Small Firms and Offshore Software Outsourcing: High Transaction Costs and Their Mitigation

Posted: 4 Nov 2009

See all articles by Erran Carmel

Erran Carmel

American University - Kogod School of Business

Brian Nicholson

University of Manchester - Manchester Business School Worldwide

Date Written: 2005

Abstract

Identifies the transaction costs facing small firms engagedin offshore software outsourcing and considers the strategies that small firmsadopt in order to mitigate transaction costs and manage the process of offshoresoftware development. First, a theoretical framework derived from transaction cost economics (TCE)is outlined, along with the argument that small and large firms engaged inoffshore sourcing incur different levels of transaction costs at the threestages of contact, contract, and control. Next, data from interviews of keypersonnel from 25 small firms in the United States and the United Kingdom areused to address the research questions. Conducted between 2000 and 2003, the interviews uncover nine transactioncost mitigation strategies, six of which are for vendors and the rest of whichare for client firms. These strategies allow client firms to gain experience,overcome opportunism, and facilitate knowledge flows. The strategies forsuppliers include establishing an onshore presence, reducing contact costs,simplifying contracting, providing control channels, standardizing services,and employing expertise intermediaries. (SAA)

Keywords: Firm strategies, Software, Transaction cost economics, Outsourcing, Vendors, Cost control

Suggested Citation

Carmel, Erran and Nicholson, Brian, Small Firms and Offshore Software Outsourcing: High Transaction Costs and Their Mitigation (2005). Journal of Global Information Management, Vol. 13, Issue 3, p. 33-54 2005. Available at SSRN: https://ssrn.com/abstract=1498261

Erran Carmel (Contact Author)

American University - Kogod School of Business ( email )

4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States

Brian Nicholson

University of Manchester - Manchester Business School Worldwide ( email )

United Kingdom

Register to save articles to
your library

Register

Paper statistics

Abstract Views
724
PlumX Metrics