A learning perspective on the offshoring of advanced services

Based on longitudinal case studies of offshoring of advanced IT and engineering services from Danish firms to Indian firms, this paper explores organizational learning that occurs over time in both home and host firms and uses learning as a measure of the firm impact of advanced services offshoring. The findings are consistent with the theoretical view that advanced services offshoring must be understood as an antecedent for strategic business development and organizational change in both home and host firms. The study shows that when offshoring partnerships mature and firms gain experience, learning in both home and host firms evolves over time and differs in many cases from their initial objectives and expectations. In some of the Danish firms engaging in offshoring even ignites a process of strategic transformation. Both Danish and Indian firms use the input from their offshoring partnership to upgrade their organizations and business processes.     

THE PLANT LOCATION DECISION IN MULTINATIONAL MANUFACTURING FIRMS: AN EMPIRICAL ANALYSIS OF INTERNATIONAL BUSINESS AND MANUFACTURING STRATEGY PERSPECTIVES

The paper combines perspectives from international business and manufacturing to examine multinational plant location decisions. The location choice in manufacturing is between integrated and independent plants, while the international choice is between a foreign and domestic plant relative to their headquarters' country. The study empirically investigates whether these choices have different plant location determinants using data from a survey of plant managers of large, multinational firms. We find more evidence that the manufacturing choices benefit from consideration of international business issues than vice versa. However, managers rank determinants associated with manufacturing strategy considerably higher than those associated with intemational business.     

Home–Host Country Distance in Offshore Governance Choices

This paper studies the effect of home–host country distance on the choice of governance mode in service offshoring. Using a Transaction Cost Economics approach, we explore the comparative costs of the hierarchical and contractual models to show that different dimensions of distance (geographic, cultural and institutional), because they generate different types of uncertainties, impact offshore governance choices in different ways. Empirical results confirm that, on the one hand, firms are more likely to respond to internal uncertainties resulting from geographic and cultural distance by leveraging the internal controls and collaboration mechanisms of a captive offshore service center. On the other hand, they tend to respond to external uncertainties resulting from institutional distance by limiting their foreign commitment and leveraging the resources and local experience of third party service providers. Finally, we find that the temporal distance component (time zone difference) of geographical dispersion between onshore and offshore countries plays a dominant role over the spatial distance component.     

Task Trade Between Similar Countries

We propose a theory of task trade between countries that have similar relative factor endowments and technological capabilities, but may differ in size. Firms produce differentiated goods by performing a continuum of tasks, each of which generates local spillovers. Tasks can be performed at home or abroad, but offshoring entails costs that vary by task. In equilibrium, the tasks with the highest offshoring costs may not be traded. Among the remainder, those with the relatively higher offshoring costs are performed in the country that has the higher wage and the higher aggregate output. We discuss the relationship between equilibrium wages, equilibrium outputs, and relative country size.     

R&D (Re)location and Offshore Outsourcing: A Management Perspective

The paper reviews and systematizes the management literature directly and indirectly related to (re)location of research and development (R&D), in the form of both insourcing and outsourcing. The focus in particular is on R&D offshore outsourcing and its main drivers, including locational constraints and opportunities, motives, strategic decisions and managerial challenges. The analysis synthesizes and links the main propositions and findings of the theoretical and empirical work to build an original management and strategy centred framework which looks at R&D (re)location from a client–vendor perspective. In this case, the client is the offshoring company, and the vendors are the firms located in the host country. The characteristics of the firms and locations considered vis‐à‐vis the offshoring firm's goals are examined, the strategies implemented, the management and organizational challenges that R&D offshore outsourcing entails, and the ways in which offshoring impacts on both home and host locations are investigated.     

Revenue Management in Business Services

A significant portion of the services industry is focused on providing services (medical, legal, financial, personal, and travel) to individuals. However, studies have shown that a less visible but rapidly growing segment of the service sector comprises firms that provide business functions to other businesses. The sector covers tasks such as payroll processing, procurement, and information systems management, as well as business consulting, technical support, call center operations, and software development. Firms may choose to purchase, rather than perform, these business functions to reduce costs, to mitigate risk, or simply to focus on their processes that provide marketplace differentiation. Transferring a business function from within a firm to an outside supplier is often called “outsourcing”; when the supplier provides the service from a lower‐cost country, it is called “offshoring.” The risks and benefits of outsourcing to the firm purchasing a business service have been studied in some detail by both academics and consultants. In this paper, we outline revenue management issues faced by business service providers and describe some new opportunities for the use of analytic methods in the service science sector.     

When outsourcing is not an option: International relocation of investment bank research — Or isn't it?

Outsourcing is high on the agenda of firms seeking to cut costs. Based on an enhanced value-chain concept we develop a model that determines the conditions under which outsourcing and offshoring are not expedient. The model allows for an integrated analysis of horizontal and vertical links to actors within and outside the firm. Equity and country research in investment banks and their outsourcing potential are used as case studies. We draw mainly on qualitative evidence from interviews with investment bank analysts, as well as data on locations of research units of foreign investment banks in India. The option of outsourcing certain stages of business processes and offshoring parts of the value chain within firms to low-wage locations depends crucially on how processes are ‘embedded’ in relation to other departments within and to corresponding actors outside the firm. Our analysis shows that there is little, if any, scope for outsourcing but some potential for low-level research activities to be offshored to low-cost regions.     

