Offshoring and Firm Performance: Self-Selection, Effects on Performance, or Both?

This paper uses unique new data for German manufacturing enterprises from matched regular surveys and a special purpose survey to investigate the causal effect of relocation of activities to a foreign country on various dimensions of firm performance. Enterprises that relocated activities abroad in the period 2001-03 for the first time are compared to firms that did not relocate activities abroad before 2006. The comparison is performed for both 2004 (to document differences between the two groups of firms after some of them started to relocate abroad) and for 2000 (when none of them did relocate abroad). It turns out that, compared to non-offshoring firms, firms that relocated activities were larger and more productive, and had a higher share of exports in total sales. All these differences existed in 2000, the year before some firms started to relocate, and this points to self-selection of "better" firms into offshoring. This finding is in line with results from recent theoretical models and with results from other countries. To investigate the causal effects of relocation across borders on firm performance, six different variants of a matching approach of firms that did and did not start to relocate abroad in 2001-03 were performed based on a propensity score estimated using firm characteristics in 2000 and the change in the performance variable between 1997 and 2000. The performance of both groups was compared for 2004-06 when some firms were relocating firms and the others were not. Broadly in line with hypotheses derived from the literature there is no evidence that offshoring has a negative causal impact on employment in offshoring firms. The effect is positive and large for productivity, and weak evidence for a positive effect on the wage per employee, the proxy variable for human capital intensity used, is found. Contrary to what is often argued, therefore, we find no evidence for a negative causal effect of offshoring on employment in Germany or on other core dimensions of firm performance.offshoring, Germany, enterprise panel data

Offshoring and firm performance: Self-selection, effects on performance, or both?

This paper uses unique new data for German manufacturing enterprises from matched regular surveys and a special purpose survey to investigate the causal effect of relocation of activities to a foreign country on various dimensions of firm performance. Enterprises that relocated activities abroad in the period 2001-03 for the first time are compared to firms that did not relocate activities abroad before 2006. The comparison is performed for both 2004 (to document differences between the two groups of firms after some of them started to relocate abroad) and for 2000 (when none of them did relocate abroad). It turns out that, compared to non-offshoring firms, firms that relocated activities were larger and more productive, and had a higher share of exports in total sales. All these differences existed in 2000, the year before some firms started to relocate, and this points to self-selection of “better” firms into offshoring. This finding is in line with results from recent theoretical models and with results from other countries. To investigate the causal effects of relocation across borders on firm performance, six different variants of a matching approach of firms that did and did not start to relocate abroad in 2001-03 were performed based on a propensity score estimated using firm characteristics in 2000 and the change in the performance variable between 1997 and 2000. The performance of both groups was compared for 2004-06 when some firms were relocating firms and the others were not. Broadly in line with hypotheses derived from the literature there is no evidence that offshoring has a negative causal impact on employment in offshoring firms. The effect is positive and large for productivity, and weak evidence for a positive effect on the wage per employee, the proxy variable for human capital intensity used, is found. Contrary to what is often argued, therefore, we find no evidence for a negative causal effect of offshoring on employment in Germany or on other core dimensions of firm performance.Offshoring, Germany, enterprise panel data

The Relationship between Offshoring Strategies and Firm Performance: Impact of innovation, absorptive capacity and firm size

How do offshoring strategies impact firm performance? And how are innovation, absorptive capacity and firm size influencing this relationship? This research investigates how firms of varying size, well-established firms and growing firms may profit from relocating business activities to foreign locations. Offshoring strategies are conceptualized as consisting of both organizational attributes – i.e. function offshored, governance mode and location – and strategic attributes – i.e. cost, resource and entrepreneurial drivers. Data has been collected in Europe and the US in collaboration with (1) the Offshoring Research Network (ORN), (2) Statistics Netherlands (CBS) and Statistics Europe (Eurostat), and (3) business partners. First, the results show that firms of different sizes, i.e. small, medium-sized and large firms, may all profit from offshoring strategies. Different theories, among which transaction cost economics, the resource-based view and entrepreneurship theory, help to explain the different rationales these firms may have their respective strategies. Second, this research indicates that well-established firms do not – or not yet – move beyond cost advantages to improve their competitive position. By applying learning theory, innovation is shown to have an impact on the relationship between offshoring strategy, i.e. function diversity and governance diversity, and competitive position. Third, the knowledge-based view of the firm helps to demonstrate that companies realize additional firm growth by offshoring core functions, while the effect of outsource offshoring on firm growth is contingent upon absorptive capacity. Fourth, the changes over time that firms exhibit in their location choice are explained by way of internationalization theory. While nearshore experience is important for farshoring, experience with farshoring also increases the likelihood of nearshoring, which is an indication of the importance of experience

Firing at Subcontractors? Spillover Employment Effects of Offshoring in Italy

Using firm-level data for Italy, we address the employment consequences of international production offshoring. We concur with previous literature that offshoring firms’ individual employment performances are no worse than at matching non-offshoring firms. However, offshoring might impart negative spillover effects on subcontracting firms, and this indirect effect might be felt particularly in Italy’s industrial structure (small-sized networked enterprises). To study this, we group firms within their typical subcontracting clusters, identify high offshoring clusters and compare them with a matching low offshoring sample. The evidence that employment performances worsen in the productive clusters with high offshoring supports our conjecture.International outsourcing, multinational firms, employment effects, propensity

