Off Shoring in The Service Sector

NYENRODE BUSINESS UNIVERSITEIT
Offshoring in the Service Sector:

An empirical investigation on the offshoring behavior of service frms
and its infuence on their foreign entry mode choice
Thesis
with regard to the doctorate/PhD degree
at Nyenrode Business Universiteit
on authority of the
Rector Magnifcus, Prof. dr. E.A. de Groot
in accordance with the Doctorate Committee.
The public defense takes place on
October 10, 2008
in the afternoon at exactly four oclock
Dsire M. van Gorp
Born on July 4, 1965 in Amstelveen
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EXAMINATION COMMITTEE
Thesis supervisor Prof. dr. P.K. Jagersma (Nyenrode Business Universiteit)
Members Prof. dr. ir. L.O. Fresco (Universiteit van Amsterdam)
Prof. dr. L. Koopmans (Rijksuniversiteit Groningen)
Prof. dr. R. Narayanswamy (Indian Institute for Management
Bangalore)
Prof. dr. H.S.J. Robben (Nyenrode Business Universiteit)
Nyenrode Business Universiteit
ISBN: 9789089800091
2008 Dsire van Gorp

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OffShOring in the Service SectOr
An empiricAl investigAtion on the offshoring behAvior of service firms And its influence on their foreign entry mode choice
To my parents
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Preface
Writing my dissertation was a journey that took me in many challenging directions.
It is best described as climbing a steep slope and then to slalom down again, with
sharp ridges providing different and surprising perspectives. All the while feeling
body heat of the physical and mental efforts with a cold crispy wind keeping your
mind fresh. It feels like an opening slalom when the snowpack is still untouched
alternating with steep icy courses, longing for the fnish with a rewarding ovo chaud
near the freplace. A fnish that I do not perceive as an end, but as a continuation
of my journey.
Long before my academic career I developed a particular interest in international
economic relations. I was fortunate enough to embark on my journey at Nyenrode
Business Universiteit. This fne institute with its academically stimulating campus
culture and strong ties with the business community, allowed me to further develop
that interest and to enter the world of business administration. A world where
academic aspirations can be combined with considering practical implications for
businesses.
It was in this environment of teaching and researching topics related to international
business, that I developed an interest in global sourcing and offshoring issues and
their impact on businesses and nations alike. Reading the frst OECD and UNCTAD
reports on a perceived shift from manufacturing to services offshoring and
discovering that the academic literature was still limited and information available
mostly anecdotal were what frst piqued my interest. Public concern primarily
focused on the negative labor market effects of threatening unemployment and
governments lacking suffcient information to monitor services offshoring, further
triggered my interest in writing my dissertation on the offshoring phenomenon
with a focus on service frms.
On the one hand, the past few years have been a lonely journey and on the other
hand one that was worthwhile and could only be fnished with the intellectual,
mental, inspiring and warm support of colleagues, students, family and friends.
Foremost, I would like to thank Prof. dr. Pieter Klaas Jagersma, my PhD supervisor,
for his never-ending faith in me and his commitment to stay at my side during
those years. He encouraged and supported me in exploring different topics on
the nexus of strategic management and international business. Pieter has been
my intellectual collaborator in many publications and lectures for students.
He encouraged me to publish research fndings for different target groups and to
discuss both the academic as well as the practical implications for the business
community. He shaped my academic rigor needed to write a dissertation, guided
me in a steep learning curve, holding up a mirror when needed while at the same
time allowing the freedom to be me and to do it my way.
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The committee of professors who read my dissertation, Louise Fresco, Lense Koopmans,
Ramnath Narayanswamy and Henry Robben, each individually has been crucial in
undertaking this journey, as an academic and in person. Prof. dr. ir. Louise Fresco
as a role model for combining excellence in every aspect of her professional life
with a fne sense of humor and modesty. A rare combination that she shares with
Prof. dr. Lense Koopmans, who was the frst person to encourage me to write my
PhD dissertation. I can truly say that without him this would not have happened;
and that because of his support in various crucial stages in the writing process,
I can defend my dissertation. I am more than grateful for his involvement and I am
aware how fortunate I am to have him as my intellectual stimulator. Presenting my
research at a conference in the United States in 2005 resulted in a collaboration in
research and teaching with Prof. dr. Ramnath Narayanswamy. I value him highly
for his intellect, his impressive academic career and most of all, for being such a
wonderful human being. Prof. dr. Henry Robben had a vital role in conducting
the underlying research. Initially in his role as director of the Nyenrode Research
Group when it was decided to support my research, providing what I needed most:
time to spend on my research and feedback on research results. As a PhD director
at Nyenrode, Henry closely followed and stimulated the process. Later, as my
esteemed colleague he offered his help with the analysis of data, which greatly
enhanced the quality of my dissertation.

Prof. dr. Bert de Groot, our Rector Magnifcus and Dean, I would like to thank for his
support and highly appreciated efforts to allow me time to write my dissertation.
Prof. dr. Haico Ebbers, my colleague, neighbor, companion, was always there
when I needed him. He supported me in every way he could, both in terms of
content and process. Prof. dr. Andr Nijhof and Dr. Nilay Oza, I thank them for
sharing their insights in methodology, which helped me in conducting the
research as well as in the writing process. To Dr. Peter Bergeijk, Drs. Selwyn Moons,
Drs. Nicolette Tiggeloove, I am grateful for the interest they took in my research and
the support of the Ministry of Economic Affairs in conducting the third feld study.
I also greatly appreciate the detailed suggestions for the analysis of the data given
by Drs. Ger Stam, Drs. Ger Moritz, and Dr. Marco Puts and the cooperation with
Statistics Netherlands in enriching the collected data which enhanced the process
of analysis. Also thanking Marianne Lammers, Carien Ypes, Jacqueline Kraft van
Ermel and Frank Tebbe for all they have done in preparation for the defense.
A team of research assistants has been vital in collecting and analyzing data and
especially: Martin ter Bekke with a background in biomedical science and in
business management, he took on the challenge of engaging in this offshoring
research. I am extremely grateful for his commitment and hard work, and for
the fact that he used his talents to beneft this research; Saskia de Munnik who
worked meticulously and stepped in at just the right moment when her research
capabilities were needed most; she was a great asset; Motoko Ikee, who after
completing her IMBA at Nyenrode and before picking up on her career in the
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United States and Japan, spent several months with me working on the research.
As I wrote in an article in Wall Street Journal Europe
1
in 2006 the real challenge in
offshoring is the war for talent: this is still my belief to date. From that perspective,
I have been fortunate to have such talented people involved in this research. They
are not just blessed with talent; it has been a joy to work with them.
Students who took my Global Sourcing & Offshoring courses throughout the
years were a great source of inspiration. Their enthusiasm made my journey
even more rewarding. I cherish, in particular, the memories of the MSc and IMBA
students in 2006, who were heavily infected by the offshoring virus. It was the frst
time that I invited some of them to visit the Indian Institute for Management in
Bangalore (IIMB) with me. It was a pleasure to teach on the topic of my dissertation
at IIMB. All of which has been made possible because of the efforts of Ramnath
Narayanswamy.
Although this journey had many surprises and took me in unforeseen directions,
one thing was clear from the beginning: the paranymphs who will stand by my
side during the offcial defense of my dissertation: Prof. dr. Antoine Bodar and
Dr. Eric van Gorp. At another crucial moment in my life they were there side by
side, and now history is repeating itself. My dearest friend Antoine, I cherish
our friendship and respect you for being that independent thinker an academic
society needs more of than any other society. Always willing to share your wealth
of knowledge with others. No wonder students think the world of you. My big
brother, Eric, I was your paranymph a few years ago and now you are mine. You
have been an example for me in life as a beautiful human being: combining in a
unique way your practice as a medical specialist with research and being a pater
familias to your wife, children and everyone you care for.
I mentioned that the dissertation is a beginning and not the end of a journey. A
recent report of the Social Economic Council, SER, Sustainable Globalization
2

presents a challenging agenda for national policy in response to globalization
issues, such as the splitting up of business processes and value chains by businesses,
a growing market for services and specialization within and between countries. In
line with the content of this dissertation, I see this as a continuation of my research,
teaching and publishing.
Dsire van Gorp
Amsterdam, July 2008
1 Gorp, D. M. van and Jagersma, P.K. 2006. Away and up, up (opinion article regarding the impact of offshoring on the competitiveness of Europe). Wall
Street Journal Europe, January 11, 2006.
2 SER, Sociaal Economische Raad. (2008). Sustainable globalization: A world to win. SER. The Hague.
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table of contents
chapter 1 introduction 11
1.1. Purpose and Scope of this Research Study 11
1.2. Defning Offshoring and Outsourcing 13
1.3. The increasing Importance of the Service Sector 14
1.3.1. Trade in Services 15
1.3.2. FDI in Services 16
1.4. Shift from Manufacturing to Services Offshoring 16
1.5. The Netherlands as an Example for other Developed Countries 18
1.6. The Netherlands as an Offshore Location 19
1.7. Offshoring in the Netherlands 23
1.8. Measuring Offshoring 25
1.9. Research Design and Thesis Outline 26
1.10. Contribution to Literature 27
chapter 2 the Sourcing trinity: global sourcing, Offshoring and Outsourcing 29
2.1. Introduction 29
2.2. Global Sourcing 29
2.2.1. Different Ways of Global Sourcing 31
2.2.2. Two distinct but related Phenomena: Offshoring & Outsourcing 32
2.3. Offshoring 33
2.3.1. Offshore Outsourcing 35
2.3.2. Captive Offshoring 37
2.4. Objectives for Offshoring 38
2.5. Barriers to Offshoring 40
chapter 3 relating internationalization theories to the Offshoring Behavior
of Service firms 45
3.2. Hard and Soft Services 46
3.3 Foreign Entry Modes in the Service Sector 47
3.4 Ownership and Entry Mode Issues 48
3.4.1 Foreign Market Entry Mode Behavior based on FDI Theories 49
3.4.2. Transaction Costs Theories 49
3.4.3. Eclectic Theories 52
3.4.4. Non-FDI-based Theories of Modes of Entry 55
3.4.5. The Network Model of Internationalization 56
3.4.6. Extended OLI-framework 58
chapter 4 Methodology 61
4.2 Research based on Principles of Grounded Theory Methodology:
Triangulation Approach 61
4.3. Interpretive Assumptions 62
4.4 Field and Desk Research 63
4.5. Sample Selection and Data Collection 64
4.6. Codifcation 65
4.7 Data Analysis 66
4.8 Limitations 66
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chapter 5 Building an emergent Model 69
5.2. Sample Selection 69
5.3. Data Collection 70
5.4. Codifcation 71
5.4.1. Service Firms 72
5.4.2. Foreign Entry Mode 73
5.4.3. Motives and Goals for Offshoring 74
5.4.4. Barriers for Offshoring 76
5.4.5. Offshoring Activities 76
5.4.6. Offshore Locations 78
5.4.7. Level at which Offshoring Decisions are taken and
Responsibility for managing Offshoring Activities 79
5.4.8. Departments involved in Offshoring 79
5.5. Data Analysis 79
5.6. Empirical Findings 81
5.6.1. Describing the Sample 81
5.6.2. How to Offshore 86
5.6.3. Why Offshoring 90
5.6.4. What to Offshore 102
5.6.5. Where to Offshore 105
5.6.6. Deciding on and managing Offshoring 109
5.6.7. Future Plans for Offshoring 112
5.7. Summary Findings 117
5.8. Exploring the Relationship between the Independent Variables 118
5.8.1. Motives versus Core and Non-Core Activities 118
5.8.2. Motives versus Hard and Soft Service Activities 119
5.8.3. Core and Non-Core Activities versus Hard and Soft Service Activities 121
5.8.4. Offshore Locations by Income Level versus Motives 121
5.8.5. Offshore Locations by Income Level versus Core
and Non-Core Activities 122
5.8.6. Offshore Locations by Income Level versus Hard and
Soft Service Activities 122
5.8.7. Headquarters Location versus Core and Non-Core Activities 123
5.8.8. Headquarters Location versus Hard and Soft Service Activities 123
5.8.9. Headquarters Location versus Higher and Lower Income Level
Offshore Locations 124
5.8.10 Headquarters Location versus Motives 124
5.9. An Emergent Model regarding Type of Offshoring 125
5.10. Theoretical Conjecture and Empirical Generalizations 126
5.11. Limitations 126
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chapter 6 refning an emergent Model regarding choice for type of Offshoring 129
6.2 Sample Selection 129
6.3. Codifcation 130
6.4. Questionnaire Design 130
6.7. Firm Characteristics represented by the Sample 133
6.8. Characteristics of the Offshoring Projects 135
6.9. Previous Foreign Market and Offshoring Experience 140
6.9.1. Foreign Market Experience as an Enabler for Offshoring 140
6.9.2. Making use of Lessons Learned 142
6.10. Objectives 143
6.10.1. A Combination of Objectives 143
6.10.2. Objectives as a Moving Target 144
6.10.3. Seeking Market Access and Cost Advantages 145
6.11. Barriers: predominantly Management Issues 146
6.12. Type of Offshoring Activities 147
6.13. Labor Skill involved in Offshoring Activities 149
6.14. Scale of the Offshoring Project 150
6.15. Refning the Emergent Model regarding Choice for Type of Offshoring 152
chapter 7 Offshoring Behavior of Service firms regarding their choice for
captive Offshoring or Offshore Outsourcing 155
7.2. Sample Selection 155
7.3. Questionnaire Design 156
7.4. Codifcation 157
7.7. Findings 161
7.7.1. Results Descriptive Statistics 161
7.7.2. Results Logistic Regression Analysis 164
7.8. Conclusions 168
chapter 8 conclusions, implications and recommendations 175
8.2. Conclusions 176
8.3. Implications 181
8.4. Recommendations for further Research 184
chapter 9 Summary 187
Samenvatting 193
References 199
Appendices 209
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11 OffShOring in the Service SectOr
chapter 1
Introduction
1.1. Purpose and Scope of this research Study
Offshoring, the relocation of business activities and the domestic jobs associated
with them to foreign locations
1
, has led to an intensive debate both inside and
outside the business community. It is a challenging research feld in an academic
context, it features on the agenda of many frms and is subject of government
policy in several countries. While some focus on the positive effects of offshoring,
such as opportunities for value creation for both companies and the economy as
a whole
2
, others focus on the negative effects and have a more critical perspective
on offshoring. They argue that the phenomenon results in job losses and wage
erosion. In their view, specifc companies may well beneft, but this is not the case
for the prosperity of countries or workers as a whole
3
. What both perspectives have
in common is that the offshoring trend will continue to be an issue on the agenda
of frms and it will have an impact on the competitiveness of nations
4
.
Offshoring of activities is a special form of internationalization and differs from
international expansion
5
, i.e. duplicating activities in different countries, because
businesses must always deal with negative effects of breaking up their value chain
across different countries, resulting in (potential) job losses on the domestic
market
6
. Furthermore, offshoring involves relocating parts of the value chain
within a frm requiring seamless alignment because the service provided depends
on a preceding part; a failure of a preceding part can trigger a cascading effect
resulting in failures of successive parts. Therefore, the feasibility of offshoring
activities depends on how they are embedded in the organization in relation to
other departments and partners outside a frm
7
.
Offshoring is a challenging research feld, especially with regard to the service sector
involving international services. The latter are referred to as deeds, performances,
efforts conducted across national boundaries and any type of engagement with a
foreign culture at the offshore location
8
.
1 GAO, US Government Accountability Offce. (2004). International trade: Current government data provide limited insight into offshoring of services. Report
to Congressional Requesters, GAO-04-932. GAO. Washington D.C.
2 E.g. Farell, D. (2005). Offshoring: Value creation through economic change. Journal of Management Studies, 42(3): 675-683; Amiti, M. and Wei, S.J. (2005).
Fear of service outsourcing: Is it justifed? Economic Policy, 20(42): 308-347.
3 E.g. Levy, D.L. (2005). Offshoring in the new global political economy. Journal of Management Studies, 42(3): 685-693.
4 Doh, J.P. (2005). Offshore outsourcing: Implications for international business and strategic management theory and practice. Journal of Management Studies,
42(3): 695-704; Venkatraman, N.V. (2004). Offshoring without guilt. Sloan Management Review, 45(3): 14-16; GAO, US Government Accountability
Offce. (2004). International trade: Current government data provide limited insight into offshoring of services. Report to Congressional Requesters, GAO-
04-932. GAO. Washington D.C.
5 Blinder, A.S. (2006). Offshoring: The next industrial revolution? Foreign Affairs, 85(2): 113-128.
6 OECD, Organisation for Economic Co-operation and Development. (2007). Offshoring and employment: trends and impacts. OECD. Paris; Smith, D.
(2006). Offshoring: Political myths and economic reality. World Economy, 29(3): 249-256; Murray, J.Y. and Kotabe, M. (1999). Sourcing strategies of U.S.
service companies: A modifed transaction-cost analysis. Strategic Management Journal, 20(9): 791-809; Lovelock, C.H. and Yip, G.S. (1996). Developing
global strategies for service businesses. California Management Review, 38(2): 64-86.
7 Grote, M.H. and Tube, F.H. (2007). When outsourcing is not an option: International relocation of investment bank research Or isnt it? Journal of
International Management, 13(1): 57-77.
8 Defnition adopted from: Clark, T., Rajaratnam, D. and Smith, T. (1995). Toward a theory of international services: Marketing intangibles in a world of
nations. Journal of International Marketing, 4(2): 9-28.
001_080678_HFDST 01-04.indd 11 16-09-2008 14:07:37
12
Whereas the added value of the service sector on the overall economic activity has
increased
9
, paradoxically relatively little research has been done on the service
industry at large
10
and more specifcally with regard to the internationalization
of services
11
and offshoring
12
. Knowledge in this feld was largely dependent on
consultants reports in the past
13
. Academic literature, data and statistics on services
are diffcult to capture compared to manufacturing
14
whereas the magnitude
of offshoring activities in this sector deserves to be the focus of attention. The
reasons for this are 1) the considerable dependency of the economies of developed
countries on the service sector, 2) its unique features; and 3) the perceived shift
from the manufacturing to the service sector with regard to offshoring activities
15
.
Therefore, this thesis provides insight in the offshoring behavior, i.e. the relocation
of business activities and jobs involved to a foreign location by means of a direct
investment (captive offshoring) or via a third party (offshore outsourcing)
16
of
service frms operating from the Netherlands.
As a result, the main research question for this study is formulated as follows:
How does the offshoring behavior of service frms infuence their choice for captive
offshoring or offshore outsourcing?
This research problem is translated into the following four sub-research
questions:
1. What is the offshoring behavior of service frms operating from the Netherlands?
2. Does this offshoring behavior of service frms have an infuence on their choice for a
type of offshoring?
3. If so, which determinants of this offshoring behavior of service frms are related to
their choice for captive offshoring or offshore outsourcing?
4. How do these determinants derived from the feld studies interrelate?
9 The World Bank. (2008). Services trade and growth. Development Research Group. The World Bank. Washington D.C.; Barkema, H., Baum, J., and
Mannix, J. (2002). Management challenges in a new time. Academy of Management Journal, 45(5): 916-930.
10 Bouquet, C., Hbert, L. and Delios, A. (2004). Foreign expansion in service industries: Separability and human capital intensity. Journal of Business Research,
57(1): 35-46.
11 Contractor, F.J., Kundu, S.K. and Hsu, C. (2003). A three-stage theory of international expansion: The link between multinationality and performance in the
service sector. Journal of International Business Studies, 34(1): 5-18.
12 Shamis, G.S., Green, C.M., Sorensen, S.M. and Kyle, D.L. (2005). Outsourcing, offshoring, nearshoring: What to do? Journal of Accountancy, 199(6): 57-61.
13 E.g. A.T. Kearney. (2005). Offshore location attractiveness index: Making offshoring decisions. A.T. Kearney. Chicago; BCG, The Boston Consulting Group.
(2005). IT outsourcing and offshoring: Hype or opportunity?. BCG. Boston; Deloitte (2005). Global fnancial services offshoring. Scaling the heights. Deloitte.
London; Deloitte. (2005). The titans take hold: How offshoring has changed the competitive dynamic for global fnancial services institutions. Deloitte.
London; IBM, Institute for Business Value. (2005). Finance shared services and outsourcing: Magical, mythical or mundane? IBM. Armonk; A.T. Kearney.
(2004). What to move offshore?: Selecting IT activities for offshore locations. A.T. Kearney. Chicago; Cambel. R.M., Hexter, J. and Yin, K. (2004). Getting
sourcing right in China. McKinsey Quarterly, Special Edition: 34-41; Farell, D., Kaka, N. and Sturze, S. (2005). Ensuring Indias offshoring future. McKinsey
Quarterly, Special Edition: 74-83; PWC, Price Waterhouse Coopers. (2005). Global integration through knowledge process offshoring. PWC in a joint
project with the Economist Intelligence Unit. New York.
14 Bunyaratavej, K., Hahn, E.D. and Doh, J.P. (2007). International offshoring of services: A parity study. Journal of International Management, 13(1): 7-21;
Shamis, G.S., Green, C.M., Sorensen, S.M. and Kyle, D.L. (2005). Outsourcing, offshoring, nearshoring: What to do? Journal of Accountancy, 199(6): 57-61;
Kotabe, M. and Murray, J.Y. (2004). Global sourcing strategy and sustainable competitive advantage. Industrial Marketing Management, 33(1): 7-14;
Gilley, K.M. and Rasheed A. (2000). Making more by doing less: An analysis of outsourcing and its effects on frm performance. Journal of Management,
26(4): 763-790.
15 UNCTAD, United Conference on Trade and Development. (2004). The shift towards services. World Investment Report. UNCTAD. Geneva; Jiatao, L. and
Guisinger, S. (1992). The globalization of service multinationals in the triad regions: Japan, Western Europe and North America. Journal of International
Business Studies, 23(4): 675-696; Erramilli, M.K. (1991). The experience factor in foreign market entry behavior of service frms. Journal of International
Business Studies, 22(3): 479-501.
16 UNCTAD, United Nations Conference on Trade and Development. (2004). Service offshoring takes off in Europe - In search of improved competitiveness.
UNCTAD. Geneva.
001_080678_HFDST 01-04.indd 12 16-09-2008 14:07:37
The Netherlands is chosen as an example for other developed countries, where the
economies are dependent on the service sector
17
. They may, therefore, experience
similar consequences with respect to the trend of an increase of offshoring in this
sector. This will be further discussed in the next sections of this chapter.

