Outsourcing Of Business Services Research Articles

Spatial agglomeration, technology and outsourcing of knowledge-intensive business services: empirical insights from Italy

The aim of this paper is to explore the main drivers of outsourcing of Knowledge-Intensive Business Services (KIBS) by Italian manufacturing firms. While anecdotal and empirical evidence has emphasised labour cost and scale economies as being behind firms' choices to outsource production or service activities, here we focus on spatial agglomeration and technology as important factors. Using microeconomic data on Italian manufacturing firms for the period 1998?2003, we develop a two-stage Heckman model in order to avoid selection bias: first, we estimate the determinants of the firm's decision to outsource business-related services; second, we estimate the main factors underlying the intensity of KIBS outsourcing, expressed by the number of service activities that are externalised. Our results show that labour cost savings do not seem to be relevant in driving the decision to outsource KIBS, but the use of Information and Communication Technology (ICT), Research and Development (R&D) and location within a dense and technologically developed industrial district has very positive effects.

Business services outsourcing by manufacturing firms

Outsourcing of services is one of the most important phenomena that are reshaping firms’ boundaries in the last decades. This article assesses the reasons leading manufacturing firms to contract out some service activities instead of providing them internally. The theoretical framework, inspired in transaction cost economics, emphasizes the effects that firm heterogeneity and service-specific decisions have on the decision to outsource. Our empirical analysis, using Spanish firm data, suggests the relevance of nonlineal effects related to firm size, wage differentials and location, among other factors, with clear differences among groups of services. The increasing implementation of outsourcing strategies is one of the most remarkable changes that has characterized firm behavior in the last decades. This strategy allows firms to concentrate their capabilities and resources in their respective core businesses, giving up those activities where firms do not have any competitive advantage to incorporate to their value-added chain. Consequently, management, execution, and development of innovations in outsourced activities become the responsibility of an agent external to the firm. The study of the reasons for outsourcing and their effects both on firms and economy-wide activity has become an important topic of analysis. From the firm’s perspective, outsourcing strategies are part of the reorganization process that has characterized its behavior in the last two decades. It fits in the set of downsizing strategies and the diversification decrease that many firms have adopted (Jovanovic, 1993). Firms have carried out a vertical disintegration process in many manufacturing activities, with an increasing use of sub-contractors of components (contract manufacturing). Additionally, its extension to offshore suppliers has opened a hot debate in many countries due to its effects on key elements such as domestic employment (Braconier and Ekholm, 2000 and Egger and Egger, 2003), wage inequality (Feenstra and Hanson, 1996), pattern of trade (Hummels et al., 2001), and firm dependence on foreign providers, among others. Though there are differences

Global Business Service Outsourcing

This article discusses the motives and determinants of global business service outsourcing. Similar to foreign production, outsourcing providers seek resources, new markets, efficiency, and strategic assets or capabilities. Similarities between multinational enterprises producing goods and multinational enterprises offering services with respect to theories related to global strategy, location, management (e.g. managing international data sharing), ownership, internationalization and external environment are also discussed.

Spatial Agglomeration, Technology and Outsourcing of Knowledge Intensive Business Services - Empirical Insights from Italy

Aim of this paper is to explore the main drivers of outsourcing of knowledge intensive business services by Italian manufacturing firms. While anecdotal and empirical evidence has emphasized labour cost and scale economies as behind firms' choices to outsource production or service activities, here we focus on spatial agglomeration and technology as important factors. Using microeconomic data on a repeated cross-section of Italian manufacturing firms for the period 1998-2003, we develop a two-stage model in order to avoid selection bias: first, we estimate the determinants of the firm's decision to outsource business-related services; second, we estimate the main factors underlying the intensity and complexity of KIBS outsourcing, expressed by the number of service activities that are externalized. Our results show that labour cost-savings are not relevant in driving the decision to outsource KIBS, but ICT, R&D and location within a dense and technologically developed industrial district have very positive effects.

Effective strategies for internal outsourcing and offshoring of business services: An empirical investigation

The growing pressure to reduce costs and improve efficiency induces many organizations to undertake shared services initiatives. This consolidation and streamlining of common business functions is also known as insourcing, in-house services, business services, or staff services. While adoption of a shared service structure is viewed by many as an appropriate strategy to pursue, most companies still struggle to devise optimal strategies and to generate adequate returns on investments for their projects, because none of the approaches that are commonly adopted is recognized as universally effective. This paper builds upon the “structure-environment” perspective to uncover configurations of shared services organizations and to explain why and under what circumstances some of these configurations exhibit superior results. The conceptual model proposed challenges the notion of “best practice” and suggests that the effectiveness of a shared services project depends on the degree of complementarity between the “needs” arising from the environment in which a company operates and the specific capabilities developed to address these needs. The theoretical findings are validated empirically through the analysis of a large sample of European firms that recently undertook initiatives in this domain. Four dominant configurations of shared service organizations are uncovered, and their relationship to performance is explored.