The effect of high-tech services offshoring on skilled employment: intra-firm evidence

The offshoring of high-tech services has greatly increased in recent years, with consequences for firms demand for skilled employment in firms. This paper specifically analyzes the relationship between R&D offshoring and the demand for R&D employment using firm-level data for Spanish manufacturing and services companies during the period 2004-2009. Estimating different specifications with panel data techniques, we find that this association is statistically positive. In particular, for services firms a 1 percentage point increase in R&D offshoring raises the demand for researchers by about 11%. This suggests the existence of complementarity among them as productive inputs

Value co-creation characteristics and creativity-oriented customer citizenship behavior

For the competitive advantage of service organization, it is important to improve the creative performance of human resources in the organization. For example, when employees perform creatively, in other words, if they generate novel and useful ideas, it will contribute to organizational competiveness. Therefore, there has been an increased focus in identifying its antecedents and consequences. Unfortunately, little is known about the creative performance of customers. According to service-centered dominant logic, customer is the value co-creator, it emphasizes co-opting customer involvement in the value creation process as an additional human resource. In addition, customers can be a valuable resource for service improvement efforts for firms. For instance, companies might benefit greatly from customer feedback and complaints regarding their offerings and can enhance their productivity in terms of quality and quantity. In this paper, the type of novel, creative-oriented customer behaviors highlighted in the preceding paragraph are referred to as creativity-oriented customer citizenship behaviors (CCBs). In the customer value co-creation context, creative-oriented CCBs refer to extra-role efforts by customers with regards the development of ideas about products, practices, services, and procedures that are novel and potentially useful to a firm. According to the intrinsic motivation perspective, the context in which customers create values, influences their intrinsic motivation, which in turn affects creativity-oriented CCBs. The intrinsic motivation perspective suggests that high intrinsic motivation is affected by information from both task characteristics (i.e., autonomy) and social characteristics (e.g., supplier support). Specifically, complex and challenging task characteristics such as high levels of variety, identity, significance, autonomy, and feedback are expected to increase customer intrinsic motivation. Under these conditions, customers should increase the likelihood of creativity-oriented CCBs. Therefore, customers are expected to be most creative when they experience a high level of intrinsic motivation. In contrast, complex and challenging task and social characteristics can have the opposite effect to customers. For example, in a high level of variety task, increased autonomy can lead to increased workload because they must take on related extra responsibilities and accountability. Increased workload, in turn, is expected to lead to decreased likelihood of creativity-oriented CCBs. Therefore, this study attempts to explore the impact of task characteristics and social characteristics on creativity-oriented CCBs. Furthermore, a substantial body of research has examined the possibility that creativity is affected by personal characteristics. As such, in addition to the relevant task and social characteristics, the moderating influence of several trait variables is also considered. This article makes several contributions. First, this study investigates the trade-off effect of the customer value co-creation related task and social characteristics by examining the underlying opposing mechanism of motivation and work overload. Second, this research provides a deeper understanding of contingency factors that systematically strengthen the relationships under consideration. Third, this study may indicate that companies seek to promote the creativity of their industrial customers and should design the tasks and social characteristics of their industrial customers in a way that maximizes their creativity. But, companies should be aware of the negative impact of specific tasks and social characteristics that may minimize the creativity of industrial customers

Offshoring, Extent of the Shadow Economy and Firm Performance. Evidence from Italy

Being the G-7 country with the largest shadow-economy share, we posit that Italy's manufacturing firms - to counter emerging economies' competition - could alternatively offshore or enter the shadow economy. Within this context, we investigate, in a sample of Italian firms, whether internationalised firms outperform purely domestic firms in terms of efficiency, innovativeness and skill composition. Using propensity-score-matching and difference-in-difference techniques we find evidence that: (i) offshoring impacts TFP negligibly but, (ii) labour cost relocation robustly causes offshoring; (iii) offshoring firms are more likely innovative and R&D-oriented; (iv) firms in high- shadow -economy provinces less likely offshore. It is also evidenced that the latter firms show lower TFP and R&D expenditure.trade integration; offshoring; empirics of global sourcing; shadow economy

Productivity and International Firm Activities: What Do We Know?

This paper summarizes in a non-technical way what we know from empirical studies based on firm-level data about the mutual links between international activities of firms and productivity. It is written with a view to inform policy makers in an evidence-based way. A special focus is on the empirical evidence we have from studies using firm-level data from the Nordic countries. It is argued that this empirical evidence does not provide a sound basis to search for similarities and differences (and their causes) between the Nordic countries, and the empirical results reported cannot qualify as stylized facts that can inform policy makers in an evidence-based way.international firm activities, productivity, firm level data, Nordic countries

Coordination in Business Process Offshoring

We investigate coordination strategies in the remote delivery of business services (i.e. Business Process Offshoring). We analyze 126 surveys of offshored processes to understand both the sources of difficulty in the remote delivery of services as well as how organizations overcome these difficulties. We find that interdependence between offshored and onshore processes can lower offshore process performance. Investment in coordination mechanisms such as modularity, ongoing communication and generating common ground across locations ameliorate the performance impact of interdependence. In particular, we are able to show that building common ground – knowledge that is shared and known to be shared- across locations is a coordination mechanism that is distinct from building communication channels or modularising processes. Our results also suggest the firms may be investing less in common ground than they should.Coordination; offshoring; modularity; common ground; interdependence