Answering the aforementioned research questions will provide insight in: 1) the
offshoring behavior of service frms in general; and 2) the impact of this behavior
on their choice for captive offshoring or offshore outsourcing more specifcally.
1.2. Defning Offshoring and Outsourcing
Offshoring and outsourcing are sometimes treated identically, whereas they are
two distinct phenomena under the umbrella of global sourcing
18
. There is relatively
little academic research on sourcing by service frms, because until recently it was
almost solely focused on global sourcing of components and fnished goods by
manufacturing frms
19
. Previous studies while addressing the internationalization
of service frms and the determinants of their foreign direct investments
20
as well
as their foreign market entry modes
21
, often did not examine global sourcing of
service frms
22
. This research study responds to the call for research by examining
one particular type of global sourcing by service frms, namely offshoring.
Notwithstanding the common denominators between offshoring and outsourcing,
they cannot be regarded as interchangeable
23
. There are differences between these
two phenomena, which will be briefy discussed in this paragraph and more
extensively in Chapter 2. Offshoring can be done in the following two ways
24

(Figure 1.1):
Captive offshoring internally, through the establishment of foreign affliates.
Offshore outsourcing externally, by outsourcing services to a third party.
17 The World Bank. (2006). World Development Indicators 2006. Development Data Group, The World Bank, Washington D.C.
18 Jahns, C., Hartmann, E. and Bals, L. (2006). Offshoring: Dimensions and diffusion on a new business concept. Journal of Purchasing & Supply Management,
12(4): 218-231.
19 Kotabe, M. and Murray, J.Y. (2004). Global procurement of service activities by service frms. International Marketing Review, 21(6), 615-634; Murray, J.Y. and
Kotabe, M. (1999). Sourcing strategies of U.S. service companies: A modifed transaction-cost analysis. Strategic Management Journal, 20(9): 791-809.
20 Terpstra, V. and Yu C. (Spring, 1988). Determinants of foreign investment of U.S. advertising agencies. Journal of International Business Studies, 19(1): 33
46; Weinstein, A.K. (1977). Foreign investments by service frms: The case of multinational advertising agencies. Journal of International Business Studies,
8(1): 839.
21 E.g., Sanchez-Peinado, E. and Pla-Barber, J. (2006). A multidimensional concept of uncertainty and its infuence on the entry mode choice: An empirical
analysis in the service sector. International Business Review, 15(3): 215-232; Erramilli, M.K. (1990). Entry mode choice in service industries. International
Marketing Review, 7(5/6): 50-62; Erramilli, M.K. and Rao, C.P. (1990). Choice of foreign market entry modes by service frms: Role of market knowledge.
Management International Review, 30(2): 135-150; Erramilli, M.K. and Rao, C.P. (1993). Service frms international entry-mode choice: A modifed
transaction-cost analysis approach. Journal of Marketing, 57(3): 19-38.
22 Murray, J.Y. and Kotabe, M. (1999). Sourcing strategies of U.S. service companies: A modifed transaction-cost analysis. Strategic Management Journal,
20(9): 791-809.
23 Jahns, C., Hartmann, E. and Bals, L. (2006). Offshoring: Dimensions and diffusion on a new business concept. Journal of Purchasing & Supply Management,
12(4): 218-231.
24 UNCTAD, United Conference on Trade and Development. (2004). The shift towards services. World investment report. UNCTAD. Geneva; Trefer, D.
(2005). Service offshoring, threats and opportunities. Paper prepared for the Brookings Trade Forum 2005. Washington D.C.
001_080678_HFDST 01-04.indd 13 16-09-2008 14:07:37
14
figure 1.1 Depicts the difference between relocating activities and jobs involved via a foreign direct investment (captive
offshoring) refected in a countrys outfow of foreign direct investments or via a third party (offshore outsourcing), which
is then refected in the international trade fgures.
These two types of offshoring refer to different modes used by service frms to enter
foreign locations, i.e. foreign entry modes. Offshoring always involves a foreign
location and can be implemented both as a foreign direct investment and via a
third party by a contractual agreement. Outsourcing can be executed on both the
domestic and foreign markets and always involves a third party.
Furthermore, whereas captive offshoring is part of foreign direct investment (FDI)
outfows, offshore outsourcing fgures are expressed in the cross-border trade in
services
25
. Given the overlap between the theory of offshoring and outsourcing,
both phenomena are, where appropriate, covered in the literature review refected
upon in Chapters 2 and 3.
1.3. the increasing importance of the Service Sector
26
Services are progressively becoming a more infuential force to economies in
developed and developing countries
27
. Moreover, the service sector is the largest
and fastest-growing sector of the world economy, providing more than 70% of
total employment and value added in OECD-economies
28
. At the same time the
composition of services is changing.
25 UNCTAD, United Conference on Trade and Development. (2004). The shift towards services. World investment report. UNCTAD. Geneva.
26 The service sector (also known as the tertiary sector) is one of the three main industrial categories of a developed economy, the others being the
manufacturing industry (secondary) and extraction industry (primary industry such as mining and agriculture).
27 Hoekman, B. and Mattoo, A. (2007). Regulatory cooperation, aid for trade and the GATS. Pacifc Economic Review, 12(4): 399-418; OECD, Organization for
Economic Co-operation and Development. (2005). Growth in services: Fostering employment, productivity and innovation. Meeting of the OECD Council
at Ministerial Level. Paris.
28 OECD, Organization for Economic Co-operation and Development. (2005). Growth in services: Fostering employment, productivity and innovation.
Meeting of the OECD Council at Ministerial Level. Paris.
Company A
Company A
e.g. greenfield,
subsidiary,
acquisition
Company B
Foreign Direct Investment
International Trade
Captive
Offshoring
Offshore
Outsourcing
Domestic location Foreign location
Company A
001_080678_HFDST 01-04.indd 14 16-09-2008 14:07:37
Whereas until recently, trade and fnance dominated the service sector, there is a
shift where electricity, water, telecommunications, storage, transport and business
services are becoming more prominent
29
. Due to technology innovations and the
lowering of trade barriers, the added value of the service sector on overall economic
activity and internationalization has increased over a period of time
30
. This is
refected in both the trade (import and export) in services and the infows and
outfows of foreign direct investment in services, which will be briefy discussed in
the next two sections.
1.3.1. trade in Services
Since the nineties, worldwide trade in services (exclusive of governmental services)
has been increasing, though not as much as trade in goods
31
. Estimations are
that trade in services amount to more than 20% of the world trade
32
. The export
of commercial services alone has increased by 11% to $ 2.8 trillion in 2006; this
expansion rate has been stable over the last six years
33
(see Appendices 1.1 and
1.2 for an overview of import and export of services over the period 1980-2006 for
the Netherlands and the world). By 2001, the service sector accounted for 72% of
GDP in developed countries
34
and 52% in developing countries
35
. At the turn of this
century, the value of cross-border trade in services was approximately 20% of total
cross-border trade
36
. Trade in services has become even more important in recent
years in light of offshoring in services
37
. Yet, international cooperation to enhance
and facilitate these developments in trade in services is lagging behind:
I believe a further important area where we are only scratching the surface is trade
in services. There is a growing realization of the fundamental importance of service
industries in almost all activity in modern economies, yet we remain far behind in our
ability to solidify international cooperation in this feld. - Pascal Lamy, Director-General, World
Trade Organization. World Trade Report, 2007, pp: V,VI.
30 Javalgi, R.G., Griffth, D.A. and White, S.D. (2003). An empirical examination of factors infuencing the internationalization of service frms. Journal of
Services Marketing, 17(2): 185-201; Barkema, H., Baum, J. and Mannix, J. (2002). Management challenges in a new time. Academy of Management
Journal, 45(5): 916-930.
31 OECD (Organization for Economic Co-operation and Development). (2005). Growth in services: Fostering employment, productivity and innovation.
32 A proper reckoning of services in international trade, based on the defnition of services under the GATS (DvG: General Agreement on Trade in
Services), would certainly amount to more than 20 per cent of world trade. in WTO (World Trade Organization). (2007). World trade report. Geneva:
193.
33 WTO, World Trade Organization. (2007). World Trade Report. WTO. Geneva.
34 Albania, Andorra, Armenia, Australia, Austria, Azerbaijan, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Canada, Croatia, Cyprus, Czech
Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Kazakhstan, Kyrgyzstan, Latvia,
Liechtenstein, Lithuania, Luxembourg, Macedonia, Malta, Republic of Moldova, Monaco, the Netherlands, New Zealand, Norway, Poland, Portugal,
Romania, Russian Federation, San Marino, Serbia and Montenegro, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Tajikistan, Turkmenistan,
Ukraine, United Kingdom, United States and Uzbekistan. Developing economies refer in general to all other economies not mentioned above.
Classifcation retrieved from: http://www.unctad.org/en/docs/wir2006_en.pdf
36 WTO, World Trade Organization. (2001). GATS fact and fction. WTO. Geneva.
37 Ibidem
001_080678_HFDST 01-04.indd 15 16-09-2008 14:07:37
16
1.3.2. fDi in Services
In addition to the increase in the trade in services as discussed in the previous
section, the structure of FDI has also shifted from manufacturing towards services.
Since the last decade of the 20th century, the outward and inward fow of FDI-
stock in commercial services has shown a steady growth for both developed and
developing countries. When comparing the development in FDI-stock in the service
sector to the manufacturing and primary sectors for both the developing and the
developed economies, it was found that services grew faster than both other sectors
since the end of the last decade of the 20th century
38
(see Appendix 1.3 A to E for FDI
stock in and out for different regions in the world). Furthermore, in recent years,
there were two notable changes in the way in which service frms internationalize
location preference and strategy choice behavior
39
. While service frms historically
prefer developed locations to developing locations, according to OECD-data
on FDI this is no longer the case
40
. Service frms are increasingly expanding to
developing locations. Another characteristic of the internationalization process of
service frms is that their strategies in choosing their locations between developed
and developing locations are quite diverse. This is for example due to increasing
location-specifc advantages
41
, e.g. favorable local legal and regulatory frameworks
attracting offshoring activities. At the turn of this century, virtually three quarters
of M&A activities in the service sector originated from developed countries, mostly
from Western Europe to developing countries
42
.
With the deregulation of service markets and the liberalization of FDI-policies and
competition in home markets, the service sector is globally expanding. This is in
line with the trend that developing economies play an increasingly important role
as a source of global FDI-fows. The rapid development of economies in countries
such as China and India has, for example, resulted in an increase in focus for
overseas investments in these countries
43
.
1.4. Shift from Manufacturing to Services Offshoring
As discussed in the previous paragraph, cross-border trade and FDI in services have
continued to increase whereas the pace of internationalization of services has been
faster than that of non-service activities
44
. Some researchers argue that services and
the processes involved to produce them, cannot be standardized as much as those
in the manufacturing industry
45
. This results in a situation where a number of
services are still not tradable, meaning they need to be produced when and where
they are consumed. However, many services are becoming storable, leading to an
increase of services export whereas the structure of FDIs has also shifted towards
38 UNCTAD, United Conference on Trade and Development. (2008). Foreign direct investment database. UNCTAD. Geneva.
39 OECD, Organisation for Economic Co-operation and Development. (2003). Statistics on International trade in services. OECD. Paris.
40 Ibidem
41 Ibidem
43 UNCTAD, United Conference on Trade and Development. (2006). FDI from developing and transition economies: Implications for development. World
investment report. UNCTAD. Geneva.
44 OECD, Organisation for Economic Co-operation and Development. (2004). Foreign direct investment restrictions in OECD countries. Economic outlook:
Chapter 7. OECD. Paris.
45 Lovelock, C.H. and Yip, G.S. (1996). Developing global strategies for service businesses. California Management Review, 38(2): 64-86; McLaughlin, C.P.
and Fitzsimmons, J.A. (1996). Strategies for globalizing service operations. International Journal of Service Industry Management, 7(4): 45-59; Samiee, S.
(1999). The internationalization services: Trends, obstacles, and issues. Journal of Services Marketing, 13(4/5): 319-328.
001_080678_HFDST 01-04.indd 16 16-09-2008 14:07:37
services, as discussed in the previous section. This development of services
becoming more tradable than in the past is sometimes referred to as the tradability
revolution
46
. Advances in information communication technology have increased
the separability of services, i.e. they enhance possibilities for more and more
services to be produced in one location and consumed elsewhere, which means
that offshoring of services has become possible on a larger geographical scale
47
.
This development has resulted in a shift from manufacturing to service offshoring
activities, which has an impact on the offshoring phenomenon. The reason for this
is that the internationalization and offshoring process of the service sector differs
from manufacturing with regard to
48
:
The degree of internationalization although the service sector contributes
more to the world economy than the manufacturing sector, its output entering
international trade is smaller compared to the output of manufacturing.
The pace of globalization this pace is faster in services than in
manufacturing.
The involvement of frms/sectors relocation of services is executed by frms in
all sectors, whereas production of goods has mainly involved manufacturing
frms.
The skill intensity for services this is generally higher than is the case for
offshored manufacturing activities. Todays offshoring of services involves
highly skilled jobs and is different from offshoring in the manufacturing
industry in the past several decades that involved mainly low-skilled labor
49
.
The degree of fexibility offshored services are generally more footloose than
relocated manufacturing activities because of lower capital intensity (especially
services that do not require high skills).
Based on these developments underlining the increased importance of the
service sector for national economies and the increase of internationalization and
tradability of services, the forecast is that relocation of a wide range of corporate
functions in the service sector is gaining in importance to national offshoring
policies and is set to continue
50
.
46 UNCTAD, United Conference on Trade and Development. (2004). The shift towards services. World investment report. UNCTAD. Geneva; Erramilli, M.K.
and Rao, C.P. (1993). Service frms international entry-mode choice: A modifed transaction-cost analysis approach. Journal of Marketing, 57(3): 19-38.
47 OECD, Organization for Economic Co-operation and Development. (2005). Growth in services: Fostering employment, productivity and innovation.
49 Levy, D.L. (2005). Offshoring in the new global political economy. Journal of Management Studies, 42(3): 685-693. For example: Grote, M.H. and Tube,
F.H. (2007). When outsourcing is not an option: International relocation of investment bank research. Journal of International Management, 13(1): 57-77;
Wighton, D. (2005). JP Morgan steps up Indian offshoring. Financial Times, December 5, 2005: Bank plans recruiting 4.500 graduates over two years in
India to perform high-value tasks underlining the shift in the use of offshore facilities from traditional areas such as information technology support
and call centres to core operational functions and other high value tasks.
001_080678_HFDST 01-04.indd 17 16-09-2008 14:07:38
18
1.5. the netherlands as an example for other Developed countries
In this thesis, the Netherlands serves as an example for developed countries
where the economies are largely dependent on the service sector. The shift
from manufacturing to the service sector with regard to offshoring activities is
increasingly relevant to the Netherlands, because it is the largest and the fastest
growing sector of the Dutch economy (Figure 1.2). In 1990, it represented 55.1%
and in 2006 64.0% of the gross value added
51
(GVA)
52
.
figure 1.2 Overview of the contribution of the primary, manufacturing and services sector in gross value Added (gvA) to
the Dutch economy during the period 1990-2006 based on data retrieved from cBS
53
.
1990
80
70
60
50
40
30
20
10
0
1995 2000 2003 2004 2005 2006
Year
p
e
r
c
e
n
t
a
g
e

