution in the type of activity being offshored; second, the learning curve involving both the companies implementing offshoring and service providers; and third, the reasons for offshoring. This study proposes an empirical framework that will allow us to explore the interaction between the type of activity (specifically knowledge-intensive) and the drivers of the decision to select the most appropriate governance mode. Specifically, our results show that market-seeking drivers become the primary determinants prompting firms to offshore knowledge-intensive activities through a captive center. In contrast, the motivation to reduce costs moderates the decision to offshore knowledge-intensive activities by nurturing a preference for offshore outsourcing. The empirical evidence is supported by multi-country data from the Offshoring Research Network.

Offshoring of white-collar services

“…Moreover, it may be also assumed that the operations within internal offshoring are more firms-specific, not very commoditised. Again, the offshore outsourcing is a preferred option for cost-cutting operations, while market-seeking firms should choose captive offshoring as optimal arrangement for their knowledge-intensive activities (Paz-Aparicio, Muñoz-Bullón, Sanchez-Bueno, & Ricart, 2018). ABS are considered as requiring more integration between the provider of services and their clients, thus the preferred option should be captive offshoring.…”