Separable but not equal: The location determinants of discrete services offshoring activities

Abstract

In this paper we explore the question of why firms offshore particular services to specific geographic locations. We draw on research related to the unique characteristics of services in trade and commerce, and more recent analyses of the transnational unbundling and spatial dispersion of business processes. We move beyond a simple assessment of the cost sensitivity or relative sophistication of offshoring services and develop a typology emphasizing the degree to which offshoring services activities are interactive, repetitive, or innovative. We suggest that the location of offshoring projects will depend on the particular mix of these attributes, and test this assertion using a data set of 595 export-oriented offshore services projects initiated from 2002 to 2005 by US and UK company parents in 45 developed and developing countries. We find that offshore location choices greatly depend on these services characteristics, and in sometimes surprising ways, and draw implications from our findings for international business theory, policy, and practice.