Onshore Hiring and Restructuring: A Panel Study on Offshoring Companies’ Performance

Abstract

Firms engage in offshoring activities for various reasons, ultimately to increase competitive advantage. By integrating human capital theories in the strategy-performance models, we propose that hiring decisions regarding sources of human capital affect performance post-offshoring. To test our hypothesis, we use a 2009-2014 panel dataset with 8,172 company-year observations and 1,362 exactly matched Danish companies - 681 offshoring and 681 non-offshoring companies - containing financial-, mobility-, and offshoring information. We find that focusing on more internal hiring helps offshoring companies to perform better post-offshoring, whereas hiring from external sources decreases onshore performance. In the offshoring sub-sample of firms, we find that these effects are particularly salient for companies that offshore core activities or to distant-to-home locations. This is in line with our argument that firm-specific human becomes even more valuable post-offshoring, and that internal hiring can boost onshore performance. The paper contributes to the international business and human capital literature and aims to make managers aware of the need for an internal talent pipeline when engaging in offshoring.