o
f

t
o
t
a
l

G
V
A
Manufacturing Services Other
The service sector in the Netherlands represents a rich variety of service categories
providing a useful setting for this research. With regard to their contribution to
the Dutch economy, fnancial and business services in particular are contributing
by being the fastest growing service category (1990: 20.7% versus 2006: 27.7%)
followed by welfare and other services showing a growth from 10.7% in 1990 to
12.7% in 2006 (Table 1.1).
table 1.1 Overview of development in the service sector and manufacturing industry in gvA per category as a percentage
of gDP
54
.
GVA per sector in percentages 1990 1995 2000 2003 2004 2005 2006
Manufacturing 32.00 29.04 26.24 24.50 24.38 24.55 24.65
Agriculture 4.37 3.48 2.64 2.35 2.15 2.13 2.20
Mining 3.32 2.69 2.44 2.46 2.59 3.00 3.58
Construction 5.73 5.43 5.60 5.55 5.38 5.41 5.55
Industry 18.58 17.44 15.55 14.15 14.24 14.01 13.32
Services 55.14 58.73 62.71 63.71 63.84 63.84 64.01
Trade, hospitality and reparation 14.96 14.83 15.95 15.20 15.08 14.63 14.79
Distribution, logistics and
communication
6.95 6.91 7.14 7.44 7.40 7.25 7.13
Financial and business services 20.73 24.19 27.26 26.63 27.00 27.65 27.70
Welfare and other services 10.73 11.00 11.02 12.75 12.81 12.78 12.71
Distribution of and trade in water
and electricity
1.78 1.80 1.35 1.70 1.55 1.53 1.68
Other 12.86 12.24 11.05 11.79 11.79 11.61 11.34
Government 12.86 12.24 11.05 11.79 11.79 11.61 11.34
Total 100.00 100.00 100.00 100.00 100.00 100.00 100.00
51 Gross Value Added (GVA) refers to the value of output less the value of intermediate consumption as defned by Eurostat retrieved from
http://ec.europa.eu/eurostat/ramon/nomenclatures/ index.cfm?TargetUrl=DSP_GLOSSARY_NOM_DTL_VIEW&StrNom=CODED2&StrLanguageCode
=EN&IntKey=16660635&RdoSearch=BEGIN&TxtSearch=&CboTheme=&IntCurrentPage=6
52 CBS, Statistics Netherlands. (2007). Nationale Rekeningen 2006. CBS. Voorburg and Heerlen.
53 Ibidem
54 Based on information from CBS, Statistics Netherlands. (2007). Nationale Rekeningen 2006. CBS. Voorburg and Heerlen.
001_080678_HFDST 01-04.indd 18 16-09-2008 14:07:38
1.6. the netherlands as an Offshore Location
Various country rankings exist that may be taken into consideration when
determining a countrys competitiveness as an attractive offshore location
for services. They rank a countrys attractiveness (for services) based on 1)
transnationality
55
; 2) investment climate; 3) trade climate; and 4) innovation
opportunities. The attractiveness of countries as offshore locations may at the same
time also be an indicator for the attractiveness of the local business environment
and the readiness of service frms to relocate their activities. The higher a country
scores on the aforementioned four elements, the more attractive it is for service
frms to keep their activities located on the domestic market and for foreign service
frms to relocate their activities to this market respectively.
The Global Competitiveness Index (GCI) established by the World Economic
Forum (WEF) evaluates the potential for the worlds economies to attain sustained
economic growth over the medium and long term and is based on three pillars of
economic growth
56
: macro-economic environment, quality of public institutions,
and technology (progress). In 2004, the WEF indicated that the Netherlands
competitiveness as an offshore location itself is steadily decreasing
57
. However, as far
as the degree of transnationality of host economies was concerned, the Netherlands
ranked fourth on the index of developed countries
58
. On the inward FDI index, the
Netherlands ranked high in terms of FDI potential and performance. This can be an
indicator for the attractiveness of the Netherlands as a receiving country of captive
offshoring projects. The main challenge here is to ensure continuing success
59
.
According to the same source, the Netherlands ranked fourth on the list of twenty
leading investor economies as far as the outward FDI performance index was
concerned. The index captures two aspects of performance. The frst is ownership
advantages referring to frm-specifc competitive strengths arising from innovation,
brand names, managerial and organizational skills. Secondly, the index captures
location factors including economic (such as relative market size, production or
transport costs, skills, infrastructure and technology support) as well as policy and
institutional (such as taxes, labor regulations and FDI-related policies) factors in
home and host countries.
55 Transnationality index is an average of the four ratios: FDI infows to gross fxed capital formation for 1999-2001; FDI inward stocks to GDP in 2001;
value added of foreign affliates to GDP in 2001; and employment of foreign affliates to total employment in 2001.
56 WEF, World Economic Forum. (2004). The global competitiveness report. WEF. Geneva.
57 Ibidem
59 Ibidem
001_080678_HFDST 01-04.indd 19 16-09-2008 14:07:38
20
Figure 1.3 provides an overview of the overall GCI-ranking of the Netherlands.
According to the Global Competitiveness Report
60
, the Netherlands dropped in
ranking from 8th (2001) to 15th (2002) position; in 2006, it recovered to a ranking
of 9th on the GCI. The reason for the decrease of the Dutch position on the ranking
at the beginning of this century may be explained by the substantial rise in wages
in the 1990s. It is argued that this resulted in a decrease of the price competition
position. WEF-data showed that the Netherlands three competitive disadvantages
were: infexibility of wage determination (rank 114 out of 125 countries), hiring
and fring practices (rank 107) and the real effective exchange rate (rank 87).
figure 1.3 Overview of overall gci-ranking of the netherlands in the years 2001-2007 based on data retrieved from the
global competitiveness report
61
.
Overall GCI rank the Netherlands
2001 2002 2003 2004 2005 2006 2007
Year
R
a
n
k
8
15
12 12
11
10
9
Furthermore, the WEF produces a Business Competitiveness Index (BCI). It ranks
countries by their micro-economic competitiveness, identifes competitive
strengths and weaknesses in terms of countries business environment conditions
and company strategy and operations, while making an assessment of the
sustainability of countries current levels of prosperity. The BCI-ranking for the
Netherlands in the years 2001-2007 is depicted in Figure 1.4. According to WEF-
data, the labor compensations for employees were higher than justifed by the
countrys competitiveness.
figure 1.4 Overview of overall Bci-ranking of the netherlands in the years 2001-2007 based on data retrieved from the
global competitiveness report
62
.
Overall BCI rank the Netherlands
2001 2002 2003 2004 2005 2006 2007
Year
R
a
n
k
3
8
9
8
7 7
6
60 WEF, World Economic Forum. (2001-2007). The global competitiveness report. WEF. Geneva.
61 Ibidem
62 WEF, World Economic Forum. (2001-2007). Growth competitiveness index. In the global competitiveness report. WEF. Geneva.
001_080678_HFDST 01-04.indd 20 16-09-2008 14:07:38
Another ranking, carried out by the Institute for Management Development (IMD),
showed that the Netherlands went from 4th (2000) to 15th (2004) and to 13th
position in 2005 on the World Competitiveness Scoreboard
63
. This index indicated
the attractiveness of countries for investors and may also serve as an indicator
for the attractiveness of the Netherlands as a location for e.g. captive offshore
activities requiring foreign direct investments in a country. It is comprised of four
component indexes: the economic performance index, the government effciency
index, the business effciency index and the infrastructure index. The economic
performance index is based on data of domestic economy, international trade,
international investment, employment and prices. The government effciency
index is composed of collected data about public fnance, fscal policy, institutional
framework, business legislation and societal framework. The business effciency
index includes data on productivity, labor market, fnance, management practices
and attitudes and values. The infrastructure index is composed of collected data
about basic infrastructure, technological infrastructure, scientifc infrastructure,
health and environment and education. The most important factors for the lower
ranking between 2000 and 2004 compared to other countries were related to a
decrease in government effciency. An overview of the overall IMD ranking of the
Netherlands is given in Figure 1.5.
figure 1.5 Overview of overall competitiveness ranking of the netherlands based on iMD-rankings retrieved from World
competitiveness Yearbook years 2001-2007.
Overall Competitiveness ranking of the Netherlands
2001 2002 2003 2004 2005 2006 2007
Year
R
a
n
k
5
4
13
15
13
8
15
After the relatively high rankings in 2001 and 2002, the Netherlands
competitiveness rank dropped nine places in 2003 with a recovery in 2007. Figure
1.6 shows the countrys ranking on the four individual main components of the
ranking and the associated key criteria for the last seven years.
63 IMD, International Institute for Management Development. (2001-2007). WCY Overall Scoreboard. World Competitiveness Yearbook. IMD. Lausanne.
001_080678_HFDST 01-04.indd 21 16-09-2008 14:07:38
22
figure 1.6 Overview of the competitiveness landscape of the netherlands based on iMD-rankings retrieved from World
competitiveness Yearbook years 2001-2007.
E
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50
Economic
performance
Government
efficiency
Competitiveness landscape of the Netherlands
Business
efficiency
Infrastucture
Criteria
R
a
n
k
i
n
g
40
30
20
10
1
2001
2002
2003
2004
2005
2006
2007
Figure 1.6 shows a decline in business effciency in 2003 compared to the previous
years, while the Netherlands scored relatively low on government effciency for
all years. According to the index, the country showed one of the lowest scores
compared to all other countries included in the rankings with regard to the
employees social security contribution rate and tax rates. Another low score was
related to the number of working hours; every year the Netherlands was low in
ranking compared to other countries.
001_080678_HFDST 01-04.indd 22 16-09-2008 14:07:38
Furthermore, the IMD World Competitiveness Report indicates that during 2003-
2007 the total hourly compensation of manufacturing workers was high compared
to other countries. This, combined with the lower productivity, may explain the
decline in overall rankings in 2003
64
. In 2007, the Netherlands had an improved
ranking most importantly due to a better economic performance, especially
regarding both inward and outward direct investment fows. Table 1.2 gives an
overview of individual rankings per main component.
table 1.2 Overview of the netherlands iMD-ranking per main component over the years 2001-2007.
2001 2002 2003 2004 2005 2006 2007
Overall 5 4 13 15 13 15 8
Economic performance 8 9 5 7 10 17 5
Government effciency 12 12 23 23 22 18 18
Business effciency 3 2 10 14 14 14 10
Infrastructure 7 9 15 13 12 16 10
The abovementioned rankings may serve as an indicator of a countrys offshore
position both in terms of frms relocating their activities to foreign locations and
their attractiveness as offshore location.
1.7. Offshoring in the netherlands
This paragraph describes the status quo of studies regarding offshoring in the
Netherlands. The frst studies were published at the beginning of this century
65
.
They draw attention to the offshoring activities of the Dutch manufacturing
industry and are the frst to investigate the offshore status of the Netherlands.
Criticism on these studies
66
focuses, among others, on the response ratios which
are considered to be low
67
. Hence, they can be used as indicative studies
68
, but
given the sometimes small sample, low response rate and focus on manufacturing
companies and large companies they do not capture the magnitude of offshoring
in the Netherlands.
The SEO (Foundation for Economic Research of the University of Amsterdam)
conducted a study on captive offshoring in the Dutch manufacturing industry and
analyzed the International Direct Investment Database of the OECD to make an
international comparison of Dutch foreign investments between 1990-2001. In
its analysis of different sectors (agriculture, mining, industry, energy and water,
construction, retail, catering, transportation, telecommunications, business
services, real estate and other sectors), the SEO
69
concluded that industry and
business services are the two most active sectors in offshoring.
64 IMD, International Institute for Management Development. (2001-2007). WCY Overall Scoreboard. World Competitiveness Yearbook. IMD. Lausanne.
65 Deloitte. (2002). Made in Holland. Deloitte. Rotterdam; Deloitte. (2003). Made in Holland II. Deloitte., Rotterdam; Deloitte. (2004). Made in Holland
III. Deloitte. Rotterdam; Ministry of Economic Affairs. (2005). Visie op verplaatsing. Aard, omvang en effecten van verplaatsing van bedrijfsactiviteiten naar
het buitenland. Ministry of Economic Affairs.The Hague.
66 SEO, Foundation for Economic Research of the University of Amsterdam. (2004). Verplaatsing industrie: Hoe erg is het? SEO. Amsterdam.
67 Ibidem
68 Ibidem
69 Ibidem
001_080678_HFDST 01-04.indd 23 16-09-2008 14:07:38
24
The SEO furthermore concluded that investments by Dutch companies were
primarily made in Western Europe and Scandinavia, followed by the US and
Canada. When compared to these numbers, investments in Eastern Europe and
Asia were marginal. These conclusions were based upon values over a twelve year
period, not showing developments in individual years. Therefore, the SEO also
considered data on a yearly basis. Based on these datasets, it concluded that there
was no trend in the investments made by Dutch frms. These fgures were related
to the manufacturing industry and include only captive offshoring rather than
offshore outsourcing.
When comparing the industrial employment ratio of several Western countries,
it turned out that the loss of employment in Western industries did not result in
an increase of employment in low-wage countries such as Poland or Hungary. The
value of the industrial sector in the Netherlands compared to the economy as a
whole indeed decreased over the years, but the SEO concluded that despite the fear
expressed by some
70
, there was no substantial displacement of employment and
businesses from the Netherlands to low-wage countries
71
.
The frst estimates of statistical association between the share of employment
potentially affected by service sector offshoring, trade in business services and
FDI, did not fnd any systematic evidence at the aggregate level that net outward
investments or imports of business services were associated with a signifcant
decline in the share of employment potentially affected by offshoring
72
. This may
indeed be the case when examining the overall employment ratio. However, it did
not refect the shift from, for example, low-skilled to high-skilled jobs that resulted
in a loss of specifc jobs in the labor market that may be replaced by new ones,
which is the current situation regarding offshoring activities of service frms.
According to a report by UNCTAD published in 2004, 40% of the top 500 companies
in the European service sector were already taking part in the offshoring process
73
.
To get a better picture of the offshore status of the Netherlands, in 2005, the Dutch
Ministry of Economic Affairs conducted a survey regarding captive offshoring
and offshore outsourcing
74
. The reports main focus was on offshoring rather
than outsourcing and included companies from both the manufacturing and the
service industry. For this study, a statistically sound response ratio was used. The
majority of respondents (84%) indicated that they were not planning to offshore
activities, whereas on average more than 9% carried out offshore business activities
and about 6% of the respondents were at that time planning to do so.
70 CWI, Centrum voor Werk & Inkomen. (2004). Trendbreuk of hype? Arbeidsmarkt Journaal, 4(1), 21-23.
71 SEO, Foundation for Economic Research of the University of Amsterdam. (2004). Verplaatsing industrie: Hoe erg is het? SEO. Amsterdam.
72 OECD, Organisation for Economic Co-operation and Development. (2006). The share of employment potentially affected by offshoring: An empirical
investigation. OECD Working Party on the Information Economy. Paris.
UNCTAD. Geneva.
74 Ministry of Economic Affairs. (2005). Visie op verplaatsing. Aard, omvang en effecten van verplaatsing van bedrijfsactiviteiten naar het buitenland. Ministry
of Economic Affairs. The Hague.
001_080678_HFDST 01-04.indd 24 16-09-2008 14:07:38
When examining the offshore percentage for companies representing different
service categories, the following estimates were made: ICT (11.4%) dominated,
followed by banking and insurance (7.6%), publishing and printing (7.2%),
transport (6.0%) and postal and telecommunications (2.3%). According to the
same source, the top three destinations for offshored activities of all researched
sectors were: Middle and Eastern Europe, Western and Southern Europe and Asia.
According to the authors, low-cost countries dominated as offshore locations.
Most offshored activities were low-skilled manufacturing activities. As far as the
motives for offshoring were concerned, most companies participating in the
abovementioned study refered to cost savings and entering new markets as the
dominant drivers for offshoring.
1.8. Measuring Offshoring
The question whether offshoring can be measured and if so, how, cannot
be answered in an easy manner
75
. First of all, trade and FDI in services are
inherently more diffcult to measure than trade in goods, because it may include
indistinguishable service charges for items as insurance, maintenance contracts,
transport charges, royalty payments and packaging
76
. Services are more diffcult
to measure than goods because they often refer to abstract concepts rather than to
physical attributes or functions. Consequently, when services cross borders, there
is no package crossing the customs frontier with an internationally recognized
commodity code nor is there an administrative system based on customs duty
collection that is used for assembling data, as is the case for goods. Therefore,
the required information of services depends on information that is reported by
different data sources including individuals, administrative systems, surveys and
estimation techniques
77
.
Secondly, captive offshoring, i.e. intrafrm international sourcing, makes trade
statistics complex to interpret, since part of the international fow of goods and/or
services takes place within the corporate system, i.e. parent and foreign subsidiaries
transcending national boundaries
78
.
75 Grossman, G.M. and Helpman, E. (2005). Outsourcing in a global economy. Review of Economic Studies, 72(1): 135-159; OECD, Organisation for
Economic Co-operation and Development. (2007). Offshoring and employment: Trends and impacts. OECD. Paris.
76 Statistics on trade in services are highly incomplete. in WTO, World Trade Organization. (2007). World Trade Report. Geneva: 193; Eurostat. (2007).
Europe in Figures. Eurostat yearbook 2006-2007. Luxembourg.
77 Although there are no offcial statistics measuring the extent of international sourcing, estimates suggest it will accelerate in most OECD countries
in coming years. In OECD, Organization for Economic Co-operation and Development. (2005). Growth in services: Fostering employment, productivity
and innovation. Meeting of the OECD Council at Ministerial Level. Paris; UNSTAT. (2002). Manual on statistics of international trade in services. UNSTAT
statistical papers no. 86. New York and Geneva.
78 Kotabe, M. and Murray, J.Y. (2004). Global sourcing strategy and sustainable competitive advantage. Industrial Marketing Management, 33(1): 7-314.
001_080678_HFDST 01-04.indd 25 16-09-2008 14:07:38
26
This author was involved in a pilot study for Statistics Netherlands (CBS - Centraal
Bureau voor de Statistiek)
79
aiming to measure offshoring of services. In this CBS
pilot study an integrative approach was used by employing different databases
and linking those to CBS-statistics on a micro level. The conclusion was that
studying individual service frms could not answer this question, because CBS
lacked suffcient statistical information on a micro level, e.g. to isolate direct
consequences of offshoring on the labor market. In order to make this analysis
additional information, e.g. if a frm has offshored activities and the consequences
for jobs involved, is needed. Measuring the direct effects of offshoring can be
enhanced by studies on offshoring by service frms.
1.9. research Design and thesis Outline
Based on the research questions formulated in Paragraph 1.1, the approach to this
research study was designed. This is shown in Figure 1.7 depicting the research
design of this study divided in feld respectively desk research.
figure 1.7 research design: dark grey refers to desk research; light grey refers to feld research; black refers to input;
white refers to output; and Sfs refers to service frms.
In Chapters 2 and 3 the fndings of the desk research are discussed. Chapter 2
anchors the offshoring behavior of service frms in the global sourcing literature.
Chapter 3 provides a theoretical framework for relating internationalization
theories to the offshoring behavior of service frms and its infuence on their choice
for type of offshoring.
79 CBS, Statistics Netherlands. (2006). Kan het CBS offshoring meten: Bevindingen van een pilot studie. CBS. Voorburg and Heerlen.
1
st
field study (Chapter 5) 2
nd
field study (Chapter 6) 3
rd
field study (Chapter 7)
Refinement
empirical
generalizations
Case
studies:
SFs choice
for captive
offshoring or
offshore
outsourcing
Potential determinants of SFs
offshoring behavior & choice
for type of offshoring
offshoring behavior & choice
for type of offshoring
Offshore behavior
of SFs operating
from NL
Choice for type of
offshoring by SFs
operating from NL
Survey
sample:
Relationship
determinants
regarding
type of
offshoring
Survey
sample:
What is the
offshoring
behavior of
service
firms?
choice for captive offshoring
or offshore outsourcing
Offshoring behavior of SFs operating
from NL and influence on their choice
for captive offshoring or offshore
outsourcing
Literature Review: Chapters 2 & 3
generalizations
Validation
empirical
How does the
offshoring
behavior of
service firms
influence their
choice for
captive
offshoring or
offshore
outsourcing?
Empirical
generalizations
& Theoretical
conjecture
Theory
saturation
Insights in how
the offshoring
behavior of
service firms
influences their
choice for captive
offshoring or
offshore
outsourcing
(Chapter 8)
001_080678_HFDST 01-04.indd 26 16-09-2008 14:07:39
The literature review in the desk research was mainly used to verify if and in what
way the empirical fndings of the three feld studies corresponded with existing
theories as further elaborated on in Chapter 4. This chapter presents the rationale
of the research methods used in this study and is depicted in the research design
(Figure 1.7).
In Chapters 5, 6 and 7 the fndings from the empirical research are presented.
Chapter 5 provides insight in the offshore behavior of service frms by obtaining
rich primary data. This way a theoretical account of the general features of
offshoring is developed while it has simultaneously been grounded and refned
in empirical observations in Chapter 6 until a point of saturation was established
as no new themes occurred
80
. The fndings of Chapters 5 and 6 combined are
validated in Chapter 7. Theory building has been an emergent process in the sense
that empirical data has been constantly compared to existent literature during
the different phases of the research
81
. This means that data was collected and
analyzed simultaneously. Chapter 8 provides the conclusions, implications and
recommendations by presenting the fndings from the desk and feld research.
This is followed by a summary in Chapter 9.
1.10. contribution to Literature
This thesis contributes to the literature on offshoring behavior of service frms. It
elaborates on this behavior by determining its impact on the offshoring decision-
making process regarding the type of offshoring. By cross-comparing state-of-the-
art literature with the empirical fndings of the three feld studies, an emergent
model for the decision-making process of service frms regarding their choice
for captive offshoring or offshore outsourcing is designed. This can be used by
managers to incorporate in their decision-making process when relocating their
activities to foreign countries. Furthermore, by providing insight in the offshore
behavior of service frms, scholars may obtain new theoretical insights by studying
the offshore behavior of service frms without being entirely bound by existing
theory.
80 Glaser, B.G. and Strauss, A.L. (1967). The discovery of grounded theory: Strategies for qualitative research. Aldine de Gruyter. Hawthorne, New York.
81 Ibidem
001_080678_HFDST 01-04.indd 27 16-09-2008 14:07:39
28
001_080678_HFDST 01-04.indd 28 16-09-2008 14:07:39
chapter 2
The Sourcing Trinity: Global Sourcing, Offshoring and
Outsourcing
82
2.1. introduction
This chapter anchors the offshoring behavior of service frms in the global
sourcing literature. As stated in Chapter 1, the offshoring behavior of service frms
is a challenging research feld because academic literature, data and statistics are
diffcult to capture
83
. Offshoring and outsourcing will be discussed as two related
but distinct phenomena under the umbrella of global sourcing
84
. In anchoring
offshoring and outsourcing in the literature, frstly this chapter elaborates on
global sourcing and the different sourcing models, while also addressing the
common denominators of and the differences between offshoring and outsourcing.
Furthermore, this chapter deals with the objectives of service frms for and barriers
to offshoring as discussed in the literature.
2.2. global Sourcing
It is argued that offshoring is likely to fundamentally change the way frms are
organized to compete globally, especially in the so-called high-cost economies
85
.
It calls for globalization of corporate strategies
86
. Cheap telecommunications
enhance data transmission at low costs and combined with developments in stable,
secure and high-speed data transmission systems of service activities
87
, it results in
an increase in the tradability of services. This enables service frms to separate and
geographically disperse different parts of their value chain
88
.
82 There are various related concepts such as Nearshoring and Right sourcing that are often used by consultants to help clients fnd the right form of
offshoring for their businesses. Nearshoring refers to sourcing service work to a foreign, (lower-wage) country that is relatively close in distance
or time zone (or both) to beneft from one or more of the following constructs of proximity: geographic, temporal, cultural, linguistic, economic,
political, and historical linkages. Rightshoring refers to the process to actively apply in- and outsourcing on a strategic approach to be competitive
now and in the future. The idea behind rightsourcing is that companies should not use in- or outsourcing without consideration; instead they
should use both of them in a strategic way to improve their competitive priorities. Carmel, E. and Abbot, P. (2007). Why nearshore means that
distance matters. Communications of the ACM, 50(10): 40-46; Brannemo, A. (2005). How does the industry work with sourcing decisions? Case study at
two Swedish companies. Journal of Manufacturing Technology Management, 17(5): 547-560; Hgg, A., Jackson, M. and Granlund, . (2004). Need for
strategic rightsourcing decision model: Case studies at ABB and Volvo. Proceedings at Tools and Methods of Competitive Engineering, April 13-17 2004.
Lausanne.
Shamis, G.S., Green, C.M., Sorensen, S.M. and Kyle, D.L. (June, 2005). Outsourcing, offshoring, nearshoring: What to do? Journal of Accountancy 199(6):
57-61; Kotabe, M. and Murray, J.Y. (2004). Global procurement of service activities by service frms. International Marketing Review, (21)6: 615-633;
Gilley, K.M. and Rasheed A. (2000). Making more by doing less: An analysis of outsourcing and its effects of frm performance. Journal of Management,
26(4): 763-790.
84 Jahns, C., Hartmann, E. and Bals, L. (2006). Offshoring: Dimensions and diffusion of a new business concept. Journal of Purchasing & Supply Management,
12(4): 218-231.
85 Lewin, A.Y. and Peeters, C. (2006). Offshoring work: Business hype or the onset of fundamental transformation. Long Range Planning, 39(3): 221-239.
86 Kotabe, M. and Murray, J.Y. (1990). Linking product and process innovations and modes of international sourcing in global competition: A case of foreign
multinational frms. Journal of International Business Studies, 21(3): 383-408.
87 Bunyaratavej, K., Hahn, E.D. and Doh, J.P. (2007). International Offshoring of services: A parity study. Journal of International Management, 13(1): 7-21.
88 Murray, J.Y. and Kotabe, M. (1999). Sourcing strategies of U.S. service frms: A modifed transaction-cost analysis. Strategic Management Journal, 20(9):
791-809; Lovelock, C.H. and Yip, G.S. (1996). Developing global strategies for service businesses. California Management Review, 38(2): 64-86.
001_080678_HFDST 01-04.indd 29 16-09-2008 14:07:39
30
Although some question whether these new ICT developments will lead to an
increase in the tradability of services
89
, the number of offshoring opportunities for
service frms is rising as a result of growing confdence and increasing experience
and productivity
90
. This has not only resulted in an increase in ad hoc and singly
offshored activities, but some service frms also adopt offshoring strategies.
This refers to a strategy whereby frms relocate specifc tasks and coordinate
a geographically dispersed network of activities falling under the umbrella of
global sourcing.
Global sourcing or international sourcing
91
refers to a strategy whereby frms
determine which part of the value chain will serve a particular market and how
components, fnished goods and services will be produced
92
. The reason for a frm
to employ global sourcing is the ability to exploit both its own and, in case of
offshore outsourcing, its suppliers competitive advantages and the comparative
locational advantages of various countries in global competition
93
.
It is only towards the end of the last century that service frms started to source part
of their service activities from abroad
94
by confguring and coordinating different
sourcing activities around the world
95
. They apply sourcing on a global basis with
countries participating in a dynamic network. This development in which service
frms relocate their activities to offshore locations by using different sourcing models
and third-party offshore providers
96
calls for them to unlearn deeply embedded
structures and organizational processes as well as to adopt a dynamic rather than
a static model of defning boundaries. In these organizations, the boundaries of
the core organization blend with embedded third-party offshore providers
97
. It
allows offshore outsourcing relationships to be an intrinsic part of the business
models of service frms. This is important, since service frms increasingly need to
share knowledge resources, surpassing organizational boundaries and including
sourcing partners
98
. This way service frms anchor offshoring more and more in
their overall strategy and have dynamic boundaries, which makes it easy to switch
between captive offshoring and offshore outsourcing or using combinations of
both types of offshoring. Rather than perceiving offshoring activities as stand-
alone, they should be meticulously aligned with the activities in the home country
and become an integral part of a frms activities as referred to in Paragraph 1.1.
This development is an important consideration in the choice of service frms for a
foreign entry mode when relocating activities, as will be discussed in Chapter 3.
89 Leamer, E.E. and Storper, M. (2001). The economic geography of the internet age. Journal of International Business Studies, 32(4): 641-665.
90 Levy, D.L. (2005). Offshoring in the new global political economy. Journal of Management Studies, 42(3): 685-693.
92 Cheng, W. and Zhang, D. (2006). Domestic and global sourcing. Division of Labor & Transaction Costs, 2(1): 37-53; Murray, J.Y. and Kotabe M. (1999).
Sourcing strategies of U.S. service frms: A modifed transaction-cost analysis. Strategic Management Journal, 20(9): 791-809.
94 Kotabe, M. and Murray, J.Y. (2004). Global procurement of service activities by service frms. International Marketing Review, 21(6): 615-633.
95 Kotabe, M. and Murray, J.Y. (1990). Linking product and process innovations and modes of international sourcing in global competition. Journal of
International Business Studies, 21(3): 383-408.
97 Ibidem
98 Parmigiani, A. (2007). Why do frms both make and buy? An investigation of concurrent sourcing. Strategic Management Journal, 28(3): 285-311; Westney,
D.E. and Zaheer, S. (2001). The multinational enterprise as an organization. Chapter 13: 349-379 in Rugman A.M. and Brewer, T.L. (2001). Oxford handbook
of international business. Oxford University Press, Oxford.
001_080678_HFDST 01-04.indd 30 16-09-2008 14:07:39
2.2.1. Different Ways of global Sourcing
By employing global sourcing and operating in multiple countries, service frms
adopt new business models allowing them to coordinate activities and exploit both
competitive (frm-specifc) advantages as well as comparative (location-specifc)
advantages
99
on a global scale. Global sourcing involves two key decisions
100
:
1) Ownership decision: relates to the make-or-buy decision referring to the
choice between keeping a service within a frms boundaries or outsourcing it to
a third-party provider; in other words, internal sourcing on an intra-frm basis
versus external sourcing originating from independent suppliers on a contractual
basis
101
. This decision is the focus of this research study and determines the choice
of service frms for a specifc type of offshoring, i.e. captive offshoring or offshore
outsourcing.
2) Location decision: relates to the decision of keeping a service at the domestic
business environment or at a foreign location, i.e. domestic versus foreign sourcing.
Service frms engaged in offshoring have already taken the decision to relocate
their activities to a foreign location and they need to determine which country or
countries become their offshore location(s).
These two key decisions determine the choice for one of the four main ways of
sourcing
102
depicted in Figure 2.1 below, i.e. in-house, domestic outsourcing,
captive offshoring and offshore outsourcing. This implies a four-way choice
of whether to undertake an activity in-house or to subcontract, and whether to
undertake it at home or abroad
103
.
figure 2.1 Overview of four different ways of sourcing.
Ownership
Location
Internal
Direct control
External
By involving a third party
Domestic location In-house Outsourcing
Foreign location Captive offshoring Offshore outsourcing
99 Dunning, J.H. (1988). The theory of international production. International Trade Journal, 3(1): 21-66.
100 Kotabe, M. and Murray, J.Y. (2004). Global procurement of service activities by service frms. International Marketing Review, 21(6): 615-634; Murray, J.Y.
and Kotabe, M. (1999). Sourcing strategies of U.S. service frms: A modifed transaction-cost analysis. Strategic Management Journal, 20(9): 791-809.
101 Parmigiani, A. (2007). Why do frms both make and buy? An investigation of concurrent sourcing. Strategic Management Journal, 28(3): 285-311; Kotabe,
M. and Murray, J.Y. (2004). Global procurement of service activities by service frms. International Marketing Review, 21(6): 615-634; Kotabe, M. and
Murray, J.Y. (1990). Linking product and process innovations and modes of international sourcing in global competition: A case of foreign multinational frms.
Journal of International Business Studies, 21(3): 383-408.
102 OECD, Organisation for Economic Co-operation and Development. (2005). Potential offshoring for ICT-intensive using occupations. Working Party in
the Information Economy. OECD. Paris.
103 Grossman, G.M. and Helpman, E. (2005). Outsourcing in a global economy. Review of Economic Studies, 72(1): 135-159.
001_080678_HFDST 01-04.indd 31 16-09-2008 14:07:39
32
The suitability of one of the four sourcing options, further described below, largely
depends on the activity to be relocated and the objective of the offshoring initiative
104
:
In-house refers to domestic internal sourcing whereby service activities are
procured in-house within the corporate system in the domestic market. Trade
takes place between the parent and its domestic subsidiaries or between
domestic subsidiaries
105
.
Outsourcing refers to domestic external sourcing whereby the sourcing frm
and its suppliers are located in the same country.
Captive offshoring refers to foreign internal sourcing whereby trade takes place
between parent and its subsidiaries abroad or between foreign subsidiaries across
national boundaries; this is also referred to as offshore subsidiary sourcing
106
.
Offshore outsourcing refers to foreign external sourcing whereby the sourcing
frm and its suppliers are located in different countries.
Some frms are using different ways of sourcing as they are complementary, rather
than mutually exclusive
107
. However, a simultaneous decision between all four
sourcing options, also referred to as concurrent sourcing, is regarded to be rather
complex
108
, especially with respect to managing internal and external sources
109
.
Because this research study is focused on offshoring, it only takes into account
the two ways of sourcing, which fall under the global sourcing umbrella and are
marked bold in Figure 2.1, i.e. captive offshoring and offshore outsourcing.
2.2.2. two distinct but related Phenomena: Offshoring & Outsourcing
Offshoring and outsourcing, although related are two distinct phenomena
110, 111
.
Offshoring always involves a foreign location, and in the case of captive offshoring,
direct or shared control. This is not the case for outsourcing which can be executed
on the domestic market but always involves a third party
112
. Consequently, captive
offshoring and offshore outsourcing refer to different foreign market entry modes
as will be further discussed in Chapter 3. Furthermore, whereas captive offshoring
is mirrored in a countrys foreign direct investment (FDI)
113
outfow, offshore
outsourcing is implemented by way of contractual agreements and is part of a
countrys trade and export fgures
114
.
106 Ibidem
107 Parmigiani, A. (2007). Why do frms both make and buy? An investigation of concurrent sourcing. Strategic Management Journal, 28(3): 285-311; Mitra,
D. and Ranjan, P. (2005). Y2K and offshoring: The role of external economies and frm heterogeneity. Working papers No. 11718. NBER. Cambridge.
108 Grossman, G.M. and Helpman, E. (2003). Outsourcing versus FDI in industry equilibrium. Journal of the European Economic Association, 1(2/3): 317-
327.
109 Parmigiani, A. (2007). Why do frms both make and buy? An investigation of concurrent sourcing. Strategic Management Journal, 28(3): 285-311.
12(4): 218-231.
111 Grossman, G.M. and Rossi-Hansberg, E. (2006). The rise of offshoring: Its not wine for cloth anymore. Paper prepared for the symposium: The new
economic geography: Effects and policy implications, August 24-26, 2006. Jackson Hole, Wyoming.
113 It should be noted that it is extremely diffcult to measure offshoring using FDI data. For example, if a marketing company is buying a fat abroad
and employs some marketers, this offshoring of some marketing activities is not visible in the FDI data i.e., in this case there will be no statistical
FDI fow. However, the link can be made through the control-concept. Within this reasoning and in line with the earlier division between captive
offshoring and offshore outsourcing, it can be that FDI statistics may be used to get a frst indication of offshoring, however it can only be related to
captive offshoring. A second measurement problem using FDI in relation to offshoring is that, especially in service related sectors, investments can
create many jobs but typically do not generate large capital fows.
114 Grossman, G.M. and Helpman, E. (2005). Outsourcing in a global economy. Review of Economic Studies, 72(1): 135-159; Bhagwati, J., Panagariya A. and
Srinivasan, T.N. (2004). The muddles over outsourcing. Journal of Economic Perspectives, 18(4): 93-114.
001_080678_HFDST 01-04.indd 32 16-09-2008 14:07:39
2.3. Offshoring
While there is academic literature available on various aspects of outsourcing
115
,
it does not extensively capture a frms decision to outsource
116
. Compared to
outsourcing, there is even less academic literature available on offshoring of
service frms. If it is available then the research: 1) mainly discusses the practical
implications for frms involved in offshoring without providing a theoretical
framework
117
; and 2) often focuses exclusively on activities related to IT
118
, while
leaving the offshoring of other activities unexplored. This focus on IT-activities
may be explained by the fact that it was the frst category of services that was
offshored on a large scale. The reason for this was a fear of the millennium bug and
the pressure to meet deadlines to prevent this from happening in the year 2000
119
.
In the past fve years offshoring, by some referred to as the third industrial
revolution
120
, has evolved from a buzzword and an abstract preoccupation to a
controversial economic reality. This negative connotation is mainly due to fear
for losing jobs in the developed world
121
, which has politicized the discussion
on offshoring on a macro level
122
. The impact of this discussion is not just felt
on a macro-economic level, but also on frm-level; it means that businesses and
governments alike need to address this issue carefully
123
and cannot deal with it as
regular international business
124
.
There are different general viewpoints on offshoring, as far as the macro-economic
view is concerned. On the one hand, there are the free trade advocates who claim
increased effciency and a mutually benefcial outcome through comparative
advantages
125
. They focus on the opportunities of offshoring for value creation for
both companies and the economy as a whole
126
. Relocation or job displacement is
acknowledged, but regarded as short-term, refecting the transition into a global
economy with high mobility of capital and labor. According to this view, offshoring
will actually create new jobs in the long term because companies can develop new
activities at home from the savings achieved by offshoring
127
.
115 E.g. Conklin, D.W. (2005). Risks and rewards in HR business process outsourcing. Long Range Planning, 38(6): 579-598; Bhagwati, J., Panagariya A.
and Srinivasan, T.N. (2004). The muddles over outsourcing. Journal of Economic Perspectives, 18(4): 93-114; Cachon, G.P. and Harker, P.T. (2002).
Competition and outsourcing with scale economies. Management Science, 48(10): 1314-1333; Gilley, K.M. and Rasheed A. (2000). Making more by
doing less: An analysis of outsourcing and its effects on frm performance. Journal of Management, 26(4): 763-790; Bryce, D.J. and Useem, D. (1998). The
impact of corporate outsourcing on company value. European Management Journal, 16(6): 635-643; Earl, M.J. (1996). The risks of outsourcing IT. Sloan
Management Review, 37(3): 26-32; Anderson, J.C and Narus, J.A. (1990). A model of distributor frm and manufacturer frm working partnerships. Journal
of Marketing, 54(1): 42-58; Bettis, R.A., Bradley, S.P. and Hamel, G. (1992). Outsourcing and industrial decline. Academy of Management Executive,
6(1): 6-22.
116 Cheng, W. and Zhang, D. (2006). Domestic and global sourcing. Division of Labor & Transaction Costs, 2(1): 37-53.
12(4): 218-231.
119 Ibidem
121 E.g. Levy, D.L. (2005). Offshoring in the new global political economy. Journal of Management Studies, 42(3): 685-693.
122 E.g. Bhagwati, J., Panagariya A. and Srinivasan, T.N. (2004). The muddles over outsourcing. Journal of Economic Perspectives, 18(4): 93-114.
123 Smith, D. (2006). Offshoring: Political myths and economic reality. World Economy, 29(3): 249-256; Vashita A. and Vashita A. (2005). The offshore nation:
The rise and fall of services globalization. Tata McGraw Hill Publishing Co. Ltd., New Delhi.
125 Bhagwati, J., Panagariya A. and Srinivasan, T.N. (2004). The muddles over outsourcing. Journal of Economic Perspectives, 18(4): 93-114.
126 Farell, D. (2005). Offshoring: Value creation through economic change. Journal of Management Studies, 42(3): 675-683; Bhagwati, J., Panagariya A. and
Srinivasan, T.N. (2004). The muddles over outsourcing. Journal of Economic Perspectives, 18(4): 93-114.
127 Farell, D. (2005). Offshoring: Value creation through economic change. Journal of Management Studies, 42(3): 675-683.
001_080678_HFDST 01-04.indd 33 16-09-2008 14:07:39
34
This line of thinking fnds its foundations in the Economic Development Theory
128
,
which advocates that multinational corporations have a positive infuence on the
host government and host country by introducing, promoting and maintaining
economic development resulting in increased employment, capital investment
and infrastructure development.
On the other hand, there is skepticism. It is argued that offshoring imposes
welfare loss to large groups of workers and that it damages the competitiveness
of the home country
129
. For example, since offshoring of services involves more
high-skilled jobs than manufacturing offshoring, displaced workers may have
diffculty in upgrading their skills suitable for higher-skilled jobs such as research
and development. This line of thinking is supported by the North-South Theory,
also referred to as the Dependency Theory. This theory argues that foreign frms
eventually cause negative effects such as unemployment and cultural deterioration
while showing little responsibility to the various geographic regions they operate
in because of the repatriation of profts, diversion of existing capital, expatriate
management, inappropriate consumption, and the fact that they contribute to
migration from rural areas to cities
130
.
Both of the aforementioned perspectives are criticized as static, extreme and
having an unbalanced view of the foreign frm-host country relationship, it is
more a give-and-take situation. This view is supported by the Bargaining and
Negotiation Theory. In this theory the divergence in each partys objective can lead
to conficts and it is in a foreign frms interest to understand the host governments
objectives and to negotiate a mutually benefcial relationship
131
. All these different
perspectives have in common that the offshoring trend will continue to be an issue
on the strategic agenda of frms, and will have an impact on the competitiveness
of nations
132
.
Just as important as the impact on a macro-economic level is the impact of
offshoring on frm-level
133
. Offshoring that occurred over the past 50 years has
primarily been implemented by manufacturing frms focusing on cost cutting
strategies and low-skilled labor
134
. Offshoring of services, starting in the nineties of
the last century, was initially also primarily seen as related to low-skilled labor and
a means to reduce costs
135
.
128 Kendal, D.M. (1974). The need for the multinational corporation in Ryans, J.K., ed.: The multinational business world of the 1980s. Kent State University.
Kent, Ohio: 6-23.
130 Doh, J.P. (2005). Offshore outsourcing: Implications for international business and strategic management theory and practice. Journal of Management
Studies, 42(3): 695-704; Malhotra, N.K., Ulgado, F.M. and Agarwal, J. (2003). Internationalization and entry modes: A multitheoretical framework and
research proposition. Journal of International Marketing, 11(4): 1-31.
131 Malhotra, N.K., Ulgado, F.M. and Agarwal, J. (2003). Internationalization and entry modes: A multitheoretical framework and research proposition. Journal
of International Marketing, 11(4): 1-31.
Studies, 42(3): 695-704; Venkatraman, N.V. (2004). Offshoring without guilt. Sloan Management Review, 45(3): 14-16.
135 Bunyaratavej, K., Hahn, E.D. and Doh, J.P. (2007). International offshoring of services: A parity study. Journal of International Management, 13(1): 7-21.
001_080678_HFDST 01-04.indd 34 16-09-2008 14:07:39
Just as outsourcing, offshoring can involve two types of activities: peripheral/
supplementary or non-core activities and core activities
136
. The frst type of activities
refers to those that are strategically less relevant to differentiate or contribute to the
long-term success of a service frm. The second type of activities refers to offshoring
activities that are considered important for the long-term success of a service frm.
Conventional wisdom, largely based on lessons learned in the manufacturing
industry, argues that in general service frms should employ captive offshoring
for core activities and offshore outsourcing for non-core activities
137
. However,
recent developments show that third-party providers are offering sophisticated
and knowledge-intensive services belonging to the core business of service frms
more often than before
138
. This is in contrast to those who argue that core activities
are usually performed by the service frm itself, regardless of the characteristics of
the core service
139
.

