Outsourcing

Outsourcing/offshoring of ‘processes’ such as procurement, HR, accounting (and more), together with the IT that supports it

Management of communications activities, infrastructure and software development, maintenance and support

• Companies can outsource whole or part of the production process to other firms
  • Efficiency, cost reduction, being closer to new markets, reduce trade barriers

• Small firms
  • Have a stronger preference for offshoring competence exploring activities
• Large firms
  • Large firms prefer to relocate their competence exploiting activities

• Loss of Know-How
• Opportunistic behavior of partner
• Transaction costs = higher total cost
• Transfer of core competences

• Positive and significant effect of offshoring on productivity
  • BUT: limited to the case of international outsourcing
• Offshoring towards developing countries has a positive effect on productivity
• Offshoring activity in developed countries has no significant effect on a firm’s productivity

Hidden cost

• Managing increasingly globally dispersed operations
• Hard measurable costs of relocating business tasks abroad

Advantages

• Low labour costs
• Increased speed to market
• Access to qualified talents

• Efficiency
• cost reduction
• being closer to new markets
• reduce trade barriers