Offshore outsourcing of business functions is widely practiced by firms in advanced economies. Although scholars have argued for various theoretical perspectives in explaining its nature and implications, a coherent explanation of how crucial factors that aid this growing phenomenon coevolve has not been offered. Further, a potential gap in the extant literature concerns inadequate simultaneous attention to clients and providers – the key actors in offshore outsourcing. With an aim to fulfill these research gaps, we provide in this paper an integrated framework wherein we delineate various institutional and organizational factors that coevolve to enable engagement of clients and providers in offshore outsourcing. Our conceptualization draws from information obtained by interviewing 46 executives of 31 firms of the Indian business process outsourcing industry.
The phenomenon of international or offshore outsourcing that involves transferring business activities and/or processes to independent third-party providers located overseas has generated tremendous interest in recent years in both academic and managerial circles. Over the years, a significant body of literature has blossomed in scholarly journals and practitioner-oriented outlets that have discussed the antecedents, processes, and outcomes of offshore outsourcing at the firm, societal, and national levels (Doh, 2005, Engardio and Einhorn, 2005, Niederman et al., 2006 and Weidenbaum, 2005). Despite the impressive growth, two underlining aspects of the evolving literature are its lack of (1) simultaneous consideration of institutional and firm-level factors that help initiate and propagate the practice, and (2) concurrent attention to the outsourcing firms (hereafter clients) and overseas vendors or supplier firms (hereafter providers). Such shortcomings do not allow for portraying the complete picture of offshore outsourcing.
Extant literature suggests that firms are embedded within their institutional environments and recommends that the decisions of top managers to engage in any strategic practice should be viewed as a joint outcome of the influence of institutional and organizational factors (Hrebiniak and Joyce, 1985 and Koza and Lewin, 1999). While most articles relating to offshore outsourcing have explained various drivers that enable the practice (Niederman et al., 2006 and Kshetri, 2007), very little scholarship have gone to the extent of elaborating on the factors that are present on the client as well as the provider sides which, taken together, explain why the respective actors decide to engage into and continue the practice of offshore outsourcing. In fact, barring handful of published articles (e.g., Kedia & Lahiri, 2007) that have discussed the contexts of both clients and providers, most research have focu
In this paper, we have offered a coevolution based framework and explicated how various institutional and organizational factors – relating to both clients and providers – coevolve in enabling the practice of offshore outsourcing. In enhancing understanding of this growing strategic practice, we focused on the simultaneous and changing relationships between various factors and the parties and also the evolving relationships among them. To develop our integrated framework and address three crucial research questions, we drew links from related offshore outsourcing and coevolution based literature, and utilized information obtained through interviewing 46 top executives of 31 firms of the Indian BPO provider industry. Overall, this paper has conceptualized offshore outsourcing in a newer light that supplements other useful theoretical perspectives available in the existing literature and has added to the growing research on coevolutionary firm dynamics (Benbya and McKelvey, 2006, Inkpen and Currall, 2004, Koza and Lewin, 1998 and Koza and Lewin, 1999).
Our explanation of offshore outsourcing from a coevolutionary stance has several implications for managers and policy makers. Client executives need to actively assess various changes taking place in the providers’ business environment, constantly monitor enhancement of providers’ resources and capabilities at the individual, team, and organizational levels, and engage in explicit knowledge transfer to allow them maintain understanding of their (clients’) business operations, specific requirements, and end customers. In particular, clients need to assist the providers in the latter's efforts to coevolve as long-term business partners (Kedia and Lahiri, 2007 and Lewin et al., 2009).
Likewise, providers need to adequately assess different changes taking place in the clients’ institutional environment, regularly monitor clients’ specific requirements and changes, if any, and improve internal resources and capabilities at the individual, team and organizational levels based on feedback obtained from clients. Further, they need to absorb, learn and take corrective actions from the knowledge transferred through client interactions, and constantly strive to become clients’ dependable business partners by providing service improvements year-on-year (Budhwar et al., 2006 and Lahiri et al., 2009). Providers should, in particular, attempt to curb the sources of concerns relating to high levels of manpower turnover, insufficient generation of middle level managers, and inadequate data security measures. Although our interviews revealed that most providers attempt to ensure that such concerns do not affect their business dealings, nonetheless, a single case of client dissatisfaction can create ripple effect and send negative signals to the global clientele.