Service frms need to respond to the increased need of managing globally scattered
operations requiring close coordination of different activities across national
boundaries
140
. As already referred to earlier in this chapter, there is a tendency
for service frms to move from attending effciently single offshoring activties to
reconfguring whole processes in order to realize greater value across the whole
organization
141
. In doing so, they need to learn on a structural basis to source,
locate and manage human capital and activities anywhere in the world. This is by
many frms perceived as a new managerial practice, which is demanding for both
managers and for structures and boundaries of service frms
142
.
2.3.1. Offshore Outsourcing
Offshore outsourcing is a combination of offshoring and outsourcing. In contrast
to local outsourcing operations, offshore outsourcing involves a foreign location,
which means dealing with an additional set of challenges not encountered in a
domestic market, such as unpredictable currency fuctuations, cultural differences
and country risks
143
. Unlike captive offshoring, in the case of offshore outsourcing
negotiating an outsourcing contract with an offshore provider is part of the
offshoring process
144
.
136 Kotabe, M. and Murray, J.Y. (2004). Global procurement of service activities by service frms. International Marketing Review, 21(6): 615-634; Murray, J.Y.
and Kotabe, M. (1999). Sourcing strategies of U.S. service frms: A modifed transaction-cost analysis. Strategic Management Journal, 20(9): 791-809.
137 Gilley, K.M. and Rasheed A. (2000). Making more by doing less: An analysis of outsourcing and its effects on frm performance. Journal of Management,
26(4): 763-790; Murray, J.Y. and Kotabe, M. (1999). Sourcing strategies of U.S. service frms: A modifed transaction-cost analysis. Strategic Management
Journal, 20(9): 791-809.
138 Antrs, P., Garicano, L. and Rossi-Hansberg, E. (2005). Offshoring in a knowledge economy. Journal of Quarterly Economics, 121(1): 31-77.
139 Murray, J.Y. and Kotabe, M. (1999). Sourcing strategies of U.S. service frms: A modifed transaction-cost analysis. Strategic Management Journal, 20(9): 793.
141 Kakabadse, A. and Kakabadse, N. (2002). Trends in outsourcing: Contrasting US and Europe. European Management Journal, 20(2): 189-198.
143 Kotabe, M. and Murray, J.Y. (2004). Global procurement of service activities by service frms. International Marketing Review, 21(6): 615-634; Bryce, D.J.
and Useem, D. (1998). The impact of corporate outsourcing on company value. European Management Journal, 16(6): 635-643.
144 Cachon, G.P. and Harker, P.T. (2002). Competition and outsourcing with scale economies. Management Science, 48(10): 1314-1333.
001_080678_HFDST 01-04.indd 35 16-09-2008 14:07:39
36
Outsourcing refers to the act of subcontracting out all or parts of the functions of
a frm to an external party
145
. This defnition does not refer to purchasing decisions
only
146
. It also refers to the strategic decision of rejecting internalization of an
activity and therefore may affect an entire organization
147
. The difference with
straightforward procurement is that this strategic decision only occurs when
there is a choice to either acquire goods or a service from an external source or
internalize an activity. According to this defnition, outsourcing may occur in two
different forms:
1) outsourcing through substitution, also referred to as vertical disintegration or
vertical specialization and intra-product specialization, or in the case of offshore
outsourcing as international outsourcing or global production sharing
148
; and
2) outsourcing through abstention applying to goods or services that have not
been produced within the frm in the past. In that case, internalization of goods
and services that are outsourced should be among the acquiring frms managerial
and fnancial capabilities, and again it involves a strategic decision regarding
outsourcing versus internalization.
Offshore outsourcing only includes outsourcing through substitution as it refers to
the relocation of activities and jobs involved, meaning that it concerns only those
activities that have been completed in-house before and are subsequently moved
to a foreign location via an external source. This includes both core activities and
supplementary services
149
.
Offshore outsourcing of services refers to trading services internationally at arms
length
150
, i.e. outside a companys provision of services for a specifc business unit
activity or an entire business function or process to be provided by a single frm
(mono-sourcing) or multiple offshore providers (multi-sourcing)
151
. It is a low
control non-equity-based (contractual agreements) entry mode with relatively low
resource commitment
152
. This is due to the fact that resources of a third party are
used, because offshore outsourcing provides access to a suppliers capabilities
153

enabling a service frm to exploit both its own and a suppliers competitive
145 Gilley, K.M., McGee, J.E. and Rasheed, A.A. (2004). Perceived environmental dynamism and managerial risk aversion as antecedents. Journal of Small
Business Management, 42(2): 117-133.
26(4): 763-790.
150 Bhagwati, J., Panagariya A. and Srinivasan, T.N. (2004). The muddles over outsourcing. Journal of Economic Perspectives, 18(4): 93-114.
151 Bryce, D.J. and Useem, D. (1998). The impact of corporate outsourcing on company value. European Management Journal, 16(6): 635-643.
152 Pan, Y. and Tse, D.K. (2000). The hierarchical model of market entry modes. Journal of International Business Studies, 31(4): 535-554.
153 Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1): 99-121.
001_080678_HFDST 01-04.indd 36 16-09-2008 14:07:39
advantages
154
. It is argued that frms relocating their peripheral activities via
lowest-cost offshore providers to foreign locations can achieve higher levels of
performance than those who keep these activities in-house
155
, especially if they
pursue a cost leadership strategy.
2.3.2. captive Offshoring
Captive offshoring, internal sourcing within a frms boundaries, is a form of high-
control and equity-based entry mode
156
. Captive offshoring can be divided in two
groups: magnitude of ownership (wholly owned subsidiary versus joint venture)
and mode of ownership (greenfeld versus acquisition)
157
. Some authors argue
that the greater the frms level of ownership, the greater control it enjoys over its
international transactions
158
. Captive offshoring may be preferred as a foreign entry
mode in order to build up personal relationships, to conduct on-site research and
to adapt to the needs of foreign buyers and markets. This preference may increase
as cultural distance becomes bigger
159
. Some frms enter markets opting for captive
offshoring in order to satisfy their need to coordinate activities on a global basis
160
.
That way they may gain competitive advantages by integrating their operations
and explore opportunities that move beyond individual operations
161
.
In general, captive offshoring is employed when service activities have a relatively
high level of inseparability and require production and consumption of service
activities in the same place and at the same time
162
. It is also preferred when a frm
seeks to internalize economic activities and assets that are deemed important
to its performance or when there is a lack of local frms that can provide the
required services
163
. In this way captive offshoring is a vehicle to leverage the
advantages of offshoring, e.g. increase of knowledge and expertise in developing
new technologies, and transfer them back to the parent or other subsidiaries.
Firms choose this type of offshoring when strict control is crucial, information
is sensitive and internal interaction is important, e.g. to maintain control over
activities, people and knowledge regarding process innovation
164
and keeping
26(4): 763-790; Murray, J.Y. and Kotabe, M. (1999). Sourcing strategies of U.S. service companies: A modifed transaction-cost analysis. Strategic
Management Journal, 20(9): 791-809.
157 Barkema, H.G., Bell, J.H.J. and Pennings, J.M. (1996). Foreign entry, cultural barriers, and learning. Strategic Management Journal, 17(2): 151-166.
158 E.g. Bouquet, C, Hbert, L and Delios, A. (2004). Foreign expansion in service industries: Separability and human capital intensity. Journal of Business
Research, 57(1): 35-46; Ekeledo, I. and Sivakumar, K. (1998). Foreign market entry mode choice of service frms: A contingency perspectives. Academy of
Marketing Science Journal, 26(4): 274-292; Anderson, E. and Gatignon, H. (1986). Modes of foreign entry: A transaction cost analysis and propositions.
159 Blomstermo, A., Deo Sharma, D. and Sallis, J. (2006). Choice of foreign market entry mode in service frms. International Marketing Review, 23(2): 221-
229.
160 Agarwal, S. and Ramaswami, S.N. (1992). Choice of foreign market entry mode: Impact of ownership, location and internalization factors. Journal of
161 Ibidem
163 Lei, D. and Hitt, M.A. (1995). Strategic restructuring and outsourcing: The effect of mergers and acquisitions and LBOs on building frm skills and capabilities.
Journal of Management, 21(5): 835-859.
12(4): 218-231; Kotabe, M. and Murray, J.Y. (2004). Global procurement of service activities by service frms. International Marketing Review, 21(6): 615-
634.
001_080678_HFDST 01-04.indd 37 16-09-2008 14:07:39
38
technology and expertise within the corporate system
165
. Furthermore, it is argued
that internal sourcing of core activities and keeping unique technology within the
corporate system are positively related to a frms performance
166
.
2.4. Objectives for Offshoring
In the past, cost savings were perceived as the dominant driver for relocating
activities to foreign locations. There is, however, a shift to other strategic objectives
for offshoring, e.g. service frms discover new opportunities for competitive
advantage by making use of high-skilled workers in emerging markets
167
. These
objectives for offshoring may have a relationship with the choice for a specifc type
of offshoring, captive offshoring or offshore outsourcing or a combination of both
types
168
.
Cost Advantages
Offshoring is often mentioned in connection with lowering costs as the main
objective for offshoring activities and low-cost countries as the preferred offshoring
destinations. Cost advantages can be realized through less restrictive work rules
regarding wages and dismissal, favorable interest rates and lower capital costs
169

as well as lower land and facility costs, cheaper raw materials, intermediate parts
and components and lower technology costs
170
.
Government Policy
Political and legal conditions, including favorable labor, tax and competition
laws as well as trade blocks, can be objectives for offshoring. They are related to
a countrys government policy
171
.
Strategic Asset Seeking
Other objectives for offshoring, apart from cost savings and economies of scale
are faster delivery of services, focus on core business, risk sharing, fexibility and
improving quality of services produced
172
. International competition and the
need to move quickly in international markets
173
motivate frms to get involved
in offshoring by increasing their fexibility and capital mobility
174
. Offshore
outsourcing can serve as a tool for responding to the challenges of an increasingly
166 Murray, J.Y., Kotabe, M. and Wildt, A.R. (1995). Strategic and fnancial implications of global strategy: A contingency analysis. Journal of International
Business, 26(1): 181-202.
167 Lewin, A.Y. and Peeters, C. (2006). Offshoring work: Business hype or the onset of fundamental transformation. Long Range Planning, 39(3): 221-239;
Farell, D. (2005). Offshoring: Value creation through economic change. Journal of Management Studies, 42(3): 675-683.
168 Pak, Y.S. (2002). The effect of strategic motives on the choice of entry modes: An empirical test of international franchisers. Multinational Business Review,
10(1): 28-37.
12(4): 218-231.
170 Weidenbaum, M. (2005). Outsourcing: Pros and cons. Business Horizons, 48(4): 311-315; Fagan, M.L. (1991). A guide to global sourcing. Journal of Business
Strategy, 12(2): 21-25; Cho, K. (1988). Determinants of intra-frm trade: A search for a theoretical framework. International Trade Journal, 3(2): 167-185.
12(4): 218-231.
172 Kedia, B.L. and Lahiri, S. (2007). International outsourcing of services: A partnership model. Journal of International Management, 13(1): 22-37; UNCTAD,
United Nations Conference on Trade and Development. (2004). Service offshoring takes off in Europe - In search of improved competitiveness. UN. Geneva;
Murray, J.Y. and Kotabe, M. (1999). Sourcing strategies of U.S. service companies: A modifed transaction-cost analysis. Strategic Management Journal,
20(9): 791-809.
173 Bloodgood, J., Sapienza, H. and Almeida, J. (1996). The internationalization of new high-potential U.S. ventures: Antecedents and outcomes.
Entrepreneurship: Theory & Practice, 20(4): 61-76.
001_080678_HFDST 01-04.indd 38 16-09-2008 14:07:40
dynamic external environment
175
by having the possibility of scalability through
hiring temporary employees who can be involved in times of high demand and
who are not on the payroll when demand is decreasing. A dynamic environment
demands to respond to continuous changes in technology and the ability to switch
suppliers as technology considerations demand
176
. The availability of clusters
surrounded by top economic and institutional facilities can also be an objective
for frms to engage in offshoring activities
177
.
Market Access Seeking
Accessing markets
178
by following customers or suppliers
179
into foreign markets
can be a reason to choose a specifc offshore location. This way is argued to be a
source of value for frms
180
. Firms seek access to high potential markets through
offshoring. Larger frms with a regional or worldwide presence may still enter even
low potential markets to explore opportunities for higher returns
181
.
Strategic Resource Seeking
Socio-demographic developments regarding population size, age structure,
educational levels and workforce motivation can be drivers for offshoring in
order to obtain or increase intellectual resources
182
. Service frms discover new
advantages of offshoring by accessing high-skilled workers in emerging markets
183

