The Stability of Offshore Outsourcing Relationships

Stephan Manning (), Arie Y. Lewin and Marc Schuerch
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Stephan Manning: University of Massachusetts Boston
Arie Y. Lewin: Duke University
Marc Schuerch: Advisory House AG

Management International Review, 2011, vol. 51, issue 3, No 4, 406 pages

Abstract: Abstract Offshore outsourcing of administrative and technical services has become a mainstream business practice. Increasing commoditization of business services and growing client experience with outsourcing have created a range of competitive service delivery options for client firms. Yet, data from the Offshoring Research Network (ORN) suggests that, despite increasing market options and growing client expectations related to service quality and cost efficiency, clients typically renew provider contracts and develop longer-term relationships with providers. Based on ORN data, this paper explores drivers of this phenomenon. The findings suggest that providers promote contract renewal by making client specific investments in software, IT infrastructure and training, and by involving clients in outsourcing operations, thereby increasing relation specific joint equity and creating opportunities for client monitoring and control. Interestingly, these strategies apply to routine rather than knowledge-intensive tasks, and are more likely to be applied by large rather than small providers. Surprisingly, high degree of contract specification makes contract renewal less likely. The paper contributes to the growing literature on strategic outsourcing of business services and the importance of governance mechanisms addressing “hidden costs” as well as “hidden benefits” of offshore outsourcing relationships.

Keywords: Offshore outsourcing; Strategic outsourcing; Agency theory; Service contracting; Hidden costs; Governance mechanisms (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (16)

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DOI: 10.1007/s11575-011-0081-4

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