The Effect of Internal and External Integration Capabilities on the Performance of Professional Service Outsourcing

Abstract

To take advantage of low-cost talented labors and gain innovation capabilities, more and more global clients started to outsource professional service processes offshore to emerging markets. The service value chain breakdown in the outsourcing and intensive tacit knowledge involved in professional service impose great challenges in improving the PSO performance. PSO service provider’s integration with global clients can decrease the adverse effects of this breakdown. Moreover, the high-level professional knowledge involved in the service tasks requires effective and efficient internal integration across different functional units within the service provider. This study investigates how the PSO firm’s external knowledge integration with global clients, internal integration across various functional units, and the synergistic effects between them in improving PSO performance. Drawing on the theory of organizational learning and knowledgebased view, a conceptual framework is proposed and empirically tested by using survey data from 192 Indian professional service providers. This study contributes to the much-needed efforts in studying PSO, a new and fast-growing cross-border professional service activity, and provides helpful managerial implications to practicing global clients and offshore PSO service providers on how to successfully manage and govern the outsourcing process to achieve expected benefits.