An Empirical Analysis of Motives for Offshore Outsourcing by U.S. Firms

Abstract:     
In light of the political debate on offshore outsourcing, this paper examines firm financial characteristics associated the probability of being identified as an outsourcer. In a sample of S&P 500 firms, we find that firms identified as outsourcers operate in more competitive industries, have relatively worse operating performance, higher administrative overhead, and higher labor overhead. These firm characteristics are consistent with cost-cutting objectives and the need to respond to competitive pressures. We also find that outsourcing firms have a higher rate of growth in operating performance from 2003-2006. From a policy perspective, our results suggest that the political pressure to limit firms' ability to offshore outsource will likely reduce their flexibility to respond to operating and competitive challenges.

Keywords: Outsourcing, Offshoring

JEL Classifications: F23

Working Paper Series