International offshoring of services: A parity study |
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Affiliation: | 1. Department of Business Administration, Wesley College, Dover, DE 19901, United States;2. Department of Information and Decision Sciences, Franklin P. Perdue School of Business, Salisbury University, Salisbury, MD 21801, United States;3. Department of Management, Villanova School of Business, Villanova University, 800 Lancaster Avenue, Villanova, PA 19085, United States |
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Abstract: | Conventional wisdom suggests that firms engage in international offshoring of services primarily to reduce wage costs associated with a given service activity. Drawing on international business research on the costs of doing business abroad (CODBA), liability of foreignness (LOF), and institutional theory, we investigate the factors that contribute to the location choices for services offshoring activity, including wage differentials between the home and host countries. We find that consistent with a parity perspective but contrary to conventional expectations, a country is more likely to be a destination of services offshoring as the average wage of a country increases. We also find that education level and cultural similarity are significant drivers of offshoring location choices, again consistent with a parity perspective. This study contributes to debates about the economic impact of services offshoring by showing that firms locate offshoring facilities in destinations that are closer in wages to the home country and those with higher education levels and cultural similarity. |
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