The Offshoring Challenge

Torben Pedersen • Lydia BalsPeter D. Ørberg Jensen •

Marcus M. LarsenEditors

The Offshoring Challenge

Strategic Design and Innovationfor Tomorrow’s Organization

123

EditorsTorben PedersenDepartment of Strategic ManagementCopenhagen Business SchoolFrederiksbergDenmark

Lydia BalsDepartment of Strategic ManagementCopenhagen Business SchoolSchwalbach a. Ts.Denmark

Peter D. Ørberg JensenDepartment of Strategic ManagementCopenhagen Business SchoolFrederiksbergDenmark

Marcus M. LarsenDepartment of Strategic ManagementCopenhagen Business SchoolFrederiksbergDenmark

ISBN 978-1-4471-4907-1 ISBN 978-1-4471-4908-8 (eBook)DOI 10.1007/978-1-4471-4908-8Springer London Heidelberg New York Dordrecht

Library of Congress Control Number: 2012955997

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Editors’ Preface

This book is about offshoring; the geographical relocation of business tasks toforeign locations. The continuous search for efficiency gains and the goal ofattaining a sustainable competitive advantage have steadily increased the volumeof goods and services procured globally since the 1980s. In this context, theoffshoring phenomenon has more recently stimulated much research towardsunderstanding offshoring as a unique form of internationalization by particularlyaddressing how different environmental, firm strategy, and organizational factorsinfluence which activities are being offshored, the choice of host location, and themode of governance structure, as well as financial and non-financial performanceconsequences of this.

With this book, we wish to go beyond the antecedent-structure-outcome logicof offshoring. In particular, we focus on the challenges that firms face whendeciding on offshoring activities to foreign locations and the measures that thesefirms take in dealing with this. To a large extent, offshoring can be regarded as alarger organizational reconfiguration affecting a number of dimensions, such as thecontractual ownership and relationship of the offshoring setup, the geography ofthe host location, the interdependences and coordination mechanisms between thespatially differentiated organizational tasks, and the overall coherence of theglobally dispersed organizational system. In this process, firms face a number ofboth organizational and environmental challenges that can deter and eventuallyundermine the initial rationales of deciding to engage in offshoring. Accordingly,firms often find that the process of offshoring requires new strategic approachesand business models that can keep unexpected challenges at bay.

The book is divided into six parts that explore different topics of the challengesthat firms face when offshoring. The first part concerns offshoring strategy andbusiness models. Firms often experience that the offshoring of activities to foreignlocations require new strategies and business models that can accommodate for thechallenges of coordinating a globally dispersed organization. The second and thirdparts investigate the organizational and process dynamics in offshoring knowl-edge-intensive work and research and development, respectively. In contrast tooffshoring more labor-intensive and standardized activities, the offshoring of

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knowledge-intensive activities such as research and development challenges firms’ability to successfully reintegrate the offshored activities into the organization. Thefourth part deals with risks and influences stemming from the location that firmsface in the process of offshoring. Increasing offshoring exposes firms to environ-mental risks that growingly need to be incorporated in business models. The fifthpart takes a broader perspective on offshoring by investigating industry and net-work perspectives and consequences on offshoring. Finally, the sixth part exploresnew theoretical approaches in offshoring research by suggesting that extant the-ories of internationalization may be inadequate to explain the offshoringphenomenon.

The process of preparing this book included a successful workshop at CopenhagenBusiness School on October 27–28, 2011, where most of the contributors to this bookpresented their chapters and received feedback and comments on how to further revisetheir contributions. We would like to thank Hedorfs Foundation for its support of thisworkshop. Finally, we wish to acknowledge and thank Agnethe Larsen for her con-siderable editorial and administrative assistance in completing this book.

Frederiksberg, Denmark Lydia BalsPeter D. Ørberg Jensen

Marcus M. LarsenTorben Pedersen

vi Editors’ Preface

Contents

1 Exploring Layers of Complexity in OffshoringResearch and Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Lydia Bals, Peter D. Ørberg Jensen, Marcus M. Larsenand Torben Pedersen

Part I Offshoring Strategy and Business Models

2 Offshoring Activities Impact a Company’s Business Model:The Case of BBVA and Banco Santander . . . . . . . . . . . . . . . . . . 21Carmen Paz-Aparicio and Joan E. Ricart

3 Entrepreneurial Globalization: Lessons Fromthe Offshoring Experiences of European Firms . . . . . . . . . . . . . . 37U. Srinivasa Rangan and Peter Schumacher

4 Tracking Offshoring and Outsourcing Strategiesin Global Supply Chains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57Timo Seppälä

Part II Organizational and Process Dynamicsin Offshoring Knowledge Work

5 Exploring Processes and Capabilitiesin Offshoring Intermediation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 79Gabriella Lojacono and Olga Annushkina

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6 Offshoring and Outsourcing of Customer-Oriented BusinessProcesses: An International Transaction Value Model . . . . . . . . . 99Stephen Tallman and Susan M. Mudambi

7 Offshoring White-Collar Work: An Explorative Investigationof the Processes and Mechanisms in Two DanishManufacturing Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123Dmitrij Slepniov, Marcus M. Larsen, Brian Vejrum Wæhrens,Torben Pedersen and John Johansen

