International Outsourcing Hurdles in Value-added Services

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. This paper provides a perspective about how much value addition, besides cost, traditional outsourcing vendors can provide and what may be the facilitator/ inhibitors of such activities.

Approach: To substantiate the claim, a brief case describing the setting up of an offshore analytics operation is presented which gives a back drop to the challenges faced in relatively high end value creation processes in a remote outsourced environment.

Findings/Claim: The author uses the case to develop a conceptual model of off shoring value –added services. The key dimensions that will determine the extent to which international outsourcing of high end services will take place are: 1) Expertise of the vendor, 2) Environmental Stability of the Outsourcing Domain, 3) Physical Barriers to outsourcing complex business processes such as, Communication Problems and Proximity issues, 4) Possibility of Knowledge Leakage from Outsourcing Domain and, 5) Cost Benefits of Outsourcing.

Practical Implications: The author contends that conventional outsourcing 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: 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.