Outsourcing and Offshoring: Implications for Productivity of Business Services

This paper reviews the implications of outsourcing and offshoring for the productivity of business services in the UK. Official statistics indicate that business-service productivity has grown by over 20 per cent in the last 7 years at the same time as employment grew by 20 per cent. The paper considers possible factors that account for the simultaneous growth of employment and productivity. First, we discuss outsourcing and offshoring, and their role in enhancing productivity through greater specialization, standardization, and consolidation of business processes, and a shift to higher value-added services. Outsourcing of business services is interpreted as part of corporate restructuring, namely as the unbundling of corporate functions as well as vertical disintegration. Second, as some services become more like products, both low-skilled and high-skilled jobs are subjected to productivity growth through standardization and digitization. It is argued, however, that the future of business-service productivity is on a knife-edge, depending on the mix of two sources of productivity enhancement--namely greater standardization and capturing value from customized solutions. Copyright 2006, Oxford University Press.

Market thickness and outsourcing services

This paper examines whether the outsourcing of business services is supported more in thicker local markets. In particular, I examine manufacturing plants' practices of outsourcing business services. Using plant-level data from the 1992 Annual Survey of Manufactures (ASM), I find evidence that supports the view that a plant's likelihood of outsourcing is greater in thicker local markets, while the extent of the effect varies across services.

Outsourcing and Offshoring of Business Services: How Important is Ict?

This paper considers the impact that information and communication technology (ICT) has on firms' choices over organisational form. In particular, the decision over whether to produce in-house or outsource services, and the decision over the location of activity. ICT reduces the transaction and adjustment costs of moving activity outside the firm, and of carrying it out at greater geographic distance. We find that more ICT-intensive firms purchase a greater amount of services on the market and they are more likely to purchase offshore than less ICT-intensive firms.

Outsourcing of advanced business services in the Spanish economy: Explanation and estimation of the regional effects

The use of advanced business services has become an essential element for competitiveness in modern economies in which traditional competitive advantages based on prices, lower labour costs or the abundance of natural resources are being replaced by new advantages based on higher quality, greater knowledge or the use of information and communication technologies (ICTs). Within this context certain services (computing, communications, human resources, engineering, consulting or management) are generally outsourced so as to exploit the advantages derived from specialisation and division of labour, as well as those of economies of scope and scale. However, some businesses, sectors or regions appear to have very different patterns of outsourcing advanced producer services. This paper presents an explanation of elements of business outsourcing decisions applied to the Spanish economy, applying discrete response models to the information obtained in a survey elaborated by the authors. The data thus obtained have enabled us to identify differences between the Spanish regions in the tendencies of businesses to use internal or external advanced services.

Modularity and innovation in knowledge-intensive business services: IT outsourcing in Germany and the UK

Drawing on an empirical study of IT outsourcing in the UK and Germany, this paper explores the lessons for modularity that can be drawn from the outsourcing of knowledge-intensive business services (KIBS). Because of the inseparability of information and production technologies, IT outsourcing is frequently accompanied by wider transformations in clients’ production technologies. This results in the need for knowledge and organisational coordination in the form of the transfer of staff from the client and the retained IT organisation. Modularity is often presented as a design strategy that stimulates innovation. Our research findings challenge the generalisability of this claim when examining KIBS outsourcing. We show that intangibility of services exacerbates the conflicts between clients and suppliers, which may present obstacles to innovation.

Offshoring of Business Services and its Impact on the UK Economy

Offshoring of Business Services and its Impact on the UK Economy

THE PRICE SENSITIVITY OF BUSINESS SERVICE OUTSOURCING ANNOUNCEMENTS BY UK COMPANIES

This article investigates the market reaction to a sample of announcements of business service outsourcing arrangements made by UK quoted companies between 1991 and 1997. Event study methodology is applied to daily stock returns to measure the reaction, in the form of excess returns, immediately prior to and at the date of an outsourcing contract announcement. The conclusion is that initial announcements tend to enjoy positive and significant reaction and that the larger companies in the sample show a more positive reaction than smaller companies. Overall outsourcing announcements appear to be associated with excess returns but the absence of any recognized basis for disclosure prevents a complete analysis of such events.

Externalización de servicios empresariales: Una evolución de la concentración de conceptos comerciales centrales y de las economías de costos de transacción

Presenta y evalúa la literatura con respecto a la externalización de los servicios empresariales (BSO, por sus siglas en inglés), con una concentración particular en la tecnología informática, una forma común de BSO. El informe define los problemas con respecto a la BSO en términos de motores y motivaciones, así como las implicaciones internas y externas para empresas BSO y sus contratistas. BSO es una evolución de la teoría de costos de transacción y la concentración en conceptos comerciales centrales. Aunque hay varios intentos de explicar cuándo una empresa debe externalizar, estos marcos teóricos son difíciles de aplicar en la práctica, ya que la satisfacción es una función de la expectativa y la identificación de las actividades no es sencilla.