8 SMEs De- or Reorganising Knowledge When Offshoring? . . . . . . 141Claus Jørgensen and Christian Koch

9 The Dual Role of Subsidiary Autonomy in Intra-MNCKnowledge Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155Peder Veng Søberg and Brian Vejrum Wæhrens

Part III Challenges and Opportunities in OffshoringResearch and Development

10 The Challenge of R&D Offshoring: Implicationsfor Firm Productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175María Jesús Nieto and Alicia Rodríguez

11 Industrial R&D Centers in Emerging Markets:Motivations, Barriers, and Success Factors . . . . . . . . . . . . . . . . . 191Anna Dubiel and Holger Ernst

12 Toward a Flexible Breathing Organization:R&D Outsourcing at Bayer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211Lydia Bals, Kyra Constanze Kneis, Christine Lemkeand Torben Pedersen

Part IV Firms Risks and Influence from Locational Factors

13 The Service Offshoring Code: Location Efficienciesfor German Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229Robert Fraunhoffer, Amit Karna and Florian Täube

14 The Exit Advantage: Overcoming Barriers to National Exit. . . . . 251Brent Burmester

viii Contents

15 Climate Change and the Offshoring Decision:Risk Evaluation and Management . . . . . . . . . . . . . . . . . . . . . . . . 271Edgar Bellow

16 Do Expectations Match Reality When Firms Considerthe Risks of Offshoring? A Comparison of Risk Assessmentby Firms with and Without Offshoring Experience . . . . . . . . . . . 287Peter D. Ørberg Jensen, Torben Pedersen and Bent Petersen

Part V Industry Level and Network Perspectives on Offshoring

17 Offshoring of Innovation: Global Innovation Networksin the Danish Biotech Industry . . . . . . . . . . . . . . . . . . . . . . . . . . 303Stine Haakonsson

18 Global Operations Coevolution:Hidden Effects and Responses . . . . . . . . . . . . . . . . . . . . . . . . . . . 325Dmitrij Slepniov, Brian Vejrum Wæhrens and Ebbe Gubi

19 Transformations of Mobile TelecommunicationsSupplier Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339Timo Seppälä

Part VI Exploring New Theoretical Approachesin Offshoring Research

20 Broadening the Conceptual and Phenomenological Scopeof Offshoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369Susan M. Mudambi and Jonathan Doh

21 The Complexity of Offshoring: A Comparative Studyof Mexican Maquiladora Plants and Indian OutsourcingOffices from an Institutional-Prospect Theory Perspective . . . . . . 385Van V. Miller, Ananda Mukherji and Kurt Loess

Appendix A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407

Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409

Contents ix

Abbreviations

1G First generation2G Second generationBPO/O Business Process Outsourcing and OffshoringBRIC Brazil, Russia, India, and ChinaBvDEP Bureau van Dijk Electronic PublishingCC Cluster centerCDI Cultural Distance IndexCDM Contract design and manufacturingCM Contract manufacturingCMS Consumer Management SystemCOBP Customer-Oriented Business ProcessesCRO Contract Research OrganizationDEA Data Envelopment AnalysisDMPK Drug metabolism and pharmacokineticsDMU Decision Making UnitEDGE Enhanced Data Rates for GSM EvolutionEE Eastern EuropeEFDI Expansionary foreign direct investmentEM Emerging marketEMS Electronics Manufacturing ServicesETCs Export Trading CompaniesF&I Financial services and insuranceFDD Foreign Direct DivestmentFDI Foreign Direct InvestmentGDP Growth Domestic ProductGE General ElectricGIN Global Innovation NetworkGLP Good laboratory practiceGPRS General Packet Radio ServiceGSC Global Support CenterGTF Global technology field

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IB International BusinessICT Information and Communication TechnologyIDV Individualism versus collectivismINGINEUS Impacts of Networks, Globalisation, and their Interaction with EU

StrategiesIPCC Intergovernmental Panel on Climate ChangeLTO Long-versus short-term orientationMAS MasculinityMIT Massachusetts Institute of TechnologyNSIDC National Snow and Ice Data CenterNSN NokiaSiemens NetworksOI Offshore intermediariesODM Original Design and ManufacturingOM Operations ManagementOPs Operational PurchasersORN Offshoring Research NetworkPDI Power Distance IndexR&D Research and DevelopmentRBV Resource-Based ViewRFDI Relocationary foreign direct investmentS&T Science and TechnologySME Small to Medium Sized EnterpriseSSDs Solid State DrivesTCE Transaction Cost EconomicsTCS Tata Consulting ServicesTDSCDMA Time Division Synchronous Code Division Multiple AccessTIP Technological Innovation PanelUAI Uncertainty avoidanceUMTS Universal Mobile Telecommunications SystemsUNESCO United Nations Educational, Scientific and Cultural OrganizationUSAID United States Agency for International DevelopmentVIF Variance Inflation FactorVLG Value Leadership GroupWDC Worldwide Delivery CenterWTO World Trade Organization

xii Abbreviations