and accessing certain skills
184
, as well as increased dispersion of intellectual
resources
185
. The access to strategic resources, such as the availability of qualifed
personnel in foreign countries, can encourage frms to offshore activities, especially
if there are diffculties with recruiting the right expertise in a tight domestic labor
market
186
. Getting access to technology and knowledge in leading scientifc and
technical communities can also be as a driver for offshoring
187
. Firms engage in
offshoring to take advantage of location variables such as capacity of knowledge
accumulation and related innovation and technological standards available at the
offshore location
188
.
175 Monczka, R.M. and Trent, R.J. (1991). Global sourcing: A development approach. International Journal of Purchasing and Materials Management, 27(2): 2-8.
26(4): 763-790.
177 Malhotra, N.K., Ulgado, F.M, and Agarwal, J. (2003). Internationalization and entry modes: A multitheoretical framework and research proposition. Journal
178 UNCTAD, United Nations Conference on Trade and Development. (2004). Service offshoring takes off in Europe - In search of improved competitiveness. UN.
Geneva; Kotabe, M. and Murray, J.Y. (2004). Global procurement of service activities by service frms. International Marketing Review, 21(6): 615-634
179 Westhead, P., Wright, M., Ucbasaran, D. and Martin, F. (2001). International market selection strategies of manufacturing and services frms.
Entrepreneurship & Regional Development, 13(1): 17-46.
180 Kedia, B.L. and Lahiri, S. (2007). International outsourcing of services: A partnership model. Journal of International Management, 13(1): 22-37.
182 Jahns, C., Hartmann, E. and Bals, L. (2006). Offshoring: Dimensions and diffusion of a new business concept. Journal of Purchasing & Supply Management, 12(4):
218-231; Kotabe, M., and Murray, J.Y. (2004). Global procurement of service activities by service frms. International Marketing Review, 21(6): 615-634.
183 Farell, D. (2005). Offshoring: Value creation through economic change. Journal of Management Studies, 42(3): 675-683.
UNCTAD. Geneva.
186 Lu, L. and Liu, J. (2004). R&D in China: An empirical study of Taiwanese IT companies. R&D Management, 34(4): 453-465.
187 Clott, C. (2004). Perspectives on global outsourcing and the changing nature of work. Business and Society Review, 109(2): 153-170; Gassmann, O. and
Han, Z. (2004). Motivations and barriers of foreign R&D activities in China. R&D Management, 34(4): 423-437; Belitz, H. (2000). German companies
intensify their research and development activities abroad. Economic Bulletin, 37(6): 175-182.
188 Dunning, J.H. (2000). The eclectic paradigm as an envelope for economic and business theories of MNE activity. International Business Review, 9(2):
163-191; Dunning, J.H. (1998). Location and the multinational enterprise: A neglected factor? Journal of International Business Studies, 29(1): 45-66;
Dunning, J.H. (1995). Reappraising the eclectic paradigm in an age of alliance capitalism. Journal of International Business, 26(3): 461-491.
001_080678_HFDST 01-04.indd 39 16-09-2008 14:07:40
40
Service frms increasingly realize that ensuring successful offshoring projects and
creating a competitive advantage require that advantages through cost savings are
viewed in combination with the other aforementioned objectives
189
. Rather than
just a procurement issue, offshoring is more and more viewed as a strategic tool to
respond to developments in a dynamic environment
190
. Furthermore, evidence is
found that alignment of objectives for offshoring and the overall business strategy
can be an indicator for the success rate of offshoring activities of service frms
191
.
These objectives should meet the envisioned goals of stakeholders within and
outside the frm and should include all other parties involved such as the third-
party offshore provider and the end user
192
.
2.5. Barriers to Offshoring
As offshoring is part of a frms internationalization process, barriers related
to offshoring will (partly) overlap with those related to internationalization in
general. Examples of identifed barriers in the literature related to this type of
international sourcing include logistics, distance and nationalism
193
.
It is argued that frms inexperienced in entering international markets tend to
overstate the risks
194
. It can also be deduced from the literature that frms prefer
entry into similar markets in order to minimize uncertainty and to avoid perceived
barriers such as a lack of market knowledge
195
. However, the extent to which these
barriers occur seems to be conditioned by the frms international experience. It is
argued that if frms gain experience, geographical and cultural familiarity is less
important. This notion is developed into a model of sequential internationalization
that emphasizes incremental internationalization at frm-level through acquisition,
integration and the use of knowledge of foreign markets
196
. Some authors refer to
the fact that service frms experience relatively fewer barriers, e.g. cost and risk of
establishing wholly owned subsidiaries, than manufacturing frms
197
.
Management Issues
Different languages can be an initial barrier in management in case of offshoring
because parts of tasks and processes are moved to another location requiring an
intensive exchange of documents and cooperation between people at the domestic
and the foreign offshore location
198
. Countries such as India and Malaysia have been
attractive offshore locations because of their supply of educated employees and
189 Wery, R. and Dalal, M. (2005). Why companies go offshore can determine whether they succeed or fail. World Trade, 18(7): 18-22; Jennex, M. and Adalakun,
O. (2003). Success factors for offshore information system development. Journal of Information Technology Cases and Application, 5(3): 12-31.
190 Farrell, D. (2005). Offshoring: Value creation through economic change. Journal of Management Studies, 42(3): 675-683; Levy, D.L. (2005). Offshoring
in the new global political economy. Journal of Management Studies, 42(3): 685-693; Qulin, B. and Duhamel, F. (2003). Bringing together strategic
outsourcing and corporate strategy: Outsourcing motives and risks. European Management Journal, 21(5): 647- 661.
191 Fjermestad, J. and Saitta, J.A. (2005). A strategic management framework for IT outsourcing: A review of literature and the development of a success factors
model. Journal of Information Technology Case and Application Research, 7(3): 42-60.
192 Misra, R.B. (2004). Global IT outsourcing: Metrics for success of all parties. Journal of Information Technology Cases and Application Research, 6(3):
21-34.
194 Davidson, W.H. (1980). The location of foreign direct investment activity: country characteristics and experience effects. Journal of International Business
Studies, 11(2): 9-22.
195 Davidson, W.H. (1983). Market similarity and market selection: Implications for international marketing strategy. Journal of Business Research 11(4):
439-456.
196 Johanson, J. and Vahlne, J. (1990). The mechanism of internationalization. International Marketing Review, 7(4): 11-24.
197 E.g. Erramilli, M.K. and Rao, C.P. (1990). Choice of foreign market entry modes by service frms: Role of market knowledge. Management International
Review, 30(2): 135-150.
198 Gassmann, O. and Han, Z. (2004). Motivations and barriers of foreign R&D activities in China. R&D Management, 34(4): 423-437.
001_080678_HFDST 01-04.indd 40 16-09-2008 14:07:40
their skills in the English language, e.g. a requirement in call centers is usually that
employees can communicate in the same language as the customer. Offshoring
not only requires qualifed foreign employees, but also demands expatriate staff
who can manage offshore activities, who are able to communicate with their
foreign counterparts and keep close contact with their headquarters. Time zone
differences can be seen as a barrier to offshoring too and cause diffculties in the
coordination of offshoring activities
199
.
The costs generated by the employment of high-qualifed employees and the costs
of coordination between headquarters and the offshore center have to be offset by
profts that can be gained from offshoring activities
200
. Sometimes costs can be too
high and can therefore be a barrier to offshoring as they may outweigh the benefts
of offshoring
201
. Other hidden costs of monitoring may occur due to dissimilar
cultural and business values and practices
202
. For example, offshore outsourcing
in practice often results in higher costs than expected. The reason is that the
transaction costs can exceed expectations
203
due to increased coordination costs
as a result of extra management attention for offshore operations
204
. Therefore, it
remains important for frms to consider the negative and the positive effects of
offshore outsourcing because costs associated with negotiating, monitoring and
enforcing offshore outsourcing arrangements may outweigh the advantages of,
for example, low labor costs and increased fexibility
205
.
Cultural barriers are relevant in the foreign entry process and frms can learn
more about them through earlier experience. Differences in cultures can be
an impediment for service offshoring since services usually involve a higher
level of human resources than products, i.e. cultural incompatibility may be
greater for services than it is for products
206
. Culture differences may also lead to
communication problems between foreign and expatriate employees. If managers
lack experience and sensitivity to different attitudes and cultures, it can result in
managerial ineffciency, wrong decisions and inadequate leadership. In addition,
different use of verbal and nonverbal signs, unspoken assumptions just as
different working styles and different perceptions can also be cultural barriers to
offshoring
207
.
12(4): 218-231.
200 Aron, R. Clemons, E.K. and Reddi, S. (2005). Just right outsourcing: Understanding and managing risk. Journal of Management Information Systems,
22(2): 37-55; Tafti, M. (2005). Risks factors associated with offshore IT outsourcing. Management & Data Systems, 105(5): 549-560.
201 Kotabe, M., Parente, R. and Murray, J.Y. (2007). Antecedents and outcomes of modular production in the Brazilian automobile industry: A grounded theory
approach. Journal of International Business Studies, 38(1): 84-106.
26(4): 763-790.
204 Leamer, E.E. and Storper, M. (2001). The economic geography of the internet age, Journal of International Business Studies, 32(4): 641-665.
26(4): 763-790.
20(9): 791-809; Samiee, S. (1999). The internationalization of services: Trends, obstacles and issues. Journal of Services Marketing, 13(4/5): 319-328;
Barkema, H.G., Bell, J.H.J. and Pennings, J.M. (1996). Foreign entry, cultural barriers, and learning. Strategic Management Journal, 17(2): 151-166.
001_080678_HFDST 01-04.indd 41 16-09-2008 14:07:40
42
Communication barriers are not the result of only cultural differences, gaps in
pay can also create tensions between foreign employees and expatriate staff. The
education system can be an additional source of communication barriers, e.g.
most managers perceive that Chinese graduates have a solid education and are
skilled in well-defned tasks, but the education system is characterized by a narrow
curriculum design causing low individual initiative and innovative mindset
208
.
Unfavorable Government Policy
Political instability can be a barrier to offshoring
209
just as differences between
countries with respect to their legislation and regulations
210
. A barrier to offshoring
can also be the fact that costs of writing and enforcing contracts are high
211
.
Furthermore, laws and regulations at the offshore location may be different from
those at the domestic location.
The lack of protection of intellectual property can inhibit service frms from
offshoring
212
; the International Intellectual Property Alliance estimates that 90% of
business computer software in China is pirated
213
. Governments can develop three
categories of regulatory initiatives aimed at restricting offshoring
214
: 1) attempts
to impose direct legal prohibitions or restrictions on international sourcing; 2)
legislation aimed at providing assistance to workers who have lost jobs to trade-
related foreign competition; and 3) legislation aimed at improving the global
competitiveness of domestic businesses and workers.
Unavailability of Strategic Assets
The unavailability of strategic assets can be perceived as a barrier by service
frms when relocating their activities results in a loss of quality or a decrease in
competitiveness or fexibility. The latter can occur when relocating activities
via a third-party offshore provider is based on a long-term agreement resulting
in an insuffciently fexible organisation when responding to a quick changing
environment and thus result in an over-dependence on this third party
215
.
Furthermore, incorrect decisions regarding the type of offshoring may decrease
competitiveness, because the entry mode choice is important to frm performance
216
,
as will be further discussed in Chapter 3. Hence, a wrong choice may infuence
the frms performance negatively
217
. The same applies to incorrect decisions
about offshore locations
218
. Offshoring can also lead to a loss of strategic assets

209 Aron, R. Clemons, E.K. and Reddi, S. (2005). Just right outsourcing: Understanding and managing risk. Journal of Management Information Systems,
22(2): 37-55; Tafti, M. (2005). Risks factors associated with offshore IT outsourcing. Management & Data Systems, 105(5): 549-560.
210 Ramanujan, S. and Jane, S. (2006). A legal perspective on outsourcing and offshoring. Journal of American Academy of Business, 8(2): 51-58; Brown, D.K.
and Stern, R.M. (2001). Measurement and modeling of the economic effects of trade and investment barriers in services. Review of International Economics,
9(2): 262-286.
212 Ramanujan, S. and Jane, S. (2006). A legal perspective on outsourcing and offshoring. Journal of American Academy of Business, 8(2): 51-58.
214 Manley, T.J. and Hobby, S.M. (2004). Globalization of work: Offshore outsourcing in the IT age. Emory International Law Review, 18: 401-420.
215 Barthelemy, J. and Quelin, B.V. (2006). Complexity of outsourcing contracts and ex post transaction costs: An empirical investigation. Journal of
Management Studies, 43(8): 1775-1797.
216 Sanchez-Peinado, E. and Pla-Barber, J. (2006). A multidimensional concept of uncertainty and its infuence on the entry mode choice: An empirical analysis
in the service sector. International Business Review, 15(3): 215-232.
217 Bettis, R.A., Bradley, S.P. and Hamel, G. (1992). Outsourcing and industrial decline. Academy of Management Executive, 6(1): 7-22.
001_080678_HFDST 01-04.indd 42 16-09-2008 14:07:40
when service frms relocate their knowledge-intensive activities. The reason is
that it increases the risk of a loss of their knowledge, which may result in a decline
of service quality
219
. This way offshoring can also lead to a decrease in customer
satisfaction, a loss of reputation and market performance
220
.
Unavailability of Strategic Resources
Finding adequately educated employees and high attrition rates can be a barrier
to offshoring too. India, for example, has many university graduates, but even in
countries with a relatively large high-skilled population, the demand for suitable
employees can surpass supply
221
. Furthermore, an imbalance between local
employees and expatriates can be a barrier. It is, for example, argued that the
higher the human capital intensity in a frms industry, the greater the proportion
of expatriate staff should be
222
. In some offshore locations there is discriminatory
access to or insuffcient availability of distribution and telecommunications
systems, air transport and other infrastructure including dealer networks
223
.
In the next chapter, the theoretical framework for the offshoring behavior of service
frms is provided by further discussing the key decisions regarding offshoring.
The focus will be on the make (captive offshoring) or buy (offshore outsourcing)
decision, which determines the offshoring behavior regarding the choice of service
frms for type of offshoring, i.e. foreign entry mode.
Studies, 42(3): 695-704; Hgg, A., Jackson, M. and Granlund, A. (2004). Need for strategic rightsourcing decision model case studies at ABB and Volvo.
Proceedings of the Tools and Methods of Competitive Engineering, April 13-17, 2004, Lausanne; Agarwal, S. and Ramaswami, S.N. (1992). Choice of
foreign market entry mode: Impact of ownership, location and internalization factors. Journal of International Business Studies, 23(1): 1-27.
220 Murray, J.Y. and Kotabe M. (1999). Sourcing strategies of U.S. service frms: A modifed transaction-cost analysis. Strategic Management Journal, 20(9):
791-809.
221 Farrell, D., Kaka, N. and Strze, S. (2005). Ensuring Indias offshoring future. McKinsey Quarterly: 74-83.
222 Bouquet, C, Hbert, L and Delios, A. (2004). Foreign expansion in service industries: Separability and human capital intensity. Journal of Business Research,
57(1): 35-46.
Brown, D.K. and Stern, R.M. (2001). Measurement and modeling of the economic effects of trade and investment barriers in services. Review of International
Economics, 9(2): 262-286.
001_080678_HFDST 01-04.indd 43 16-09-2008 14:07:40
44
001_080678_HFDST 01-04.indd 44 16-09-2008 14:07:40
chapter 3
Relating Internationalization Theories to the Offshoring
Behavior of Service Firms
3.1. introduction
As offshoring always involves relocating business activities to a foreign
location, internationalization lies at the basis of sourcing of service frms and
their offshoring decisions
224
. Internationalization here refers to the process of
adapting the exchange transaction modality to international markets
225
. This
chapter provides a theoretical framework for relating internationalization
theories to the offshoring behavior of service frms and the main determinants
of their offshoring decision-making process.
This chapter includes a discussion on the difference between hard and soft
services since this distinction infuences the entry mode decision. Furthermore,
this chapter discusses the relationship between ownership and entry mode
issues. While internationalization theories are interlinked, and sometimes
overlap, it can be argued that they try to answer different questions related to
the internationalization of service frms. Some theories can be used to explain the
make-or-buy decision of service frms, which determines their boundaries. Other
theories can be used to explain the choice of service frms for a specifc location.
Thus, the topics of the internationalization process in general and entry mode
choices in particular are closely intertwined in the literature. These two have been
integrated in the literature overview and subsequent analysis of the different
perspectives in this chapter.
Internationalization of frms has been explained by various theories emphasizing
different issues and approaches
226
. It lacks, however, a unifed theoretical
framework explaining internationalization and entry modes in general
and for service frms engaged in offshoring more specifcally
227
. In the past,
internationalization theories were dominated by thinking about production and
the exchange of complete goods. However, the emerging practice of offshoring
means that many tasks required to manufacture complex industrial goods or
knowledge-intensive services are performed in several disparate locations
228
.
224 Watjatrakul, B. (2005). Determinants of IS sourcing decisions: A comparative study of transaction cost theory versus the resource-based view. Journal of
Strategic Information Systems, 14(7): 389-415.
226 For an overview: e.g. Malhotra, N.K., Ulgado, F.M. and Agarwal, J. (2003). Internationalization and entry modes: A multitheoretical framework and research
proposition. Journal of International Marketing, 11(4): 1-31.
227 Ibidem
228 Grossman, G.M. and Rossi-Hansberg, E. (2006). The rise of offshoring: Its not wine for cloth anymore. Paper prepared for the symposium:
The new economic geography: Effects and policy implications, August 24-26, 2006. Jackson Hole, Wyoming.
001_080678_HFDST 01-04.indd 45 16-09-2008 14:07:40
46
This is hardly addressed in previous studies on services in an international context
229

