On Buyer Selection of Service Providers in Online Outsourcing Platforms for IT Services

Information Systems Research (Forthcoming)

Fox School of Business Research Paper No. 17-002

40 Pages Posted: 21 Dec 2016 Last revised: 10 Jan 2017

See all articles by Yili Hong

Yili Hong

Arizona State University (ASU) - W.P. Carey School of Business

Paul A. Pavlou

Temple University - Department of Management Information Systems; Temple University - Department of Strategic Management

Date Written: December 1, 2016

Abstract

The Internet has presumably created a level playing field that allows any service provider across the globe to compete for contracts on online outsourcing platforms for IT services. In this paper, we empirically examine (a) how country (language, time zone, cultural) differences and the country’s IT development affect buyers’ selection of service providers in online outsourcing platforms, and (b) how the reputation of service providers moderates the proposed effects of country differences and the country’s IT development. We integrated a unique data set formed by a sample of 11,541 software development projects from an online outsourcing platform matched with archival sources on the language, time zone, culture, and the IT development of countries. Since price is typically endogenous in any supply-demand system, we used the exogenous variation of the normalized exchange rate of the currency among countries, as a “cost-shifter” type Instrumental Variable (IV) for econometric identification. Our panel data analyses results (both with and without IV) show that buyers are negatively affected by country differences in terms of language, time zone, and culture, and prefer service providers from countries with higher IT development. Notably, the reputation of service providers attenuates the negative effects of language and cultural (but not time zone) differences, while it substitutes the positive effect of the country’s IT development. We discuss the study’s theoretical and managerial implications for understanding the global dynamics of online outsourcing platforms and better designing these platforms.

Keywords: Online outsourcing platforms, IT services, country differences, country IT development, reputation

Suggested Citation

Hong, Yili and Pavlou, Paul A., On Buyer Selection of Service Providers in Online Outsourcing Platforms for IT Services (December 1, 2016). Information Systems Research (Forthcoming) ; Fox School of Business Research Paper No. 17-002. Available at SSRN: https://ssrn.com/abstract=2887981

Yili Hong

Arizona State University (ASU) - W.P. Carey School of Business ( email )

Tempe, AZ 85287-3706
United States

HOME PAGE: http://yilihong.github.io/

Paul A. Pavlou (Contact Author)

Temple University - Department of Management Information Systems ( email )

1810 N. 13th Street
Floor 2
Philadelphia, PA 19128
United States

Temple University - Department of Strategic Management ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States

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