Yesterday's Friends, Tomorrow's Foes? Offshoring, Rents and Institutional Settings

Abstract

Despite sustained public debate about the current wave of offshoring, there has been limited international business research on its strategic implications. We examine the generation, appropriation and sustainability of economic rents that flow from competitive advantage in the face of offshoring. Digitization and I.T. have allowed the scope of offshoring to expand to cover finance and accounting, business analysis, R&D, HR and customer service. At the same time, across borders, institutional differences associated with intellectual property rights regimes, market regulation, lobbying and corruption create additional distortions that can threaten rents. Our analysis of rent generation suggests that innovation (Schumpeterian) rents and asset utilization (Ricardian) rents are threatened by offshoring, while rents based on market power (monopoly rents) are only weakly impacted. This places Schumpeterian rents at risk in a manner they never have been before.

Keywords: Offshoring, rents, international business, institutional economics

JEL Classification: F23, L14, L24, M10