International service outsourcing: using offshore analytics to identify determinants of value - added outsourcing

Abstract

Purpose – International outsourcing has been traditionally looked upon as a low end cost effective servicing option to take advantage of the cost arbitrage that exists across countries. Of late, many outsourcing vendors have realized that the advantages of cost differentials that spurred a lot of the global outsourcing business in the past 20 years will disappear in the medium term. The purpose of this paper is to provide a perspective about how much value addition, besides cost, traditional outsourcing vendors can provide and what may be the facilitator/inhibitors of such activities.

Design/methodology/approach – A case describing the setting up of an offshore analytics operation is presented, which gives a backdrop to the challenges faced in relatively high end value creation processes in a remote outsourced (offshore) environment. This provides some empirical support to a proposed model for facilitating the outsourcing of value‐added services.

Findings – A model is proposed for determining the degree to which value‐added services can be outsourced. The key dimensions that influence the degree of outsourcing are: the expertise of the vendor; the environmental stability of the offshore domain; the physical barriers to outsourcing complex business processes such as, communication problems and proximity issues; the possibility of knowledge leakage from the outsourcing domain; and the cost benefits of outsourcing.

Practical implications – The paper contends that conventional offshore‐based service vendors may find it difficult to acquire “expert power” and, set aside negative perceptions of “environmental stability” of their domain, in the pursuit to climb up the value chain in their client organizations. The validation of the proposed model is an opportunity for future research.

Originality/value – This paper is one of the first to present a model that will govern the growth of international outsourcing opportunities in high‐end value‐added processes. It also provides some directions for outsourcing vendors to enhance their capabilities over time to leverage this opportunity.