Does Offshoring Impact Customer Satisfaction?

Abstract:     
Anecdotal reports suggest that offshoring may have negative implications for North American consumers. Despite the anecdotal reports, North American firms are increasingly offshoring front office functions such as customer service and back office functions such as IT. This leads to two primary research questions. Does front office offshoring actually have negative implications for consumers? If so, why would firms increasingly offshore in the face of evidence that offshoring has negative implications for consumers? This research addresses these questions by considering the relationship between offshoring and customer satisfaction. Customer satisfaction, expressed through the American Customer Satisfaction Index (ACSI), is an important indicator of firm performance. Higher ACSI scores have been linked to higher firm profitability, shareholder value and risk-adjusted stock returns.

We analyze longitudinal data of 150 North American firms and business units from 1998-2006, and find that while front office offshoring is associated with a decrease in customer satisfaction, onshore front office outsourcing is associated with a similar decrease. This finding suggests that declines in customer satisfaction from front office offshoring may be partly attributable to language and cultural issues, and partly related to other gaps for outside service providers (offshore or onshore) to adequately serve and satisfy consumers. We also find that back office offshoring is associated with an increase in customer loyalty. The difference between front office and back office offshoring suggests that in addition to considering whether or not to offshore, firms must carefully evaluate which functions are suitable for offshoring.

Keywords: Offshoring, front office, back office, ACSI, customer satisfaction, customer loyalty, perceived value, perceived quality, customer expectations

Working Paper Series