Academic journal article Management International Review

Offshoring Propensity in Information Technology Services: A Firm and Country Level Analysis

Academic journal article Management International Review

Offshoring Propensity in Information Technology Services: A Firm and Country Level Analysis

Article excerpt

Abstract and Key Results

* This conceptual paper examines the dynamics of the offshoring of information technology (IT) service work. It considers this important emerging phenomenon from multiple lenses, especially those of international business theories.

* Research propositions are developed based on the perspectives of home country firms, host nation and the dynamic interactions between the two. Questions for future research are suggested.

* Already established nations in the field get more opportunities than the new entrants to increase their competitiveness from experience-based knowledge gained as a result of the imitative actions of home country firms.

Key Words

Offshoring * Information Technology * Firm and Country Level Analysis * Transaction Cost Economics * Institutional Theory


The offshoring of services is a phenomenon that has grown dramatically in size, scope, and economic impact (Parkhe 2007). Unlike most services where consumption and production are co-located, Lovelock and Yip (1996) suggest that one type of services namely, the information-based services, are amenable to internationalization because these services require less direct contact of the customer with service personnel. This view is consistent with the observation that offshoring of IT services has been growing very rapidly (Parkhe 2007). Matloff (2004) references a Gartner study projecting that "25 percent of all U.S. IT jobs will move overseas by 2010, up from 5 percent today". As early as 2001, more than 40 percent of Fortune 500 companies were reportedly engaged in offshore outsourcing (Carmel/Agarwal 2002). Given that offshoring is growing so rapidly, it is important for international business scholars to develop a thorough understanding of its dynamics.

Offshoring is defined as locating an activity to a wholly owned company or an independent service provider in another, usually a low cost country (Lewin/Peeters 2006). Offshoring can occur through varied mechanisms including (a) creating a subsidiary in another country and moving work between organizational units, (b) contracting directly with individual workers in another country, (c) contracting with a service firm in another country, (d) contracting with a multinational organization having offices in the offshoring firm's home country with sources of labors across nations, and (e) acquiring a subsidiary in another country. In this paper, we are primarily concerned with market-driven offshoring rather than with the movement of work between hierarchical units. We would expect that the dynamics of hierarchical movement of labor between workplaces, for example among multi-national IT development specialists such as IBM or Hewlett Packard, to differ from market based movements. For example, we would expect tightly focused and transient within firm criteria such as shifting workloads that present opportunities to rationalize work among equivalently skilled personnel at varied sites; or opportunities to segregate work to utilize specialization in particular technologies at different worksites that may have less to do with national level infrastructure or workforce and more with the serendipity of demand and internal investment patterns.

It is important to point out that offshoring can refer to a very wide range of production and service delivery activities that cross borders. These activities may range from the offshoring of an entire IT department and function to offshoring more routine activities such as data entry and call centers. This range of activities may vary greatly in asset specificity (Williamson 1996) and related operational and managerial requirements. However, such activities hold in common the extensive inclusion of information technology such as computer hardware and software as the target of production (e.g., new systems, maintenance of systems), as the means of production (e. …

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