Economic theory suggests that offshoring creates productivity-enhancing effects but literature in this area has been rather limited for service offshoring until recently. Thus, the contribution at hand tries to provide an overview of why firms engage in service offshoring and examine how service offshoring affects productivity. The work is structured as follows: Section 2 first provides a definition of the related terms and narrows down the topic of the paper. Section 3 briefly discusses service offshoring as a new paradigm of trade in the US. It also addresses the types of offshored service jobs, the offshore locations as well as the current volume of service offshoring. Section 4 discusses the various determinants that facilitate service offshoring. Section 5 contains the core analysis of this paper with the goal of analyzing the productivity effects of service offshoring theoretically and empirically.
First, a Heckscher-Ohlin model by Feenstra and Hanson (1996, 1997, 1999) will be introduced as one of the earliest models addressing offshoring and productivity. Then the "trade in tasks" model by Grossman and Rossi-Hansberg (2008) is presented to illustrate how service offshoring affects productivity. On an empirical level, the studies from Amiti and Wei (2009) and Schwörer (2013) will be discussed to address how service offshoring affects productivity specifically in the US and Europe. This will be followed by a comparison of the two empirical studies. Section 6 summarizes the work and adds some final remarks.
Table of Contents
1. Introduction
2. Definition and differentiation of various related terms
3. Service offshoring as a new paradigm of trade in the US
3.1 Evolution of service offshoring in the US
3.2 Types of offshored service jobs
3.3 Offshore locations
3.4 Service offshoring volume
4. Determinants of service offshoring
4.1 Environmental drivers
4.1.1 Technological progress
4.1.2 Emergence of a global talent pool of educated labor
4.2 Firm-level drivers
4.2.1 Cost reduction
4.2.2 Access to a qualified workforce
4.2.3 Prior offshoring experience
4.2.4 Other reasons
4.3 Coevolutionary perspective
4.4 Risk factors
5. Productivity effects of service offshoring
5.1 Impact channels on productivity
5.2 The model of Feenstra and Hanson
5.3 The trade in tasks model by Grossman and Rossi-Hansberg
5.3.1 Other literature
5.4 Empirical studies on service offshoring and productivity in the US
5.4.1 Industry-level evidence
5.5 Empirical studies of offshoring and productivity in Europe
5.5.1 Industry-level evidence
5.6 Comparison of US and European data
5.6.1 Comparison of the theoretical groundwork
5.6.2 Comparison of quantitative results
5.6.3 Other empirical findings
6. Conclusion
Objectives and Topics
This master's thesis examines the determinants of service offshoring and its subsequent impact on productivity. The research questions focus on identifying what drives companies to relocate service functions abroad and whether such strategies consistently yield the expected productivity-enhancing effects as suggested by economic theory.
- Evolution and paradigms of global service offshoring.
- Economic and firm-level determinants of offshoring decisions.
- Theoretical modeling of offshoring effects via task-based trade models.
- Empirical analysis of productivity outcomes in the US and Europe.
- Comparative assessment of US and European data sets.
Excerpt from the Book
Offshoring vs. outsourcing
Economists commonly use outsourcing and offshoring on an interchanging basis. Despite the confusion, the two terms are easily distinguishable based on two criteria. The Ownership of tasks where tasks can be completed internally (in-house) by an external supplier and the Location in which the tasks are completed (domestically or abroad).
Figure 1 shows that the two criteria facilitate four combinations. When firms buy inputs or tasks from an external supplier rather than producing them in-house, then they engage in outsourcing. To further differentiate, international outsourcing occurs when the tasks are performed abroad rather than domestically. Conversely, offshoring refers to tasks that are relocated abroad regardless of whether they are owned or produced by a foreign supplier. Some literature also refers to the sourcing from a foreign external supplier as arm’s-length contracts (Bhagwati et al. (2004); Bottini et al. (2007); Amiti and Wei (2009)). Vertical FDI or captive offshoring occurs when firms buy a foreign affiliate or subsidiary to perform a certain task along the value chain and thus own this production unit.
Summary of Chapters
1. Introduction: Presents the global economic context, the emergence of service offshoring, and outlines the research structure and objectives.
2. Definition and differentiation of various related terms: Clarifies terminology by distinguishing between horizontal and vertical integration, as well as the conceptual differences between outsourcing and offshoring.
3. Service offshoring as a new paradigm of trade in the US: Explores the historical evolution of trade, the types of jobs affected, and the volume of offshoring activities in the United States.
4. Determinants of service offshoring: Analyzes the environmental and firm-level drivers, including technological progress, labor shortages, and cost-reduction strategies, alongside potential risks.
5. Productivity effects of service offshoring: Investigates theoretical models by Feenstra and Hanson and Grossman and Rossi-Hansberg, followed by empirical evidence from US and European industry data.
6. Conclusion: Summarizes the key findings and addresses the implications of service offshoring for the global labor market and future competitiveness.
Keywords
Service Offshoring, Outsourcing, Productivity, Globalization, Task-based Trade, Grossman-Rossi-Hansberg Model, Feenstra-Hanson Model, Labor Market, Technological Progress, Industry-level Evidence, Foreign Direct Investment, Cost Reduction, Value Chain, Offshoring Determinants, International Trade.
Frequently Asked Questions
What is the primary scope of this thesis?
This work focuses on the intersection of global service offshoring, its underlying drivers, and its quantifiable impact on productivity within manufacturing and service industries.
What are the central themes explored?
The core themes include the distinction between various offshoring strategies, the evolution of global value chains, and the empirical measurement of firm-level and industry-level productivity changes.
What is the core research goal?
The goal is to determine why firms choose to offshore services and to verify whether this transition successfully leads to higher productivity through cost-efficiency and task specialization.
Which scientific methods are employed?
The study utilizes a combination of theoretical framework analysis, reviewing classical trade models, and a synthesis of empirical evidence from longitudinal industry-level datasets in the US and Europe.
What is addressed in the main part of the paper?
The main sections evaluate the determinants of offshoring (such as technological drivers and firm-level motivations) and discuss theoretical models like the "trade in tasks" model to assess productivity outcomes.
Which keywords define this work?
Key terms include Service Offshoring, Task-based Trade, Productivity, Globalization, and Foreign Direct Investment.
How does the author distinguish between offshoring and outsourcing?
The author distinguishes them based on two dimensions: Ownership (Internal vs. External) and Location (Domestic vs. Abroad), providing a clear matrix to categorize different business models.
What is the role of the "trade in tasks" model?
The model developed by Grossman and Rossi-Hansberg is used to illustrate how the unbundling of production processes into individual tasks allows firms to optimize production and influence relative wages and productivity.
Why are the US and Europe compared?
Comparing these regions helps to identify if the productivity-enhancing effects of offshoring are universal or if they vary due to regional factors like language barriers or specific labor market structures.
- Arbeit zitieren
- Anonym (Autor:in), 2020, Determinants and Productivity Effects of Service Offshoring, München, GRIN Verlag, https://www.grin.com/document/934932
