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Offshoring and Outsourcing of Customer-Oriented Business Processes: An International Transaction Value Model

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The Offshoring Challenge

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Abstract

Business processes that involve information processing and human interaction raise unique issues of geography and governance. To explain outsourcing and offshoring decisions by firms, we develop a model of international transaction value that integrates resource-based theory, location economics, and transaction costs theory. This firm-level model provides a strong theoretical foundation for understanding and testing the conditions for effective outsourcing and offshoring of customer-oriented business processes (COBP). In addition to establishing static conditions that should favor greater or lesser degrees of outsourcing and offshoring, the model also provides pathways to suggest how preferences will change under alternative circumstances.

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Notes

  1. 1.

    In this context, outsourcing refers to the contracting of a previously internal business process to unaffiliated parties outside the firm, while offshoring, often of the same knowledge-based activities, refers to locating activities in a foreign country, whether through an affiliated (captive) supplier or through an unaffiliated supplier or outsourcer (Murtha 2004).

  2. 2.

    The term “touch points” may be somewhat misleading, as touch points can involve a human touch (a telephone call from or to a sales representative), a technology-based touch (a mass-produced email or a customer visit to a website), or a media-based touch (exposure to an advertisement or direct mail piece).

  3. 3.

    We use the terms capabilities and competencies as defined in Tallman (2003). A capability is an intangible firm-specific resource composed of a complex set of interacting assets and processes. These may be more or less central to the competitive advantage of a firm. A core competency is an unique organizational capability that can be shared across units of a corporation to generate competitive advantage in a variety of settings, and that tends to characterize the firm. The range of COBP in an industry may involve a variety of capabilities, some core, others less so for any particular firm. However, COBP are likely to be core competencies only for firms actually involved in providing these services as their primary business.

  4. 4.

    Note that popular parlance still frequently fails to differentiate outsourcing and offshoring. Popular concerns are primarily with offshore value production, but popular terminology describes the governance decision. As scholars make the distinction found in Fig. 6.1, perhaps this will change in the wider parlance.

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Authors and Affiliations

  1. Robins School of Business, University of Richmond, 1 Gateway Rd, Richmond, VA, 23187, USA

    Stephen Tallman

  2. Department of Marketing, Temple University, 524 Alter Hall, 1801 Liacouras Walk, Philadelphia, PA, 19122, USA

    Susan M. Mudambi

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  1. Stephen Tallman
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  2. Susan M. Mudambi
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Correspondence to Stephen Tallman .

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Editors and Affiliations

  1. Department of Strategic Management, Copenhagen Business School, Kilevej 14, Frederiksberg, DK-2000, Denmark

    Torben Pedersen

  2. Department of Strategic Management, Copenhagen Business School, Sachsenhausenerstr. 43, Schwalbach a. Ts., 3500, Denmark

    Lydia Bals

  3. Center for Strategic Management, Copenhagen Business School, Porcelaenshaven 24, Frederiksberg, DK-2000, Denmark

    Peter D. Ørberg Jensen

  4. Department of Strategic Management, Copenhagen Business School, Kilevej 14, Frederiksberg, DK-2000, Denmark

    Marcus M. Larsen

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Tallman, S., Mudambi, S.M. (2013). Offshoring and Outsourcing of Customer-Oriented Business Processes: An International Transaction Value Model. In: Pedersen, T., Bals, L., Ørberg Jensen, P., Larsen, M. (eds) The Offshoring Challenge. Springer, London. https://doi.org/10.1007/978-1-4471-4908-8_6

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  • DOI: https://doi.org/10.1007/978-1-4471-4908-8_6

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