as discussed in Chapter 2. Furthermore, services have become an important element of
international trade and foreign direct investments. The research results show that the
internationalization process and the choice of foreign entry mode for service frms differ
from manufacturing frms
230
as discussed in Chapter 1. Although the body of academic
literature has been growing, to date scholars are still debating whether the determinants
of foreign entry decisions are the same for service and manufacturing frms
231
.
3.2. hard and Soft Services
According to some researchers, the entry mode used by the service sector is determined
by the level of tradability whether or not the service is exportable and the degree of
physical customer interaction required
232
. For example, storable services and service
activities that do not involve physical customer interaction are exportable. However,
such operation and standardization of services may be limited due to adaptation
needs for different cultures and the degree to which production and consumption can
be decoupled, also referred to as the simultaneity or S-factor
233
. In order to determine
if there are differences in entry mode for different types of service frms, this section
provides insight in the differences between hard and soft services.
Hard or nonpure services are those services where production and consumption can
be decoupled. This type of services are sometimes equated with physical products. They
are embedded in goods (e.g. restaurants, retailing, and construction). They have a service
(intangible) component and a physical goods component (tangible)
234
. The latter serves
as a storage medium or a vehicle for transmission
235
. They may require low customer
interaction if they can be delivered by technology, also referred to as low contact services
236
.
Due to the tangible part of the service, hard services can be more easily evaluated than
soft services. They have a low S-factor because technological developments have made it
possible to separate consumption from production
237
. Research results show that hard
service frms are more often involved in offshoring than soft service frms
238
. Furthermore,
it is argued that this type of frm uses a lower level control entry mode when compared
to soft service frms
239
.
229 Murray, J.Y. and Kotabe M. (1999). Sourcing strategies of U.S. service frms: A modifed transaction-cost analysis. Strategic Management Journal,
20(9): 791-809.
230 Sanchez-Peinado, E., Pla-Barber, J. and Hbert, L. (2007). Strategic variables that infuence entry mode choice in service frms. Journal of International
Marketing, 15(1): 67-91; Sanchez-Peinado, E. and Pla-Barber, J. (2006). A multidimensional concept of uncertainty and its infuence on the entry mode
choice: An empirical analysis in the service sector. International Business Review, 15(3): 215-232.
231 Bouqet, C., Hbert, L. and Delios, A. (2004). Foreign expansion in service industries: Separability and human capital intensity. Journal of Business Research,
57(1): 35-46.
232 Javalgi, R.G., Griffth, D.A. and White, D.S. (2003). An empirical examination of factors infuencing the internationalization of service frms. Journal of
Services Marketing, 17(2): 185-201; Clark, T., Rajaratnam, D. (1999). International services: Perspectives at century's end. Journal of Services Marketing,
13(4/5): 298-319; Knight, G. (1999). International services marketing: Review of research 1980-1998. Journal of Services Marketing, 13(4/5): 347-360;
Ekeledo, I. and Sivakumar, K. (1998). Foreign market entry mode choice of service frms: A contingency perspectives. Academy of Marketing Science
Journal, 26(4): 274-292; Vandermerwe, S. and Chadwick, M. (1989). The internationalization of services. Service Industries Journal, 9(1): 79-93.
233 Javalgi, R.G. and White, D.S. (2002). Strategic challenges for the marketing of services internationally. International Marketing Review, 19(6): 563-581;
Mathe, H. and Perras, C. (1994). Successful global strategies for service companies. Long Range Planning, 27(1): 36-49; Nicoulaud, B. (1989). Problems
and strategies in the international marketing of services. European Journal of Marketing, 23(6): 55-66; Zeithaml, V.A., Parasuraman, A. and Berry, L.L.
(1985). Problems and strategies in services marketing. Journal of Marketing, 49(2): 33-46.
235 Erramilli, M.K. (1990). Entry mode choice in service industries. International Marketing Review, 7(5/6): 50-62.
236 Patterson, P.G. and Cicic, M. (1995). A typology of service frms in international markets: An empirical investigation. Journal of International Marketing,
3(4): 57-83.
237 Erramilli, M.K. (1990). Entry mode choice in service industries. International Marketing Review, 7(5/6): 50-62.
238 Kotabe, M. and Murray, J.Y. (2004). Global Procurement of service activities by service frms. International Marketing Review, 21(6): 615-633.
239 Blomstermo, A., Deo Sharma, D. and Sallis, J. (2006). Choice of foreign market entry mode in service frms. International Marketing Review, 23(2): 221-229.
001_080678_HFDST 01-04.indd 46 16-09-2008 14:07:40
Soft services, also referred to as professional, people-based or pure services, are those
with a high S-factor where production and consumption occur simultaneously and
decoupling is diffcult or not viable at all
240
, i.e. they are inseparable and should
be sold, made and consumed at the same time. They refer to intangible services
provided to customers
241
(e.g. consulting, medical and legal) by a service frm
that possesses the specifc knowledge required to deliver this particular service
effectively. They often require high customer interaction and a high degree of
customization, also referred to as high contact services
242
, which may demand
local presence in case of offshoring. In general, soft service frms are more likely to
relocate activities under direct control in comparison to hard service frms
243
. This
may be explained by the fact that soft service frms require the local proximity of
service providers and are often forced to follow their customers into international
markets
244
. In addition, it is argued that it involves higher risks to offshore this type
of services when compared to hard services as a result of its inseparability
245
. A
bad performance at the offshore location would immediately affect the quality of
service experienced by a customer.
3.3. foreign entry Modes in the Service Sector
It is argued that service frms have lower levels of international activity than
manufacturing frms because the activities of service frms tend to be more location
bound
246
. Furthermore, services often have to be adapted to a great extent to suit
local demands, which may limit their transferability and result in lower level of
foreign activity
247
. In addition, it is argued that frms offering high intangible
services perceive to have higher costs and risks in internationalizing. In general,
service frms have a higher S-factor than manufacturing frms
248
.
3(4): 57-83.
242 Ibidem
243 Sanchez-Peinado, E. and Pla-Barber, J. (2006). A multidimensional concept of uncertainty and its infuence on the entry mode choice: An empirical analysis in
the service sector. International Business Review, 15(3): 215-232; Anand, J. and Delios, A. (1997). Location specifcity and the transferability of downstream
assets to foreign subsidiaries. Journal of International Business Studies, 28(3): 579-604; Erramilli, M.K. and Rao, C. P. (1993). Service frms' international
entry-mode choice: A modifed transaction-cost analysis approach. Journal of Marketing, 57(3): 19-38; Erramilli, M.K. (1990). Entry mode choice in service
industries. International Marketing Review, 7(5/6): 50-62.
229; Erramilli, M.K. (1990). Entry mode choice in service industries. International Marketing Review, 7(5/6): 50-62.
245 Patterson, P.G. and Cicic, M. (1995). A typology of service frms in international markets: an empirical investigation. Journal of International Marketing,
3(4): 57-83.
246 Blomstermo, A., Deo Sharma, D. and Sallis, J. (2006). Choice of foreign market entry mode in service frms. International Marketing Review, 23(2):
221-229; Boddewyn, J.J., Baldwin Halbrich, M. and Perry, A.C. (1986). Service multinationals: Conceptualization, measurement and theory. Journal of
247 Anand, J. and Delios, A. (1997). Location specifcity and the transferability of downstream assets to foreign subsidiaries. Journal of International Business
Studies, 28(3): 579-604; Boddewyn, J.J., Baldwin Halbrich, M. and Perry, A.C. (1986). Service multinationals: Conceptualization, measurement and theory.
248 Anand, J. and Delios, A. (1997). Location specifcity and the transferability of downstream assets to foreign subsidiaries. Journal of International Business
Studies, 28(3): 579-604.
001_080678_HFDST 01-04.indd 47 16-09-2008 14:07:40
48
In the literature, different schools of thought have been put forward explaining
how service frms determine their preferred entry mode for entering new markets.
In choosing entry modes, frms make trade-offs between control (beneft of
integration) and cost of resource commitments (costs of integration)
249
. It is
argued that different types of service frms are linked to different behavior patterns
regarding choices for entry mode, i.e. hard and soft services have a different
preference for the level of control and entry modes
250
as will be further discussed
in the next paragraph.
3.4. Ownership and entry Mode issues
Ownership issues relate to the make-or-buy decision, which refers to the choice
between keeping a service within a frms boundaries and outsourcing it to a
third-party provider, i.e. internal sourcing on an intra-frm basis versus external
sourcing originating from independent suppliers on a contractual basis
251
. This
ownership issue is closely related to determining a frms foreign entry mode and
level of control. Control refers here to the authority over operational and strategic
decision-making
252
.
In the past, it was perceived that the greater a frms level of ownership, the greater
control it enjoyed over its international transactions
253
. A mode of entry can be
defned as a way of organizing a frms business activities in a foreign country
254
.
Of the three major market entry modes: direct investment, exporting and
contractual agreements
255
, offshoring only involves foreign direct investment (in
the case of captive offshoring) and contractual agreements (in the case of offshore
outsourcing).
Firms may enter foreign markets by choosing a variety of entry modes along a
continuum that starts with low control and ends with achieving full control
256
.
A different approach is developed by considering the options for entry modes
not as different choices along a continuum, but in a hierarchal decision-making
model
257
. According to this model, managers frst choose between equity and non-
equity modes before going into more specifc modes.
249 Malhotra, N.K., Agarwal, J. and Ulgado, F.M. (2003). Internationalization and entry modes: A multitheoretical framework and research proposition. Journal
229; Sanchez-Peinado, E. and Pla-Barber, J. (2006). A multidimensional concept of uncertainty and its infuence on the entry mode choice: An empirical
analysis in the service sector. International Business Review, 15(3): 215-232.
251 Parmigiani, A. (2007). Why do frms both make and buy? An investigation of concurrent sourcing. Strategic Management Journal, 28(3): 285-311; Kotabe,
M. and Murray, J.Y. (2004). Global procurement of service activities by service frms. International Marketing Review, 21(6), 615-634; Kotabe, M. and
Murray, J.Y. (1990). Linking product and process innovations and modes of international sourcing in global competition: A case of foreign multinational
frms. Journal of International Business Studies, 21(3): 383-408.
253 Anderson, E. and Gatignon, H. (1986). Modes of foreign entry: A transaction cost analysis and propositions. Journal of International Business Studies,
17(3): 1-25.
254 Hill, C.W.L., Hwang, P. and Kim C.W. (1990). An eclectic theory of the choice of international entry mode. Strategic Management Journal, 11(2): 117-128.
256 Johnson, J. and Tellis, G.J. (2008). Drivers of success for market entry into China and India. Journal of Marketing, 72(3): 1-13; Anderson, E. and Gatignon,
H. (1986). Models of foreign entry: A transaction cost analysis and propositions. Journal of International Business Studies, 17(3): 1-25.
001_080678_HFDST 01-04.indd 48 16-09-2008 14:07:40
In this perspective, entry modes are divided into two major categories of equity-
based modes (wholly owned and equity joint ventures) and non-equity-based
modes (contractual agreements and export). In most publications, it is assumed
that higher levels of equity, and consequently greater ownership, do result in
greater control
258
.
In the case of offshoring, the entry mode choice determines the choice for captive
offshoring or offshore outsourcing as a foreign entry mode. When choosing a
foreign market entry mode, the issue of control is argued to be central
259
, whereby
captive offshoring refers to a high and shared control entry mode and offshore
outsourcing refers to a low control entry mode
260
.
3.4.1. foreign Market entry Mode Behavior based on fDi theories
Entry mode decisions are considered as being infuential on the performance of
both service and manufacturing frms and they are of strategic importance if frms
want to enter international markets
261
. Furthermore, research has shown that entry
mode decision behavior of manufacturing and service frms differs
262
. The following
paragraphs will further explore the differences between the offshoring behavior of
manufacturing and service frms regarding their choice for foreign market entry
mode and apply it to offshoring. It starts by discussing the mainstream of FDI-
based theories, such as the transaction costs approach, including some varieties,
the eclectic framework and additional related issues.
3.4.2. transaction costs theories
Since the last decade the transaction cost theory
263
(TCT) has been applied in
research on foreign market entry modes
264
. In essence, it argues that frms use the
hierarchy instead of the market in their operations abroad because of higher costs
involved when using the market. Transaction costs now refer to both ex-ante costs,
such as drafting and negotiating contracts as well as ex-post costs, e.g. monitoring
and enforcing agreements
265
. Within this framework, TCT explains frms boundaries
and contractual relationships between organizations and markets based on these
costs of establishing relationships or governance structures regarding sourcing
decisions
266
.
in the service sector. International Business Review, 15(3): 215-232; Hennart, J.F., Larimo J. (1998). The impact of culture on the strategy of multinational
enterprises: Does national origin affect ownership decisions. Journal of International Business, 29(3): 515-538.
260 Ibidem
229; Sanchez-Peinado, E. and Pla-Barber, J. (2006). A multidimensional concept of uncertainty and its infuence on the entry mode choice: An empirical
analysis in the service sector. International Business Review, 15(3): 215-232.
263 Williamson, O.E. (1981). The economics of organization: The transaction cost approach. American Journal of Sociology, 87(3): 548-577.
264 Malhotra, N.K., Ulgado, F.M. and Agarwal, J.(2003). Internationalization and entry modes: A multitheoretical framework and research proposition. Journal
of International Marketing, 11(4): 1-31; Erramilli, M.K. and Rao, C.P. (1993). Service frms' international entry-mode choice: A modifed transaction-cost
analysis approach. Journal of Marketing, 57(3): 19-38.
265 Malhotra, N.K., Ulgado, F.M and Agarwal, J.(2003). Internationalization and entry modes: A multitheoretical framework and research proposition. Journal
001_080678_HFDST 01-04.indd 49 16-09-2008 14:07:40
50
The make-or-buy decision is determined by weighing adaptation costs (against
environmental uncertainty), performance costs (against behavioral uncertainty)
and safeguarding costs (against asset specifcity and opportunistic behavior). If
these costs are absent or low, a frm will prefer to buy. If these costs are high and
exceed internal production advantages, a frm will prefer to internalize production.
According to this theory, decisions to invest should not be based on incumbency
costs versus ownership benefts, as is the case in the eclectic theory, but rather on
the basis of total costs versus total benefts
267
. This will be further discussed in the
next paragraph.
Some authors argue that the TCT should be modifed to be applicable to service
frms
268
. Service frms, for example, require in general a lower level of fnancial
investment; they tend to be delivered simultaneously and are more people-oriented
compared to manufacturing frms. Other authors take a different approach,
they suggest that modifying the theory is not necessary
269
. However, they argue
that the entry mode choice driven by transaction cost economics may differ for
manufacturing and service frms
270
, i.e. service frms will be more responsive to
the people-oriented and the behavioral uncertainty components of the TCT versus
manufacturing frms being more responsive to the investment component.
Asset specifcity is an important factor, which only applies to supplementary service
in the transaction cost approach, because it is based on the assumption that core
services should always be kept in-house. Asset specifcity refers to the degree to
which items are specialized among users. The higher asset specifcity is, the bigger
the chance of supplier and buyer being locked in because the investment is made
for that specifc transaction. The asset involved is so specialized that it has limited
or no value outside this transaction
271
. Asset specifcity makes it, therefore, costly
to switch to new relationships, which suggests a need for internal sourcing. When
applied to services, capital intensity, inseparability, uncertainty and transaction
frequency moderate the relationship between asset specifcity and the sourcing of
supplementary services
272
.
267 Williams, B. (1997). Positive theories of multinational banking: Eclectic theory versus internalisation theory. Journal of Economic Surveys, 11(1): 71-100.
20(9): 791-809; Erramilli, M.K. and Rao, C.P. (1993). Service frms' international entry-mode choice: A modifed transaction-cost analysis approach. Journal
of Marketing, 57(3): 19-38.
270 Brouthers, K.D. and Brouthers, L.E. (2003). Why service and manufacturing entry mode choices differ: The infuence of transaction cost factors, risk and trust.
Journal of Management Studies, 40(5): 1179-1204.
272 Erramilli, M.K. and Rao, C.P. (1993). Service frms' international entry-mode choice: A modifed transaction-cost analysis approach. Journal of Marketing,
57(3): 19-38.
001_080678_HFDST 01-04.indd 50 16-09-2008 14:07:41
Capital intensity refers to the level of investments in fxed assets needed to generate
sales revenue
273
. The degree of intensity from low to high can differ between
service categories. The higher the capital intensity, the lower the degree of internal
sourcing by high specifcity frms. As discussed in Paragraph 3.2., inseparability of
services may increase the need for close buyer-seller interaction
274
. This demands 1)
tight coordination of the demand and supply of the service activity
275
; and 2) close
interaction between the employees of the supplier and those of the buyer, which is
then arguably to be attained more effectively by performing the activity internally.
Uncertainty due to a volatile market and consequent demand uncertainty will
pose special risks to high asset specifcity frms. This line of thinking argues that if
service frms do not opt for standardizing more of their services, they will choose
internal sourcing.
Transaction frequency refers to the frequency in which transactions involved in
sourcing the same service recur. The choice for internal or external sourcing by
high specifcity frms depends on the level of transaction frequency
276
. When the
transaction frequency is low it is more appropriate for high specifcity frms to
perform services in-house because 1) it is more diffcult to evaluate the quality
of a service provided by a third party; 2) there is a lack of incentive for suppliers
to invest in services with a low transaction frequency; and 3) it is benefcial to
internalize this type of service to sustain competitive advantages without the need
to modify the service in order to obtain other advantages.
Contrary to these earlier fndings
277
, later research studies
278
show that 1) high
specifcity supplementary services are sourced externally so that a service frm
can excel in delivering its core service; 2) capital intensity, though an insignifcant
moderator, does have a direct effect on the degree of internal sourcing of
supplementary services; and 3) inseparability is an important moderator, i.e.
in case of high asset specifcity supplementary services, service frms are more
likely to source inseparable services internally. High demand uncertainty is not
a signifcant moderator; transaction frequency does have a moderator effect
on internal sourcing of supplementary services. These fndings underline the
differences between sourcing of goods and services
279
.
57(3): 19-38.
274 Ibidem
275 Bowen, D.E. and Jones, G.R. (1986). Transaction cost analysis of service organization-customer exchange. Academy of Management Review, 11(2): 428-
441.
276 Williamson, O.E. (1981). The economics of organization: The transaction cost approach. American Journal of Sociology, 87(3): 548-77; Erramilli, M.K. and
Rao, C.P. (1993). Service frms' international entry-mode choice: A modifed transaction-cost analysis approach. Journal of Marketing, 57(3): 19-38.
20(9): 791-809.
279 Ibidem
001_080678_HFDST 01-04.indd 51 16-09-2008 14:07:41
52
It is argued that the transaction cost theory has limitations in that frms evaluate
the merits of control not only on the reduction of transaction costs, but also on
other considerations such as global integration and market power
280
. In addition,
the transaction cost theory is argued to be static in nature and therefore perhaps
less relevant regarding global technological advances and dynamic innovation,
wherein frms are able to both disinternalize through partnerships and exercise
control at the same time
281
. More recently, research addressed also non-transaction
cost benefts due to a focus on increased control such as coordination of strategies
and extension of market power
282
.
To summarize, the main criticism regarding the transaction cost theory is related
to the fact that this concept is too narrowly focused on costs. However, there is
consensus that entry mode decisions are at least partly based on (expected)
transaction costs related to the different options available for frms when going
abroad. Furthermore, it is argued that although the discussed theories individually
may not fully explain service frms sourcing decisions, combined they can explain
a frms choice to relocate their activities under direct control or via a third party.
This notion is taken as a point of departure for developing a multi-theoretical
framework referred to as the eclectic paradigm
283
, which will be discussed in the
next section.
3.4.3. eclectic theories
The main criticism on resource advantages (ownership advantages), international
trade (location advantages) and transaction cost approaches (internalization
advantages) theories is that singly they are incomplete and cannot adequately
explain either the choice for FDI or contracting
284
. Dunning (1988) developed a
broad and eclectic framework
285
explaining the FDI decision-making of frms by
three distinct sets of advantages: ownership, location and internalization
advantages, also referred to as the OLI-framework. Ownership advantages
refer to benefts derived from control and inter-frm relationships. Location in
this framework relates to advantages such as lower costs, higher commitment
of employees and the availability of qualifed employees. Internalization
advantages refer to the ability to reduce transaction and coordination costs. It is
the confguration of these three distinct sets of advantages and the effect of the
interrelationships among them that drives or discourages frms from undertaking
international activities
286
.
in the service sector. International Business Review, 15(3): 215-232; Dunning, J.H. (2000). The eclectic paradigm as an envelope for economic and business
theories of MNE activity. International Business Review, 9(2): 163-191; Andersen, O. (1997). Internationalization and market entry mode: A review of
theories and conceptual model framework. Management International Review, 37(2): 27-42.
281 Dunning, J.H. (2000). The eclectic paradigm as an envelope for economic and business theories of MNE activity. International Business Review, 9(2): 163-
191; Dunning, J.H. (1995). Reappraising the eclectic paradigm in an age of alliance capitalism. Journal of International Business, 26(3): 461-491.
57(3): 19-38; Hill, C.W.L., Hwang, P. and Kim C.W. (1990). An eclectic theory of the choice of international entry mode. Strategic Management Journal,
11(2): 117-128.
283 Dunning, J.H. (1988). The eclectic paradigm of international production: A restatement and some possible extensions. Journal of International Business
Studies, 19(2): 1-31.
284 Malhotra, N.K., Ulgado, F.M. and Agarwal, J.(2003). Internationalization and entry modes: A multitheoretical framework and research proposition. Journal
285 Dunning, J.H. (1988). The theory of international production. International Trade Journal, 3(1): 21-66.
286 Agarwal, S. and Ramaswami, S.N. (1991). Ownership structures of U.S. joint ventures in the 1980s. International Trade Journal, 6(Fall): 127-149.
001_080678_HFDST 01-04.indd 52 16-09-2008 14:07:41
In this theory, ownership advantage is a prerequisite to internationalization.
The presence of internalization advantages suggests that a frm will exploit the
advantages by FDI rather than by contractual agreements
287
. However, an equity
direct investment will not be chosen when location advantages favor a contractual
agreement with a domestic frm at the offshore location rather than making a
FDI for establishing its own production base
288
. This school of thought was taken
further by identifying and testing the role of a set of country and industry factors
in the choice of entry modes
289
. It resulted in a hierarchical perspective on whether
equity investment is involved. According to this perspective, managers frst choose
between equity and non-equity modes before going into more specifc modes. It is
assumed that higher levels of equity and consequently greater ownership do result
in greater control
290
.
As referred to earlier, in the choice of foreign market entry mode the issue of
control is argued to be central
291
, whereby captive offshoring is associated with a
high and shared control entry mode and offshore outsourcing with a low control
entry mode
292
. Recent research showed that service frms accumulated more
experiential knowledge abroad while developing skills, administrative processes,
routines and processes to exercise control over foreign operations
293
. These frms
could be part of a wide network of businesses and social relationships abroad,
which then became a source of knowledge or of gaining control, not in terms
of ownership, but in alternative ways such as trust
294
. This may explain why the
increase of foreign market experience of service frms does not mean that they will
more likely choose a high-level control entry mode over a low-level control entry
mode. In other words experience is negatively correlated with the probability of
using a high-control entry mode
295
.
Furthermore, an eclectic theory specifcally linked to the mode of entry decision
has been developed
296
. In this model, the entry mode choice is the result of three
determinants: strategic variables, environmental variables and transaction-specifc
variables. The strategic variables refer to the possibility that a certain entry mode
choice is based not on a standalone basis, but viewed within the total strategy of
the company. Despite loss-making activities, the foreign operations contribute to
the achievement of strategic corporate goals. This achievement of corporate goals
requires in this view entry modes with a higher degree of control.
288 Dunning, J.H. (1995). Reappraising the eclectic paradigm in an age of alliance capitalism. Journal of International Business, 26(3): 461-491.
290 Sanchez-Peinado, E. and Pla-Barber, J. (2006). A multidimensional concept of uncertainty and its infuence on the entry mode choice: An empirical analysis in
the service sector. International Business Review, 15(3): 215-232; Hennart, J.F. and Larimo, J. (1998). The impact of culture on the strategy of multinational
enterprises: Does national origin affect ownership decisions. Journal of International Business, 29(3): 515-538.
292 Ibidem
293 Ibidem
294 Ibidem
295 Ibidem
296 Kim C.W. and Hwang, P. (1992). Global strategy and multinationals entry mode choice. Journal of International Business Studies, 23(1): 29-53; Hill,
C.W.L., Hwang, P. and Kim.C.W. (1990). An eclectic theory of the choice of international entry mode. Strategic Management Journal, 11(2): 117-128.
001_080678_HFDST 01-04.indd 53 16-09-2008 14:07:41
54
Environmental variables include a broad range of country risk factors such as
demand uncertainty and government actions. Higher risks lead to entry modes
with lower resource commitments. Transaction variables are related to frm-
specifc knowhow.
As can be derived from this model, it is an extension of the OLI-approach by putting
risk factors or uncertainty into the equation of going abroad. Several of these risk
factors can also be linked to the transaction cost approach. Uncertainty can be
divided in two groups
297
: internal and external uncertainty. Internal uncertainty
refers to the question whether a frm can be successful on the foreign market, while
external uncertainty refers to country risk, i.e. the external environment in which a
frm operates. In the eclectic OLI-approach, external uncertainty is a location factor.
Location advantages in a specifc offshore location may not necessarily result in
an FDI entry mode in case of high country risks, e.g. if the host government has
policies discouraging this type of market entry
298
. Country risks refer primarily to
the stability of the political, social and economic conditions. Firms tend to avoid
or to limit their resource commitment in areas of high country risk. Contractual
agreements are, for example, increasingly used in countries marked by high risk of
intellectual property violation
299
.
Location risk is the perceived difference between the host and home environments in
terms of culture, business and economic practices
300
. When there is a high degree of
perceived distance, frms favor entry modes with a high degree of local participation or
a low degree of resource commitment
301
. A high degree of local participation enables a
frm to depend on a local partner for acculturation or to exercise fexibility in
withdrawing from the market if it is unable to acclimatize suffciently over time. Demand
risk is the risk taken by a frm because demands for its products or services may fail to
reach the desired level. It is argued that frms tend to avoid high resource commitment
in areas of high demand risk because of the potential for substantial sunk costs. The costs
of entry, investment and market exit barriers play a substantial role in determining the
effect of demand risk on the frm
302
. If demand uncertainty is high, frms often opt for an
entry mode involving low resource commitment. Competitive risk is the number and size
of competitors and the aggressiveness of their efforts. When intensity and competitive
differential is high, frms tend to avoid internalization, which results in less proftable
markets and a lower resource commitment. The degree of competitive risk is an entry
barrier that discourages international frms from market participation
303
.
297 Anderson, E. and Gatignon, H. (1986). Models of foreign entry: A transaction cost analysis and propositions. Journal of International Business Studies,
17(3): 1-25.
299 Kotabe, M., Sahay, A. and Aulakh, P.S. (1996). Emerging role of technology licensing in the development of global product strategy: Conceptual framework
and research propositions. Journal of Marketing, 60(1):73-88.
300 Malhotra, N.K., Ulgado, F.M and Agarwal, J. (2003). Internationalization and entry modes: A multitheoretical framework and research proposition. Journal
301 Kim, C.W. and Hwang, P. (1992). Global strategy and multinationals entry mode choice. Journal of International Business Studies, 23(1): 29-53.
302 Bradley, F. and Gannon, M. (2000). Does the frm technology and marketing profle affect foreign market entry? Journal of International Marketing, 8(4):
12-36.
303 Malhotra, N.K., Ulgado, F.M and .Agarwal, J. (2003). Internationalization and entry modes: A multitheoretical framework and research proposition. Journal
001_080678_HFDST 01-04.indd 54 16-09-2008 14:07:41
3.4.4. non-fDi-based theories of Modes of entry
The resource-based view argues that the best way of regarding a frm is to consider
it as a collection of productive resources that cannot be easily imitated and allows
frms to compete with each other. Moreover, these resources allow it to generate
sustainable competitive advantages which enable frms to earn above-normal
profts and maintain them for a certain period
304
.
The resource-based view is derived from the perspective of gradual incremental
involvement of frms with increasing levels of resource commitment, risk exposure,
control and proft potential from export to wholly owned subsidiaries
305
. This view
has been criticized for the lack of focus on frms which have created sustainable
competitive advantages in situations of quick and unpredictable change. It is
also criticized for neglecting the managerial coordination processes enabling
frms to leverage knowledge assets
306
. Other research fndings indicate that the
transaction cost theory explains an organizations sourcing decision better than
the resource-based view if these two theories make conficting predictions about
such a decision
307
.
Another model that explains the internationalization process of frms is the
Uppsala internationalization model, which is also referred to as the stages model
of internationalization
308
. The basic assumption of this model is that frms are risk-
averse and implies that frms are becoming more and more committed to foreign
activities. According to this model, a frm starts to internationalize its operations
by pursuing four distinct stages of development: 1) no regular export; 2) export
through agents; 3) sales subsidiary; and 4) overseas production
309
.
Just as the resource-based view and other incremental models, such as the
international product life cycle theory
310
, it is criticized, among others, because
of its being deterministic. The reason is that it argues that internationalization
is also a strategic option even when there has been no initial contact with a
frm from a foreign market. It basically denies a frms ability to make strategic
and adaptive choices about entry modes. Furthermore, it fails to recognize the
unique competencies of an entrepreneur allowing him to recognize international
opportunities and the importance of networks that frms establish by their foreign
activities
311
.
304 Rodriguez, J., and Rodriguez, R. (2005). Technology and export behaviour: A resource-based view approach. International Business Review, 14(5): 539-557.
305 Chu, W. and Anderson, E.M. (1992). Capturing ordinal properties of categorical dependent variables: A review with application to modes of foreign entry.
International Journal of Research in Marketing, 9(2): 149-160.
Studies, 42(3) , 695-704.
308 Johanson, J., and Vahlne, J. (1977). The internationalization process of the frms: A model of knowledge development and increasing foreign market
commitments. Journal of International Business Studies, 8(1): 23-32.
309 Bjrkman, I. and Forsgren, M. (2000). Nordic international business research: A review of its development. International Studies of Management and
Organization, 30(1): 6-25; Johanson, J. and Vahlne, J. (1990). The mechanism of internationalization. International Marketing Review, 7(4): 11-24.
310 Vernon, R. (1966). International investment and international trade in the product life cycle. Quarterly Journal of Economics, 80(2): 190-207.
311 Westhead, P., Wright, M., Ucbasaran, D. and Martin, F. (2001). International market selection strategies of manufacturing and services frms.
Entrepreneurship & Regional Development, 13(1): 17-46.
001_080678_HFDST 01-04.indd 55 16-09-2008 14:07:41
56
Another point of criticism is the evolutionary approach
312
. Although it may be
applicable to manufacturing frms, empirical evidence reveals that many service
frms enter a foreign market in a non-linear and sometimes even chaotic way
through foreign affliates and in a relatively less organized manner than the stages
model describes when compared to manufacturing frms
313
. For example, some
frms enter foreign markets shortly after their establishment
314
. Furthermore, the
stages model does not include contractual and collaborative entry modes
315
. Based
on the aforementioned criticism, it is argued that this type of theory is less valid for
larger frms and for the services sector
316
.
3.4.5. the network Model of internationalization
The resource-based view and the transaction cost theory are referred to by some
authors as drivers for the sourcing decisions of frms
317
. However, based on
the criticism on the different theories discussed above, the network model of
internationalization
318
can provide a better framework for understanding the
foreign entry mode behavior of service frms as embedded actors in business
networks
319
. Whereas most of the other theories discussed in the previous paragraph
refer to an incremental process, the network model approach is less structured and
allows service frms to internationalize in a more dynamic and complex manner of
interorganizational and interpersonal relationships
320
.
Some authors argue that the network model is only focusing on opportunistic
internationalization preceding any planned strategic activities
321
. Furthermore,
it is argued that it does not explain the internationalization process of frms that
do not have network connections and that the process seems ad hoc in nature
322
.
In fact, frms can take advantage of the connection between the actors in their
network both in an opportunistic way as an emergent strategy and as part of a
planned strategy
323
.
313 Roberts, J. (1999). The Intel-nationalisation of business service frms: A stages approach. Services Industry Journal, 19(4): 68-88; Westhead, P., Wright,
M., Ucbasaran, D. and Martin, F. (2001). International market selection strategies of manufacturing and services frms. Entrepreneurship & Regional
Development, 13(1): 17-46.
314 Andersson, S. (2004). Internationalization in different industrial contexts. Journal of Business Venturing, 19(6): 851-875.
316 Bjrkman, I. and Forsgren, M. (2000). Nordic international business research: A review of its development. International Studies of Management and
Organization, 30(1): 6-25; Bell, J. (1995). The internationalization of small computer soft-ware frms: A further challenge to stage theories. European
Journal of Marketing, 29(8), 60-75.
318 Johanson, J. and Matsson, L.G. (1987). Interorganizational relations in industrial systems: A network approach compared with the transaction-cost approach.
International Studies of Management & Organization, 17(1): 34-48.
320 Ibidem
321 Ibidem
322 Ibidem
323 Welch, C.L. and Welch, L.S. (2004). Broadening the concept of international entrepreneurship: Internationalisation, networks and politics. Journal of
International Entrepreneurship, 2(3): 217-237.
001_080678_HFDST 01-04.indd 56 16-09-2008 14:07:41
The added value of this approach is that it recognizes that frms may establish a
foreign presence more rapidly, with less need for caution and with higher levels of
market commitment initially, also known as leapfrogging
324
, than the incremental
approaches discussed in the previous paragraphs do. It focuses not only on the role
and infuence of formal interorganizational and interpersonal relationships, but
also on informal relationships in business transactions. Compared to the unilateral
process of the Uppsala model, the network model incorporates a multitude of
relationships in the internationalization process
325
.
The functions of networks can be distinguished in two categories, namely direct or
indirect functions
326
. The direct functions are related to increased proft and volume
as well as safeguarding both. The indirect functions are related to innovation, market
opportunities, access to markets and knowledge about new markets. A specifc
function of relationships is, for example, to fulfll a sales or marketing purpose for a
frm in new geographic markets. Such a function can be performed within the frm
(in case of captive offshoring) or outside the frm (in case of offshore outsourcing).
It is argued that in the early phases of international development personal networks
are most important; while in later phases relationships at frm-level become more
important
327
.
The drivers of the network model are the linkages service frms have with one another
through long-lasting relationships, for instance with suppliers, customers and other
frms dependent on one another in a network requiring coordination. As inter-frm
relationships strengthen, frms tend to increase communication. The increased
information fows between frms will build trust and mutual understanding
resulting in reducing the effects of physical distance
328
. The factors trust and mutual
understanding will not only allow frms to access each others resources but also each
others network of relationships. These relationships can provide specifc knowledge,
such as information about a market and the culture of a country
329
.
A network perspective considers international relationships important for the
success of frms entering foreign markets. Establishing these relationships is
time and resource-consuming. However, they can be important determinants for
future opportunities and constraints
330
. An important underlying assumption of
the network model is that knowledge of other actors in a network can infuence a
frms decision-making
331
.
324 Morgan, R.E. and Katsikeas, C.S. (1997). Theories of international trade, foreign direct investment and frm internationalization: A critique. Management
Decision, 35(1/2): 68-79.
325 Coviello, N.E and Martin, K.A. (1999). Internationalization of service SMEs: An integrated perspective from the engineering consulting sector. Journal of
International Marketing, 7(4): 42-66.
326 Harris, S. and Wheeler, C. (2005). Entrepreneurs' relationships for internationalization: Functions, origins and strategies. International Business Review,
14(2): 187-207.
328 Welch, C.L. and Welch, L.S. (2004). Broadening the concept of international entrepreneurship: Internationalisation, networks and politics. Journal of
International Entrepreneurship, 2(3): 217-237.
329 Harris, S. and Wheeler, C. (2005). Entrepreneurs' relationships for internationalization: functions, origins and strategies. International Business Review,
14(2): 187-207.
330 Ibidem
331 Hadley, R.D. and Wilson, H.I.M. (2003). The network model of internationalisation and experiential knowledge. International Business Review, 12(6):
697-717.
001_080678_HFDST 01-04.indd 57 16-09-2008 14:07:41
58
3.4.6. extended OLi-framework
Combining the OLI-framework with the Network approach (OLIN-framework),
both discussed in this chapter, may best explain service frms choice for captive
offshoring or offshore outsourcing
332
. This OLIN-framework is used as a point of
departure when comparing the empirical results discussed in Chapters 5, 6 and
7, to the literature and when evaluating rival explanations and propositions.
Furthermore, derived from the literature review in this chapter, Figure 3.1 depicts
the variables determining the entry mode choice of services serving as input for the
questionnaire of the feld study discussed in Chapter 5.
figure 3.1 characteristics associated with captive offshoring and offshore outsourcing based on literature fndings in
chapter 3. entry mode choice by service frms is determined by the characteristics depicted in the center column: type of
service frms (soft with high level of inseparability and intangibility; hard with low level of inseparability and intangibility),
offshoring experience (experienced/inexperienced), frm size (large/small frms), type of offshoring activity (core with
high level of control and need to perform on intra-frm basis; non-core with low level of control and no need to perform
on intra-frm basis). characteristics in the left column result in choice for captive offshoring and in the right column for
163-191; Dunning, J.H. (1998). Location and the multinational enterprise: A neglected factor. Journal of International Business Studies, 29(1): 45-66;
Dunning, J.H. (1995). Reappraising the eclectic paradigm in an age of alliance capitalism. Journal of International Business, 26(3): 461-491; Malhotra,
N.K., Ulgado, F.M. and Agarwal, J. (2003). Internationalization and entry modes: A multitheoretical framework and research proposition. Journal of
Need to perform on
intra-firm basis
Hard service activity Soft service activity
Level of offshoring experience Experienced
Small firms
Inexperienced

