Is More Offshoring Better? An Exploratory Study of Western Companies Offshoring It-Enabled Services to S.E. Asia

Abstract

We explore the link between a company's performance and the extent of its offshoring of IT-enabled services, focusing on large western companies. Our performance measures comprise sales, profit as percentage of sales, profit/employee and sales/employee over 1999-2004. To measure offshoring, we consider the extent to which these companies have offshored (1) software development and other IT-related development and maintenance, (2) business processes such as payroll or claims processing, and (3) call centers. We performed cluster analysis using the three corresponding offshoring variables to obtain broad patterns of offshoring. Then we compared the average performance of the companies in different clusters using ANOVA; did a regression analysis of the performance measures against the extent of offshoring for the three types of offshoring activities; and performed non-parametric correlations within industry sectors. None of these tests indicated a clear link between company performance and the extent of offshoring thus suggesting that further study is needed to understand when to offshore and how best to do it.

Keywords: Offshoring, IT outsourcing, regression/cluster analysis, service operations, global operations

JEL Classification: F20, F23, L86, M55