The offshore services value chain : developing countries and the crisis

This paper analyzes the recent evolution and impact of the global economic crisis on the offshore services industry. Using a global value chains framework, the authors classify the offshore services sector in a comprehensive set of general and industry-specific activities that correspond to different segments and stages in the value-adding process for services. Through an analysis of the impact of the economic crisis on the industry, a small decline in demand was found; however this did not cause any structural changes in the market. The crisis has created two opposing effects: general contraction of demand by existing customers due to the recession; and, at the same time, a substitution effect by which new services are being moved from developed countries to emerging economies in search of cost reduction. The paper concludes that the offshore services industry will continue to offer growth opportunities for developing countries not only among existing market players, but also a range of new countries. The industry has the potential to become an important source for employment and economic growth around the globe.ICT Policy and Strategies,E-Business,Water and Industry,Housing&Human Habitats,Public Sector Corruption&Anticorruption Measures

Global Sourcing Decisions and Firm Productivity: Evidence from Spain

We investigate the link between productivity of firms and their sourcing behavior. Following Antràs & Helpman (2004) we distinguish between domestic and foreign sourcing, as well as between outsourcing and vertical integration. A firm’s choice is driven by a hold-up problem caused by lack of enforceable contracts. We use Spanish firm-level data to examine the productivity premia associated with the different sourcing strategies. We find strong empirical support for the predictions of the model.productivity, outsourcing, intra-firm trade, foreign direct investment, incomplete contracts, firm-level data

Modeling the Offshoring of White-Collar Services: From Comparative Advantage to the New Theories of Trade and FDI

Trade theory consists of a portfolio of models. What elements might be useful in modeling the offshoring of white-collar services, or do these issues call for an entirely fresh approach? I try to identifying some of the important aspects of this phenomenon and then argue that modeling could focus on (a) vertical fragmentation of production, (b) expansion of trade at the extensive margin, (c) fragments that differ in factor intensities and countries that differ in endowments, and (d) knowledge or capital stocks of countries or firms that are complementary to skilled labor, and create missing inputs for countries otherwise well suited to skill-intensive fragments. I argue that we can make good progress by selecting a number of "modules" from existing theory. I use these to formulate a series of simple "template" models which capture many of the characteristics of offshoring, and then use those models to identify the effects of technological or institutional changes which allow offshoring of white-collar services to occur.

Employees relocation in reshoring operations: Effects on first & second host countries A descriptive study on European Manufacturing companies

Firms all over the world are starting to take advantage of the benefits of the globalisation. Trends in workforce reorganization and relocation have started to be in the big picture of worldwide firms in order to expand and increase their profits. The development of new economic states has changed tendencies in the world’s economy. This study explores how trait differences of countries can affect relocation of employees when a Relocation of Second Degree (RSD) occurs. RSDs are transfers in foreign countries of previously offshored divisions by manufacturing firms. An RSD can be a Relocation in a Third Country (RTC) or a Relocation in the Home Country (RHC). However, in this dissertation are only considered the RTC cases. The first part of this dissertation consists in a literature review based on two topics. Firstly, an analysis of the relocations with emphasis on the RSD is performed including technical concepts. The second section explores the possible effects of manufacturing or other activities relocation in the employment. After the literature part, data is presented, in the first place, explaining the general trends of relocation by European countries. Afterwards, data and variables are analysed in order to study the employees’ relocation through a descriptive statistical analysis. Obtained results of this study are a first step in the analysis of employees’ relocation in an RSD. Which allow us to deeply know more about different characteristics for each, origin and destination countries. For instance, on the one hand top ranked destinations stand out for their production cost efficiency. On the other hand, what is remarkable in the top ranked countries of origin is the high level of innovationOutgoin

OFFSHORING AND OUTSOURCING UNDER DEMAND UNCERTAINTY - A SUPPLY CHAIN MANAGEMENT ANALYSIS

siirretty Doriast

Examining political risk in service offshoring strategies

This research investigates political risk in the context of service offshoring and the corresponding impact on risk management decisions. The first stage of the study uses the Repertory Grid Technique (RGT), to explore key post-contract political risks experiences within offshore outsourcing activities. Twelve key political risks affecting offshore outsourcing decisions are identified, and the moderating effect of offshoring activity types (BPO, ITO or KPO) on political risk exposure and impact perceptions is highlighted. The research also explores the conditioning effect of industry specific exposure to political risk and enhances the explanatory ability of the Transaction Cost Economics (TCE) constructs, offering a re-operationalization of the political risk component of external uncertainty. The second stage of the research introduces a series of hypotheses between offshoring flows and political risk profiles, and applies multiple regression to analyse political risk affecting offshore activities in low cost countries across contract-based offshoring engagements and FDI. The findings highlight that political risk is a genuine business concern for offshore contract-based outsourcing modalities, and identify concerns with Intellectual Property protection, Quality of Bureaucracy and Corruption as key considerations affecting location decisions in low-cost countries. The research further suggests a positive relationship between strong country level institutional and regulatory systems and high knowledge content in offshoring engagements. From a practical perspective, the research highlights the need for managerial tools to determine diversified firm and industry specific political risk impact on global service outsourcing engagements. The key practical contribution is the development of differentiated political risk typologies that can capture the nuances of external risks in offshoring, allowing for more accurate risk assessment of offshoring decisions