Firm size
Large films
Non-core activity Core activity
Foreign entry mode Offshore outsourcing Captive offshoring
Activity characteristics
type of offshoring
Level of
inseparability & intangibility
Foreign direct
Investment
Contractual agreement
Level of
firm characteristics
Soft service firm Hard service firm
Level of control
Entry mode characteristics
+ -
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60
001_080678_HFDST 01-04.indd 60 16-09-2008 14:07:41
chapter 4
Methodology
4.1. introduction
This chapter presents the rationale of the research methods used in this study,
which are depicted in the research design presented in Chapter 1. The research
approach was based on the principles of grounded theory methodology
333
. The
reason for choosing this methodology was the limited availability of extant theory
on the offshoring behavior of service frms at the outset of this research study, as
discussed in previous chapters. This inductive research approach is therefore useful
in generating novel and accurate insights needed to meet the purpose of this study,
i.e. providing insight in the relocation of business activities and jobs involved by
service frms operating from the Netherlands to a foreign location under their
direct control (captive offshoring) or via a third party (offshore outsourcing).
Paragraph 4.2. discusses the principles of grounded theory methodology. In Paragraph
4.3. the interpretive assumptions are set out. Paragraph 4.4. concerns the various
elements of the desk and the feld research and how they are integrated. In Paragraphs
4.5. and 4.6. sample selection, data collection and the codifcation process respectively,
are discussed followed by the data analysis in Paragraph 4.7. This chapter concludes
with discussions on the limitations of the chosen method in Paragraph 4.8.

4.2. research based on Principles of grounded theory Methodology:
triangulation Approach
The research study was inductive in nature and empirical evidence was used to
directly establish variables, concepts and relationships for developing and refning
theory. The principles of grounded theory
334
were used to generate theory enabling
prediction and explanation of the offshoring behavior of service frms operating
from the Netherlands and its infuence on their choice for a type of offshoring;
it also takes into consideration the impact on theory, policy and the offshoring
practices of service frms
335
.
As referred to earlier, the fact that limited academic literature was available on the
offshoring behavior of service frms
336
at the start of this research was the reason for
building this research according to the principles of a grounded theory approach.
Consequently, the focus of this thesis was on developing a theory from data and not
on testing a theory. The grounded theory approach allowed propositions to emerge
333 Strauss, A., Corbin, J. (1998, 2nd edition). Basics of qualitative research: Techniques and procedures for developing grounded theory. Sage Publications.
Thousands Oaks, California; Patton, M.Q. (2002, 3rd edition). Qualitative education and research methods. Sage Publications. Thousands Oaks,
California; Yin, R. (2003, 2nd edition). Case study research: Design and methods. Sage Publications. Beverly Hills, California.
334 Glaser, B.G. and Strauss, A.L. (1967). The discovery of grounded theory: Strategies for qualitative research. Aldine de Gruyter. Hawthorne, New York.
335 Ibidem
Shamis, G.S., Green, C.M., Sorensen, S.M. and Kyle, D.L. (2005). Outsourcing, offshoring, nearshoring: What to do? Journal of Accountancy 199(6): 57-61;
Kotabe, M. and Murray, J.Y. (2004). Global procurement of service activities by service frms. International Marketing Review, (21)6: 615-633; Gilley,
K.M. and Rasheed A. (2000). Making more by doing less: An analysis of outsourcing and its effects on frm performance. Journal of Management, 26(4):
763-790.
001_080678_HFDST 01-04.indd 61 16-09-2008 14:07:42
62
from themes identifed in the data collected without presupposing what the
main propositions would be
337
. Theory here refers to the defnition adopted in the
grounded theory: A set of well-developed themes that are systematically interrelated
through statements of relation ship to form a theoretical framework that explains or predicts
phenomena.
338
In the underlying research the epistemological approach chosen was to employ the
meanings of those directly involved in offshoring activities in order to provide insight
in the offshoring behavior of service frms and its infuence on their choice for a foreign
entry mode. Based on the concepts in use of those actors, constructs were built in order
to abstract the subjective experiences to theoretical statements about causal relations
between actors
339
. These fndings were subsequently compared to existing theory.
4.3. interpretive Assumptions
In this thesis organizations were defned as a series of nested systems in which
upper managers and executives bring together and interpret information for the
system as a whole
340
. In this view, many participants may play a role in scanning or
data processing. However, it was assumed that at top management and executive
level information was converged and interpreted for the whole organization.
According to the same source, organizations differ systematically in the mode or
process by which they interpret the environment
341
. They interpret their environment
in a systematic way and this interpretation process may infuence organizational
outcomes such as strategy, structure and decision-making.
The interpretive assumptions made in this research were that
342
:
Organizational members actively created or enacted the reality that they
inhabit
343
.
Individual members shared frames of reference representing the dominant reality
of a group
344
.
Views of top management and executives as a collective were especially salient
because they appear to be at the heart of offshoring activities as confrmed by the
research results in Chapter 5.
Interpretations were made a posteriori
345
, i.e. this interpretive research was built
upon events that had already transpired and around which collective viewpoints
had time to emerge. Hence, interpretations in this research were formulated after
the offshoring projects took place.
337 Patton, M.Q. (2002, 3rd edition). Qualitative education and research methods. Sage Publications. Thousands Oaks, California.
338 Strauss, A. and Corbin, J. (1998, 2nd edition). Basics of qualitative research: Techniques and procedures for developing grounded theory. Sage Publications.
Thousands Oaks, California.
339 Suddaby, R. (2006). From the editors: What grounded theory is not. Academy of Management Journal, 49(4): 633-642; Gephart, R.P. (2004). Qualitative
research and the academy of management journal. Academy of Management Journal, 47(4): 454-462.
340 Daft, R.L. and Weick, K.E. (1984). Toward a model of organizations as interpretation systems. Academy of Management Review, 9(2): 284-295.
341 Ibidem: 285 and 286.
342 Isabella, L.A. (1990). Evolving interpretations as a change unfolds: How managers construe key organizational events. Academy of Management Journal,
33(1): 7-41.
343 Weick, K.E. (1988). Enacted sense making in crisis situations. Journal of Management Studies, 25(4): 305-317.
344 Prahalad, C.K. and Bettis, R.A. (1986). The dominant logic: A new linkage between diversity and performance. Strategic Management Journal, 7(6): 485-
501; Gephart, R.P. (1984). Making sense of organizationally based environmental disasters. Journal of Management, 10(2): 205-225.
345 Weick, K.E., Daft, R. (1984), The effectiveness of interpretation systems. In Cameron, K.S., Whetten, D.A. Eds. Organizational effectiveness: A comparison of
multiple models. Academic Press. Orlando, Florida: 70-93.
001_080678_HFDST 01-04.indd 62 16-09-2008 14:07:42
The research was interpretive in nature and was conducted by translating events
and developing frameworks for understanding
346
. It identifed similarities in
points of view of top managers and executives
347
about their offshoring behavior
and determining whether and how this infuenced their choice for type of
offshoring. Therefore, the variables used in this study were measured as a function
of the perception of managers, acknowledging the importance of managerial
perceptions in decision-making
348
. The strength of this type of research is that it
is the articulation of organizational members collective viewpoints on particular
organizational occurrences
349
. Although enacted realities can include multiple
and varied realities
350
, this research focus was indeed on the pieces that compose
a collective interpretational portrait of offshoring projects. It concentrated on
similarities of the manner in which managers and executives construct their
world. This is in contrast to studies taking the viewpoint of mimetic isomorphism
where the leading thought is that frms imitate versus rational-choice processes
351

and other studies which focus on institutional pressures such as differences in
national origins, while neglecting the role of key actors in making choices about,
for example, an offshore location
352
. By using rich data about offshoring projects in
the past, this research explored how top managers collectively viewed offshoring
activities over time. The results suggested a model for understanding the offshoring
behavior of service frms and their choice for a specifc type of offshoring.
4.4. field and Desk research
A grounded theory approach requires that [...] data and theory be constantly
compared and contrasted throughout the data collection and analysis process. Evolving
theory directs attention to previously established important dimensions while the actual
data simultaneously focus attention on the theorys suitability as a frame for the most
recent data being collected
353
. The process of evolving theory in this research started
in fact prior to the actual data collection. This reinforced the notion that there was
a shift from manufacturing to service offshoring as referred to in Chapter 1. The
literature review conducted in the desk research, and discussed in Chapters 2 and 3,
was mainly used to verify if and in what way the empirical fndings of the three feld
studies corresponded with existing theories. It was also used to identify variables
for the questionnaire in the frst feld study. However, the theories were not taken
as a starting point for determining the relationship between those variables and
for building an emergent theory and decision-making model regarding the choice
for a foreign entry mode of service frms when relocating their activities.
346 Daft, R.L. and Weick, K.E. (1984). Toward a model of organizations as interpretation systems. Academy of Management Review, 9(2): 284-295.
347 Gephart, R.P. (1984). Making sense of organizationally based environmental disasters. Journal of Management, 10(2): 205-225.
348 Cyert, R.M. and March, J.G. (1963). A behavioral theory of the frm. Prentice Hall/Pearson Education. Upper Saddle River, New Jersey.
33(1): 7-41.
350 Smircich, L. and Stubbart, C. (1985). Strategic management in an enacted world. Academy of Management Review, 10(4): 724-736.
351 Haveman, H.A. (1993). Follow the leader: Mimetic isomorphism and entry indo new markets. Administrative Science Quarterly, 38(4): 593-627.
352 Geppert, M. and Matten, D. (2006). Institutional infuences on manufacturing organization in multinational corporations: The cherrypicking approach.
Organization Studies, 27(4): 491-515.
33(1): 7-41.
001_080678_HFDST 01-04.indd 63 16-09-2008 14:07:42
64
The results of the feld research discussed in Chapters 5, 6 and 7 were used as a
point of departure for describing the offshoring behavior of service frms and their
foreign entry mode choice while building the emergent model referred to in the
previous section. The feld research was aimed at collecting rich empirical data and
was built on multiple cases collected in three feld studies. This provided a stronger
base for robust theory building and generalizability than single case studies
354
.
Whereas in the frst feld study the unit of analysis was frm level, in the second and
third feld study this was project level enabling to assign answers of respondents,
for example with regard to their choice for a particular offshore location, to a
specifc offshoring project. This multiple-case research design allowed cases to be
treated as a series of independent experiments in order to gain new theoretical
insights emerging from the qualitative data
355
.
Theory building was an emergent process in the sense that empirical data was
constantly compared to the existing literature during the different phases of the
research
356
. This means that data was simultaneously collected and analyzed.
Notwithstanding the fact that the focus for building theory in the underlying
research approach was on empirical evidence, desk research of extant theory in two
substantive areas, internationalization and strategic management, was included as
a stimulus for developing ideas and initial direction-developing relevant categories
and possible modes of integrating fndings from the feld and the desk research
357
.
Although this grounded, interpretive research was conducted iteratively with the
theoretical concepts and framework being grounded in and emerging from the
data, the norm evolved to present it in the sequence of theory, data collection, data
analysis and results
358
, as has been done in this thesis.
4.5. Sample Selection and Data collection
The sampling method used in this study was theoretical sampling, i.e. in all three
feld studies cases were chosen for theoretical, not statistical, reasons
359
. The cases
were chosen to further develop concepts and categories and to explore relationships
between them, all aimed at developing and refning theory
360
. Theoretical sampling
continued until a theoretical saturation point was reached after conducting three
feld studies. At that stage, data collection did not reveal new data relevant for the
categories, which by then had been well developed. The theoretical sampling used
for the feld studies meant that decisions on the type of data to be collected during
the different phases of the research, were determined by the theory in progress.
354 Eisenhardt, K.M. and Graebner, M.E. (2007). Theory building from cases: Opportunities and challenges. Academy of Management Journal, 50(1): 25-32;
Yin, R. (2003, 2nd edition). Case study research: Design and methods. Sage Publications. Beverly Hills, California.
355 Yin, R. (2003, 2nd edition). Case study research: Design and methods. Sage Publications. Beverly Hills, California; Eisenhardt, K. (1989). Building theories
from case study research. Academy of Management Review, 14(4): 532-550.
356 Eisenhardt, K.M. and Graebner, M.E. (2007). Theory building from cases: Opportunities and challenges. Academy of Management Journal, 50(1): 25-32.
357 Suddaby, R. (2006). From the editors: What grounded theory is not. Academy of Management Journal, 49(4): 633-642; Glaser, B.G. and Strauss, A.L.
(1967). The discovery of grounded theory: Strategies for qualitative research. Aldine de Gruyter. Hawthorne, New York.
358 Suddaby, R. (2006). From the editors: What grounded theory is not. Academy of Management Journal, 49(4): 633-642.
359 Eisenhardt, K.M. and Graebner, M.E. (2007). Theory building from cases: Opportunities and challenges. Academy of Management Journal, 50(1): 25-32;
Glaser, B.G. and Strauss, A.L. (1967). The discovery of grounded theory: Strategies for qualitative research. Aldine de Gruyter. Hawthorne, New York.
360 Strauss, A. and Corbin, J. (1990). Basics of qualitative research: Grounded theory procedures and techniques. Sage Publications. London: 176-193.
001_080678_HFDST 01-04.indd 64 16-09-2008 14:07:42
In the frst feld study, discussed in Chapter 5, a large sample was used to create a
body of understanding about the offshoring behavior of service frms and their
choice for captive offshoring and offshore outsourcing by seeking breadth
361
.
A sample survey was used to collect nominal rich primary data. In the second
feld study, discussed in Chapter 6, a smaller sample size was used and data was
collected via semi-structured, in-depth interviews. The aim was an in-depth study
into the offshoring behavior of service frms and its infuence on their choice for
offshoring and to refne the emergent decision-making model for the choice for a
type of offshoring. A third feld study, discussed in Chapter 7, was conducted using
a sample survey to extend theory to a broad range of service frms, as well as to
verify the relationship between variables derived from the two frst feld studies.
4.6. codifcation
Codifcation is central to the grounded theory research process
362
. It was executed by
making use of the open, axial and selecting coding technique in the different phases
of the research. Data interpretation and analysis in the grounded theory approach
involved making sense of respondents answers, i.e. looking for patterns, combining
answers to one question with answers to another question, and integrating what
different respondents answered. In essence, analysis was done by conceptualizing,
reducing, elaborating and then relating data and themes to integrate them as an
emergent model or a theory. During the codifcation process of open coding and axial
coding, core themes that held up best and that were central to all other themes, were
mentioned more frequently (explicitly or implicitly). In the last phase of the research,
selective coding was used while referring to the process of integrating the main and sub-
themes identifed in open and axial coding respectively. To ensure the reproducibility
of the process of assigning answers to nominal categories, one independent reviewer
was invited to participate in the coding of the data, yielding a 97-percent level
of agreement. Although this percentage may include chance agreements
363
, it is
considered a reasonable verifcation of the accuracy of the codifcation process
364
.
During the data collection phase at the service frms participating literature review,
reviewing processes of articles, presenting research at several conferences and teaching
students, as well as debriefng sessions with colleagues generated ideas and repeated
the evolving theory. The resultant preliminary categories were used to organize the
data and design of the frst questionnaire. Upon completion of the data collection, all
answers were systematically and thoroughly examined for evidence of data ftting the
categories identifed in the codifcation process. Subsequently, answers were coded
into their fnal categories. An overview of the codifcation process is given in the
appendices of Chapters 5 to 7.