The organizational design of offshoring: Taking stock and moving forward

Offshoring can be defined as the relocation of organizational tasks and services to foreign locations. At the same time as the scale and scope of offshoring have reached unprecedented levels in recent years, firms have increasingly been exposed to the challenges relating to managing an organization consisting of a number of offshored activities. In this special issue introduction paper, we argue that an organizational design perspective on offshoring can benefit research and practice in understanding how firms can coordinate and integrate offshoring activities. Specifically, we argue that offshoring implies an organizational reconfiguration consisting of three stages: disintegration, relocation and reintegration. We discuss the implications of this perspective and outline a research agenda.     

Business groups' outward FDI: A managerial resources perspective

Outward FDI strategies are driven by firms' resource endowments, which in turn are conditioned by their home environment. In emerging economies, thus, the pattern of outward FDI is shaped by local firms' idiosyncratic contexts and the resources that these firms developed to fit the contexts. This includes business groups, a dominant organizational form in many emerging economies, competing with context-bound resources. When they wish to transcend their home context, they need internationally valuable resources, especially managerial resources, which may be quite different than the resources that enable domestic growth. This paper thus explores what resources drive this international growth in the case of Taiwanese business groups. Starting from Penrosian Theory, we focus on managerial resources that are shared across the member firms of a group, and thus shape the profile of the group. We find that international work experience favors internationalization while international education does not. Moreover, domestic institutional resources distract from internationalization, presumably because they are not transferable into other institutional contexts, and thus favor other types of growth.     

Cultural Intelligence and Offshore Outsourcing Success: A Framework of Firm‐Level Intercultural Capability*

This article discusses the importance of firm‐level cultural intelligence in the context of international business ventures such as offshoring. We identify the recent movement toward global delivery models in offshoring ventures as the strategic imperative for offshoring partners to acquire and develop firm‐level cultural intelligence. Drawing on Earley and Ang's (2003) conceptualization of cultural intelligence and the resource based view of the firm, we develop a conceptual framework of firm‐level cultural intelligence. The framework comprises three dimensions of intercultural capabilities of the firm: managerial, competitive, and structural. We propose items to measure these three dimensions and discuss theoretical and managerial implications.     

International Diversification,Business Group Affiliation and Firm Performance: Empirical Evidence from India*

We investigate the impact of business group affiliation on the relationship between international diversification and firm performance for emerging economy firms. We develop the theoretical arguments based on an integration of the literature on international diversification with the institutional theory perspective. We argue for a U‐shaped relationship between international diversification and firm performance, and suggest that a firm's affiliation to a business group moderates the relationship between international diversification and firm performance. Based on a sample of Indian firms, we find that firm performance is positively related to the degree of internationalization, while business group affiliation reduces the positive effect of internationalization on firm performance.     

Twice as Smart? The Importance of Managers’ Formative‐Years’ International Experience for their International Orientation and Foreign Acquisition Decisions

This study examined how top management team's (TMT) international orientation influences perceptions of environmental uncertainty and how these perceptions impact international strategic decisions, in particular regarding ownership stakes taken in foreign acquisitions. We highlighted the need for the concept of TMT international orientation to encompass executives’ formative‐years’ international experiences along with their international career experiences and nationalities. Empirical tests based on a sample of 2122 international acquisitions completed by 561 UK firms over the period 1999–2008 showed that TMT international orientation positively moderated the negative impact of cultural differences and host country risk on acquisition ownership stakes. The results underscored the importance of considering decision‐makers’ attributes due to their experiences at a young age, beyond their demographic characteristics or professional experience, in the context of international strategic choices. We also discussed some implications of one of the possible consequences of executives’ formative international experience, namely biculturalism, for international business.     

A Decisional Framework of Offshoring: Integrating Insights from 25 Years of Research to Provide Direction for Future*

Mirroring the growing trend for firms to support their operations by locating activities abroad, research on the practice of offshoring has increased considerably in recent years. However, despite the mounting research, understanding of the key factors influencing decision‐making for offshoring remains surprisingly limited due to fragmentation. In this study, we synthesize and integrate insights from different research domains in order to develop a comprehensive decisional framework for key offshoring decisions. The integrative decisional framework is based on a systematic review of offshoring research published in the most influential management and business journals in the past 25 years. In addition to providing a snapshot of the state of research on decision‐making for offshoring, this study aims to stimulate future research by identifying promising research opportunities. In particular, we propose that future research should use alternative theories to incorporate overlooked aspects of decision‐making, integrate different theories to account for the interdependencies between decisions, and adopt a portfolio perspective that considers each decision as part of an overall offshoring strategy.     