Global Services Sourcing: Issues of Cost and Quality

Global Services Sourcing (GSS) is not an original concept. What is original about it is the media attention it seems to be getting. We have adopted the “then and now” philosophy in developing this report. We start by talking to the pioneers of global services sourcing, companies like General Electric, Nortel Networks and Citibank. The key learning from talking to these companies who have been sourcing their processes for more than a decade is that the long held view - “went for cost, stayed for quality” about moving processes outside the company (in some cases outside the country) is too simplistic. Rather we found that “went for cost and quality, stayed for continued quality at competitive costs” is more in line with the strategy that that these companies employed. Next, our in depth questionnaire tries to capture the “now” of the global services sourcing industry. Since the pioneers had shone the arc light on quality we developed specific quality related questions. The results validated the pioneers’ views: 67% of the respondents said that actual cost savings from services sourcing have been anywhere from 5% - 50% (onshore and/or offshored). 82% of the respondents said that going into the global services sourcing arrangement they look for quality of processes to increase by 2 – 10% (onshore and/or offshored). 70% of the respondents said that the quality of outsourced business processes has increased (quality increase of 5% -10%) or increased significantly (quality increase of 10% - 25%). The top three drivers of outsourcing were: cost savings, increasing capacity, ability to take advantage of offshore labor (through captive centers). The most difficult phase of outsourcing was transition or handoff of business processes from the company to its outsourcing partner. The top risk factors in outsourcing were: loss of institutional knowledge, poor communication with vendor, mismatch of firm cultures. Of the companies that are engaged in services sourcing, 79% of respondents were using an offshore based provider. Perhaps in a sign of maturing of global services sourcing 62% chose to offshore their services to at least one country in addition to India, the current offshoring destination of choice. As far as country risk factors, legal risks (laws comparable to international standards - data security, intellectual property rights) followed by political risks were identified as the top areas of concern. The lesson for countries competing for offshored business and FDI inflows in services is that the robustness and fairness of the legal system is a major factor for companies especially in the face of concerns about loss of institutional knowledge. The overall satisfaction level with outsourcing was high at 68% but a sizeable chunk of respondents – 26% were either unsatisfied or very unsatisfied with their outsourcing arrangements. Almost all of these unsatisfied firms have been outsourcing for 12 months or less, reinforcing the literature about thinking of outsourcing being a long term investment rather than a short term win

Offshoring and Immigrant Employment: Firm-level Theory and Evidence

We propose and solve a simple model of firm-level decisions to offshore production stages of lower skill intensity than that of activities that remain in the domestic location. In theory, offshoring is optimal only for the more productive among heterogeneous firms if it entails a fixed cost. In a large sample of Italian firms, offshoring - especially of intermediate production stages - is indeed more prevalent among firms that are larger and more productive, and is predicted by arguably relevant firm-level characteristics. We also document that offshoring decreases the share of unskilled employment in domestic production facilities as well as firms’ propensity to employ immigrant workers, and we discuss the possible determinants and policy implication of the latter finding.

Techno-organizational change and skill formation: Evidence from Italian manufacturing firms

This paper emphasizes the role of labour demand as a determinant of working skill formation. In particular, we study the relationship between techno-organizational innovation and skill formation from a labour demand perspective. In this respect, we investigate if activities aimed at increasing the international commitment and the technological and organizational change do have an effect on both the propensity of firms to train and on the intensity of training. On this purpose, by relying on a job-competition-like framework about the operation of the labour market in allocating skills, we first estimate which factors do affect the propensity of firms to invest in work-based training activities, and, secondly, we estimate if the same factors do also play a role in determining the degree of intensity of such a training activity. Relying on a new dataset on Italian manufacturing firms active over the period 2001-2006, we first estimate a probit model on the probability for a firm to train; then we employ a Heckman two-stage selection model on the share of trainees with which we can control for selectivity bias. Our results point to a positive and significant effect of both firms’ characteristics, like size, specialization and capital intensity, and firms' techno-organisational activities on both training incidence and on training intensity. A particularly significant role, in this respect, is played by the combination of process innovation and the adoption of new organizational practices.human capital, international commitment, labour demand, organizational change, skill, technological innovation, work-based training

Relocation of business services into Central and Eastern Europe: (evidence from trade and location statistics)

Relocation of business service offshoring-related activities measured by foreign direct investments and exports in services have grown rapidly after the Millennium in the new EU member states of Central and Eastern Europe (CEE). Besides Foreign Direct Investment (FDI), trade statistics support the assumption that an expanding export in business and in ICT services has been associated with relocation of shared services centres created by FDI in the six new member states (NMS). The service export data collected between 1996/2002 and 2012 gives a good proxy to identify those segments of service trade, which are considered to be offshorable. The paper examines the additional location factors selecting Central and Eastern European locations and summarises the effect of crisis on this industry. It concludes that the sector has demonstrated market resilience in the NMS and continued to expand rapidly