Top management departures in cross-border acquisitions: Governance issues in an international context

This study examined top management team departures in U.S. manufacturing firms acquired by a foreign multinational during the six-year period following acquisition. Results indicated that greater cultural distance between the United States and the home country of the foreign multinational, higher levels of international integration in the target industry, and poor preacquisition performance in the U.S. target company were related to greater postacquisition top management departures. These effects were moderated significantly by the foreign acquirer’s international business and U.S. acquisition experience and showed different patterns over the short-term, intermediate-term, and long-term. Implications for future research on top management teams involved in cross-border acquisitions are discussed.     

The impact of international business education on career success—Evidence from Europe

In today's globalized world, career paths are becoming increasingly international, and so managers need respective cross-cultural strengths in order to act effectively in various cultural environments. Even though education—especially business education—is progressively becoming more international to meet these organizational demands, little is known about whether the extent of international business education influences careers, and in particular career success. In addressing this research deficit, we explore whether and how international business education affects career success. As the major contribution of this paper we suggest a conceptual framework which posits global identity and international experience as mediators of this relationship. The assumptions of this framework are confirmed by an investigation amongst 450 alumni of a European business school. Additional contributions include that we extend the limited body of research on the construct of international business education and its measurement, by providing an all-encompassing definition and much-needed operationalization. Furthermore, we contribute a European perspective on international business education through our empirical evidence.     

Regional Integration,Multinational Enterprise Strategy and the Impact of Country‐level Risk: The Case of the EMU

The European Monetary Union (EMU) provides a new macro‐level, institutional setting for multinational enterprises (MNEs). The authors investigate the impact of regional integration on MNE strategy by analysing Belgian firms’ entry‐mode choices in foreign markets, both EMU and non‐EMU ones, with a focus on what impact remains of country‐level risk. They demonstrate that regional integration has altered the impact of country‐level institutional risk on MNE entry‐mode choices inside the EMU. The conventional predictions of international business theory have been reversed, with higher country‐level risk inside the EMU driving a preference for wholly owned subsidiaries. Within the integrated region, insider firms now view higher country‐level risk as the equivalent of higher, micro‐level contracting risk. Such risk can best be mitigated through full internalization, combined with arm's length contracts, rather than through equity joint ventures.     

Outsourcing to emerging markets: Theoretical perspectives and policy implications

Creating value through outsourcing has emerged as a popular competitive strategy for firms in various industries. In order to survive in the domestic and international marketplaces, firms, especially in developed countries, are seeking opportunities offshore, which is one focus of globalization. Offshore outsourcing has emerged as a popular competitive strategy and emerging markets have become increasingly attractive locations. As firms in developed countries (e.g., the US) continue to face enormous challenges to sustain competitive advantage, outsourcing to emerging markets is becoming an increasingly important source of business renewal and corporate transformation.In spite of the growing strategic significance of sourcing, we have limited knowledge of offshoring and outsourcing to emerging markets. The objectives of this review are fourfold: (1) to provide a better understanding of the concepts of offshoring and outsourcing business models, (2) to discuss relevant theoretical perspectives related to outsourcing, (3) to present a taxonomy of outsourcing strategies drawing on the extant literature, and (4) to discuss public policy implications. Conclusions and direction for future research are provided.     

Similarity,Isomorphism or Duality? Recent Survey Evidence on the Human Resource Management Policies of Multinational Corporations

There is considerable debate as to the determinants of the human resource policies of human resource management: do they reflect national institutional or cultural realities, emerging common global practices, parent country effects or the dual effects of transnational and national realities? We use an extensive international database to explore these differences, assessing variations in a range of human resource practices. We find new evidence of national differences in the manner in which indigenous firms manage their people, but also evidence of a similarity in practice amongst multinational corporations. In other words, multinational corporations tend to manage their human resources in ways that are distinct from those of their host country; at the same time, country of origin effects seem relatively weak. Whilst there is some evidence of common global practices, sufficient diversity in practice persists to suggest that duality theories may provide the most appropriate explanation.     

Regulation as Country‐Specific (Dis‐)Advantage: Smoking Bans and the Location of Foreign Direct Investment in the Tobacco Industry

This paper seeks to examine the relationship between smoking bans and the propensity of tobacco firms to engage in foreign direct investment (FDI). Using international business theory based on the firm‐specific advantage/country‐specific advantage (FSA/CSA) matrix, the authors show that, contrary to what one may expect, smoking bans at home are an important institutional intervention, reducing the propensity for firms to engage in FDI, even to countries without a ban themselves.     

Forgotten travelers: Adjustment and career implications of international business travel for expatriates

In this study, we demonstrate the importance of assessing international business travel in the context of expatriation. Based on the Job Demands-Resources theory, we suggest that engaging in international business travel is beneficial for expatriates when certain conditions are in place and detrimental when they are not. We propose that expatriates who have adequate job resources will reap the benefits of international business travel and achieve better adjustment to living and working in the host country and have greater career satisfaction. Survey results based on a sample of 161 expatriates provide support that engaging in international business travel is positively and indirectly related to expatriates' career satisfaction through expatriate adjustment when job resources are abundant, and it has a negative indirect association when resources are low. We further find that job resources play a role in the relationship between international business travel and career satisfaction primarily when the host-country culture is similar to that of the home country.