361 Eisenhardt, K.M. (1989). Building theories form case study research. Academy of Management Review, 14(4): 532-550.
362 Strauss, A. and Corbin, J. (1998, 2nd edition). Basics of qualitative research: Techniques and procedures for developing grounded theory. Sage Publications.
Thousands Oaks, California.
363 Zwick, R. (1988). Another look at interrater agreement. Psychological Bulletin, 102(3): 374-378.
33(1): 7-41.
001_080678_HFDST 01-04.indd 65 16-09-2008 14:07:42
66
4.7. Data Analysis
There is not one prescribed way of organizing, analyzing, and interpreting
nominal data
365
. In general, analyzing this type of data is often considered softer
or fuzzier than numerical data because of its richness. It was consequently more
diffcult to summarize or simplify, even though at the same time it increased the
understanding
366
. In the case of this study it increased the understanding of the
offshoring behavior of service frms in general and their choice for a specifc type
of offshoring more specifcally. In the analysis of the rich data collected, cross-case
analysis allowed recognition of relationship patterns among constructs within and
across cases and their underlying arguments
367
. The results of the data analysis were
translated into a conceptual level, which allowed further analysis on a higher level
of abstraction
368
. This was done by translating observations in the three feld studies
into more abstract theoretical categories.
For the analysis of the data collected in the frst feld study, descriptive statistics
were used to identify the determinants of the offshoring behavior of service frms.
Subsequently, it was tested which of these independent variables showed a signifcant
relationship with the dependent variable, type of offshoring, for building the model
regarding the choice of service frms for captive offshoring or offshore outsourcing.
The second feld study, discussed in Chapter 6, was conducted to refne the emergent
model in empirical observations based on collective interpretation of managers
derived from in-depth interviews. Based on the fndings from these two feld studies,
a theoretical conjecture and twelve propositions were formulated. The dependent
variable being binary, the twelve propositions were tested in a binary regression
model for which a third feld study was conducted. The process of analysis will be
described in more detail for the different individual feld studies in the subsequent
three chapters.
4.8. Limitations
In this thesis, reliability was addressed by comparing the empirical results to the
existing literature in order to evaluate rival explanations and propositions. Rival or
competing themes were identifed by means of cross-case analysis. For example, cost
savings was a particular theme identifed as an objective for offshoring. However,
cross-case explanations embedded in this theme gave rise to rival explanations.
Therefore, an explanation indicating a deviation from, for example, an objective
such as cost savings to another factor might prove to be a competing theme. Such
explanations were observed and reported in this thesis.
365 Glaser, B.G. and Strauss, A.L. (1967). The discovery of grounded theory: Strategies for qualitative research. Aldine de Gruyter. Hawthorne, New York;
Strauss, A. and Corbin, J. (1998, 2nd edition). Basics of qualitative research: Techniques and procedures for developing grounded theory. Sage Publications.
Thousands Oaks, California; Patton, M.Q. (2002, 3rd edition). Qualitative education and research methods. Sage Publications. Thousands Oaks,
California; Yin, R. (2003, 2nd edition). Case study research: Design and methods. Sage Publications. Beverly Hills, California.
366 Weick, K.E. (2007). The generative properties of richness. Academy of Management Journal, 50(1): 14-19.
367 Eisenhardt, K.M. and Graebner, M.E. (2007). Theory building from cases: Opportunities and challenges. Academy of Management Journal, 50(1): 25-32.
368 Martin, P.Y. and Turner, B.A. (1986). Grounded theory and organizational research. Journal of Applied Behavioral Science, 22(2): 141-157.
001_080678_HFDST 01-04.indd 66 16-09-2008 14:07:42
The second way to address reliability was to consider cases and instances that did
not ft the patterns identifed, sometimes referred to as negative cases
369
, which
were also included in this study. Replicating themes were then reported as results
of the analysis. This research study had several limitations that could beneft from
further research.
First, this study largely drew on self-reported measures for the independent
variables enabling to gain richness of the data collected. However, it may lead to
a self-reporting bias
370
. Future studies, building on these fndings could include
more objective measures and have these measures checked with secondary sources
respectively.
Second, respondents were asked about offshoring activities they were involved in
without providing them with a timeframe as to when the offshoring activities took
place. By using rich data about offshoring projects in the past, this research explored
how top managers collectively viewed offshoring activities over time. Although
the strength of this type of research is that it is the articulation of organizational
members collective viewpoints on particular organizational occurrences that they
were involved with in the past, it may have caused some recall bias. In order to
minimize the impact of recall bias, future research could only include the most
recent offshoring projects.
Third, whether or not the results of this study are generalizable to the experiences
of all service categories remains at question. Nevertheless, the results contribute
to understanding the offshoring behavior of service frms, especially regarding
their choice for specifc types of offshoring. Further research with a larger random
sample should be executed in order to enhance the external validity of these
results.
Fourth, data collected was of a nominal nature, which enabled the collection of rich
primary data. This was needed to create a body of understanding on the offshoring
behavior of service frms. It also allowed developing new and refning theory
without being restricted by existing theories that applied to the manufacturing
industry. Future research could include more numeric measurements enabling a
more quantitative approach and testing of the research fndings of this study for
different categories of service frms.
369 Patton, M.Q. (2002, 3rd edition). Qualitative education and research methods. Sage Publications. Thousands Oaks, California.
370 Johnson, J. and Tellis, G.J. (2008). Drivers of success for market entry into China and India. Journal of Marketing, 72(3): 1-13.
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68
001_080678_HFDST 01-04.indd 68 16-09-2008 14:07:42
69 OffshOring in the service sectOr
chapter 5
Building an Emergent Model
5.1. introduction
This frst feld study was conducted to provide answers to the following research
questions:
1) WhatistheoffshoringbehaviorofservicefrmsoperatingfromtheNetherlands?
2) Doesthisoffshorebehaviorinfuencetheirchoiceforatypeofoffshoring?
3) If so, which determinants of the offshoring behavior of service frms are related to
theirchoiceforcaptiveoffshoringoroffshoreoutsourcing?
In order to provide insight in the offshore behavior of service frms and to obtain
rich primary data, qualitative descriptive research was used to create a body of
understanding about the offshore behavior of service frms operating from the
Netherlands. In this way a theoretical account of the general features of offshoring
was developed while it being simultaneously grounded and refned in empirical
observations discussed in Chapter 6 and validated in Chapter 7. As discussed in
Chapter 3, the entry mode decisions were considered to infuence their performance
and to be of strategic importance if service frms wished to enter international
markets as is the case with offshoring. Therefore, this chapter includes both an
overview of the research results regarding the offshoring behavior of service frms
in general, as well as a more in-depth analysis of how this behavior infuenced their
choice for captive offshoring and/or offshore outsourcing.
5.2. sample selection
The sampling method used in the frst feld study was theoretical sampling
to identify service frms operating from the Netherlands and represented the
following service categories: fnancial, telecommunications, transport and business
services. Earlier research on offshoring in the Netherlands estimated that these
service categories would be most actively involved in relocating activities from
the Netherlands to foreign locations
371
. Furthermore, these categories represented
their relative importance to the Dutch economy. Business services are one of the
fastest growing service categories in Dutch economy
372
; and telecommunications,
transport and fnance are referred to as key infrastructure service categories for
national economies
373
.
A total sample of 1,688 service frms was drawn from the FT 500 list combined
with data from annual reports, Nyenrode database and chambers of commerce on
foreign and Dutch service frms in the Netherlands per May 2005. This total sample
371 Ministry of Economic Affairs. (2005). Visie op verplaatsing: Aard, omvang en effecten van verplaatsing van bedrijfsactiviteiten naar het buitenland.
Ministry of Economic Affairs. The Hague.
372 CPB, Centraal Planbureau. (2001). Exposureofthebusinessservicesindustrytointernationalcompetition. CPB. The Hague.
373 The World Bank. (2005). ServicesResearch.The World Bank. Washington D.C.
002_080678_HFDST 05.indd 69 16-09-2008 15:10:31
list included 106 doubles that were deducted. Therefore, the total sample for the
research study was 1,582 service frms.
5.3. Data collection
The unit of analysis in the frst feld study was frm level. A questionnaire
and invitation letter were designed using online survey tools (Appendix 5.1
Questionnaire, invitation letter and fow of the questionnaire). The questionnaire
consisted of a total of 31 questions including four questions (Q28 to 31) about the
respondent and seven questions regarding the offshoring plans of respondents
in the future. These questions were included for collecting rich data about the
offshoring behavior of service frms. However, they were not taken into account
for the second phase of the analysis discussed in this chapter. The reason is that the
second phase only included answers to questions about offshoring activities that
had actually taken place in the past. Furthermore, the questionnaire included one
selection question (S1) as to whether or not the respondents had implemented
offshoring activities before or whether they were planning to do so within the
next three years. This question had three pre-selected answers: A) Yes; B) No, but
we plan to relocate activities within the next three years; and C) No and neither
do we plan to relocate activities within the next three years. Based on the answer
to this question, respondents were placed either in Tracks A, B or C respectively.
For respondents in Track C, the questionnaire ended after the frst question.
Only respondents in Tracks A and B continued to participate in the research by
completing a questionnaire, which included general and a unique set of track-
specifc questions.
After the design process, the questionnaire and invitation letter were tested
by six service frms, three peers in the academic world and one expert dealing
with offshoring on a daily basis. Based on this test, the questionnaire was
amended before sending it per e-mail to the sample of service frms. In order
to increase the willingness of service frms to participate in this research study
and provide information, which most frms considered as (politically) sensitive,
guarantees were provided that the information would be treated anonymously.
Participants were asked to respond by completing the questionnaire online. After
approximately two weeks, those who had not responded yet received a reminder
per e-mail. This resulted in additional respondents. Subsequently, a follow-up per
telephone was executed for those who had not responded to the reminder. Service
frms were at this stage invited again to participate in the research by completing
the questionnaire online. Some respondents mentioned that they were interested
in participating but mostly due to time pressure, they preferred to complete the
questionnaire by being interviewed by telephone.
Of the total sample for the research study, 1,582 service frms, 583 service frms
responded including eight frms who did not fully complete the questionnaire. The
total number of valid respondents was, therefore, 575. The response rate, defned
002_080678_HFDST 05.indd 70 16-09-2008 15:10:31
as the percentage of total attempted interviews that were completed, was 36.85%
(583/1,582*100%). See Table 5.1 for a detailed overview of the data collection in the
frst feld research study.
table 5.1 Overview of the data collection in the feld research study 2005.
Overview of data collection frst sample survey 2005
Start of data collection in the feld 20-05-05
Total sample (1,688-106 doubles) 1,582
Total number of non-respondents 999
Total number of respondents 583
Non-completes 8
Total of completed questionnaires taken into account for further analysis (575/1582*100%) 575
Response rate 36.85%
Completed questionnaires per telephone 407
Completed questionnaires online 168
Completed questionnaires in Track A referring to respondents that have offshored activities 213
Completed questionnaires in Track B referring to respondents planning to offshore activities for the frst time within the
next three years
34
Completed questionnaires in Track C referring to respondents that have no previous experience in offshoring neither are
they planning to do so within the next three years
328
Average duration of completing questionnaire 7 minutes
Shortest time taken to complete questionnaire 15 seconds
Longest time taken to complete questionnaire 33 minutes
Period of follow-up phone calls 30-05-05 till 13-06-05
End of data collection in the feld 19-07-05
A more detailed overview of the data collection for respondents per track (A, B and
C) is shown in Table 5.2.
table 5.2 Overview of the source used by respondents participating in this research per track: A) respondents with
previous experience in offshoring their activities; B) respondents planning to offshore activities within the next three
years; and c) respondents that have no previous experience in offshoring neither are they planning to relocate activities
within the next three years.
Source respondents used to participate in the research Track A Track B Track C Total
Telephone 169 16 222 407
On line 44 18 106 168
Total 213 34 328 575
5.4. codifcation
In this section, the codifcation process per variable is elaborated on. Following the
preliminary coding, the data collected was codifed as much as possible and category
reduction took place based on the underlying uniformities of their properties and
on the frequency of answers. Main categories were created enabling analysis of the
variables related to the offshoring behavior on a more aggregate level. Some of the
variables referred to in answer option other by respondents were assigned to one of
the existing sub-categories. If respondents referred to the same or similar answer
fve or more times, a new sub-category was created. If an answer could neither be
assigned to an existing sub-category nor to a newly created sub-category a check
was done whether it could be assigned to one of the main categories. The remaining
002_080678_HFDST 05.indd 71 16-09-2008 15:10:31
variables that could not be assigned to an existing or newly created (main or sub)
category in the fnal coding, were assigned to the sub-category other. This category
aggregates all other answers mentioned less frequently by respondents than the
other categories. Thus, each answer was assigned with a value in a certain category.
The coding of variables discussed in the next paragraphs of this section were based
on fnal coding as used in the analysis. They were developed and based on several
questions and answers from the questionnaire used in this frst feld research.
5.4.1. service firms
Service frms were codifed in different ways to describe the respondents and to
perform analysis for these different categories of frms.
Degree of experience
The frst categorization of frms was based on the degree of experience of service
frms in offshoring as follows:
Track A referred to service frms that are or have been in the implementation
phase of offshoring their activities.
Track B referred to service frms in the planning phase as they are planning to
offshore within the next three years (per May 2005).
type of service firms
The second categorization was based on the typeofservicefrms and included the
following categories
374
(Appendix 5.2 Codifcation development for hard and soft
service frms):
Hard service frms providing services where production and consumption can
be easily decoupled. Their services are embedded in goods, as is the case with
software development and retailing service frms.
Softservicefrmsproviding services where production and consumption occur
simultaneously and decoupling is diffcult or not viable at all. Their services are
inseparable and should in many cases be sold, made and consumed at the same
time, as is the case with consulting, medical and legal service frms.
firm size
The third categorization of the sample was based on size. Data from Statistics
Netherlands (CBS) was used to enrich the respondents description in Tracks A and
B by frm size. This was done by linking respondents in both tracks to the General
Business Register (GBR) that comprises company-specifc information such as
number of employees and the legal form
375
.
374 Kotabe, M. and Murray, J.Y. (2004). Globalprocurementofserviceactivitiesbyservicefrms. International Marketing Review, 21(6): 615-633; Patterson,
P.G. and Cicic, M. (1995). Atypologyofservicefrmsininternationalmarkets;anempiricalinvestigation. Journal of International Marketing, 3(4): 57-83.
375 CBS, Statistics Netherlands. (2007). GeneralBusinessRegister, January2007. CBS. Voorburg and Heerlen.
002_080678_HFDST 05.indd 72 16-09-2008 15:10:31
The GBR is updated with information derived from the Dutch Tax and Customs
Administration, chambers of commerce and business unions. The time lag
between the event and the registration in the GBR is estimated to be two months.
Linkage with the GBR is only possible if individual companies can be identifed by
a matching name, address or chambers of commerce number. Missing information
in the existing database was derived from the Internet by searching for names
and addresses of frms. Subsequently, this data was linked to the GBR database
resulting in a unique identifcation number for every respondent. Based on this
identifcation number, the size of individual service frms was determined. For
further analysis, the service frms were divided in the following two categories:
Smallandmediumsizedenterprises(SMEs) referred to service frms with less than
100 full time employees (FTE).
Largefrmsreferred to service frms with 100 or more FTE.
headquarters Location
The fourth categorization of service frms operating from the Netherlands was
based on their headquarterslocation:
Dutchservicefrms having their headquarters located in the Netherlands.
Foreignservicefrmshaving their headquarters located outside the Netherlands.
5.4.2. foreign entry Mode
Codifcation of the variable typeofforeignentrymode was based on the respondents
choice for relocating activities via a foreign direct investment (FDI) or via a
contractual agreement with a third party as well as on the specifc form used when
relocating their activities in the case of captive offshoring.
type of Offshoring
The variable type of offshoring, also referred to as foreign entry mode, was based
on the answer to the questions Q6A Does your company offshore activities under
direct control (captive offshoring), via a third foreign party (offshore outsourcing)
or a combination of both types of offshoring? and Q6B Does your company plan
to offshore activities under direct control (captive offshoring), via a third foreign
party (offshore outsourcing) or a combination of both types of offshoring?. All
answers were codifed in the following three categories:
Captive offshoring referred to relocating activities under direct control by way
of setting up a new frm (greenfeld), using an existing subsidiary (brownfeld),
joint venture, a merger or an acquisition.
Offshoreoutsourcing referred to relocating activities via a third party, i.e. a third-
party offshore provider.
Combination referred to a combination of both types of offshoring.
002_080678_HFDST 05.indd 73 16-09-2008 15:10:31
type of captive Offshoring
The variable typeofcaptiveoffshoring was based on the answers of respondents in
Tracks A and B to Q8 Which way did your company offshore your business activities
in the case of captive offshoring? and Q8B Which way does your company plan to
offshore its business activities in the case of captive offshoring?. All answers were
codifed in the following three categories (Appendix 5.3 Codifcation development
for type of captive offshoring):
Greenfeld.
Brownfeld.
Acquisition.
JointVenture.
Merger.
Otheranswers given to the question about type of captive offshoring.
5.4.3. Motives and goals for Offshoring
The variable motives for offshoring was based on the answers to the following
questions Q4A What are your companys motivations for offshoring activities?;
Q4B What are your companys motivations for future offshoring activities?;
Q5A Which of the motivations you marked in the previous question, is the most
important motivation for your companys offshoring activities?; Q5B Which
of the motivations you marked in the previous question, is the most important
motivation for your companys future offshoring activities? and Q21 Why is your
company planning to offshore more activities in the future?. The variable goals
(not) achieved by offshoring was based on answers to questions Q17 Which
goals did your company achieve by offshoring?; and Q18 Which goals did your
company not achieve by offshoring?.
As in the next phase of the research (second and third feld study) goals and motives
were combined under the notion of an objective instead of time/phase function
referred to as motives and goals, they were categorized in the same categories.
For the time/phase function, it is taken into account in the second feld study
discussed in Chapter 6, whether objectives considered ex-ante (before the actual
moving of business activities to foreign locations is executed) were different from
those perceived ex-post (during or after implementation of the relocation).
All answers related to motives and goals were codifed in the following main
categories (Appendices 5.4 to 5.7 Codifcation development for motives for
offshoring, continuing offshoring in the future, goals (not) achieved):
Cost advantages referred to all objectives related to cost savings as a result of
offshoring, for example, labor and operational costs.
002_080678_HFDST 05.indd 74 16-09-2008 15:10:32
Market access seeking referred to gaining access to new geographical markets,
for example by following customers, suppliers and competitors through
offshoring.
Strategic asset seeking referred to gaining strategic assets, such as improving
competitiveness, increasing quality and service; to focus on core activities by
offshoring and to favorable tax regulations and trade agreements stimulating
to the offshoring process.
Strategicresourceseeking referred to getting access to strategic resources, such
as qualifed employees and access to technology by offshoring.
Othermotives/goalsfor offshoring not belonging to one of the aforementioned
categories.
No goals achieved was added as a main category for service frms stating that
they achieved none of the goals they had set.
Motives for continuing Offshoring
Q27 Why did your company decide to continue offshoring activities? was only
answered by service frms that already offshored activities before. The answers
to this question were codifed in the following main categories (Appendix 5.8
Codifcation development regarding motives for continuing offshoring):
Goodperformanceofpreviousoffshoredactivities.
Importantforcompanysstrategy.
Othermotivesnot belonging to one of the aforementioned categories.
Motives for not Offshoring or withdrawing Offshoring Activities
Answers regarding motives for not offshoring and withdrawing previously
relocated activities were based on the questions Q22 Why is your company not
planning to offshore (more) activities in the future?; and Q24 Why did your
company withdraw offshoring activities to the Netherlands or is it planning to
do so?. The answers were codifed in the following main categories (Appendices
5.9 and 5.10 Codifcation development regarding motives for withdrawing
offshoring activities and for not continuing offshoring):
Offshoringdoesnotprovideaddedvalueincluded answers related to, for example,
low fnancial performance of the offshoring activities and offshoring not being
necessary to reach specifc goals.
Strategicassetswas added as a main category related to motives for not offshoring
(more) activities in the future due to it not being necessary to relocate activities
for increasing and/or maintaining a frms competitiveness.
Management issues included all answers related to diffculties perceived in
managing offshoring activities, such as cultural differences.
Too early to decide on continuing offshoring included all answers related to, for
example, the fact that offshoring projects had just started and it was therefore
too early to evaluate and determine the success and continuation.
002_080678_HFDST 05.indd 75 16-09-2008 15:10:32
Other motives for not offshoring in the future or withdrawing previously
offshored activities.
5.4.4. Barriers for Offshoring
The variable barriers to offshoring was based on the answers to the questions
Q12A Which barriers for offshoring activities has your company experienced?;
Q12B Which barriers for offshoring does your company expect to experience?;
Q13A Which of the barriers you marked in the previous question, is the most
important barrier for your companys offshoring activities?; and Q13B Which of
the barriers you marked in the previous question, is the most important barrier
for your companys future offshoring activities?. The variable barriers to achieving
goals were based on answers to Q19 Why did your company not achieve these
goals?.
All answers related to barriers were codifed in the following main categories
(Appendices 5.11 and 5.12 Codifcation development for barriers to offshoring
and barriers to reaching goals by offshoring):
Unfavorablegovernmentpolicy referred to all barriers and challenges controlled
by the government and included, for example, a countrys legal and regulatory
framework on a national and local level.
Managementissues referred to issues related to managing offshoring activities,
for example, with respect to communication, quality control, culture,
bureaucracy and physical and psychological distance.
Unavailabilityofresourcesreferred, for example, to the lack of fnancial resources,
qualifed employees and technology.
Unavailabilityofstrategicassets referred to issues such as lack of quality control
and fexibility.
Diffcult to access or to grow on foreign market was added as a main category
denoting barriers to achieving goals respectively challenges due to, for example,
changes in the market situation at the offshore location.
Other barriers for offshoring not belonging to one of the aforementioned
categories.
Nobarrierswas added as a main category for answers of respondents expressing
that they perceived no barriers for offshoring activities.
5.4.5. Offshoring Activities
The variable offshoringactivities was based on respondents answers to Q9A Which
activities has your company offshored?; Q9B Which activities is your company
planning to offshore?; and Q25 Which activities did/will your company withdraw
to the Netherlands?. All answers related to offshoring activities and those (to be)
withdrawn were codifed in the following categories (Appendices 5.13 and 5.14
002_080678_HFDST 05.indd 76 16-09-2008 15:10:32
Codifcation development for offshoring activities and those (to be) withdrawn):
Transportandlogistics.
Operations.
Marketing(andcommunication).
Service.
ITandrelatedservices.
Humanresourcemanagement.
Procurement.
Sales.
Financialandadministrativeservices.
Legalandotheradvisoryservices.
Managementtasks.
Researchanddevelopment.
Other activities that are withdrawn, offshored or will be relocated within the
next three years.
core and non-core Activities
Based on the self-reported measures of respondents, activities that were relocated
were divided into those relating to the core business of service frms and those that
were not
376
:
Coreactivities referred to offshoring activities belonging to a frms core business
and that are considered essential for the long-term success of a service frm.
Non-core or peripheral activities referred to those offshoring activities not
belonging to a frms core business and that are considered to be less
strategically relevant to differentiate or contribute to the long-term success of
a service frm.
hard and soft service Activities
Services provided by service frms can be divided into hard and soft service activities
as follows
377
(Appendix 5.15 Codifcation development for offshoring activities in
hard and soft service activities):
Hardserviceactivities referred to non-pure, storable service activities and those
that generally require low customer interaction because they can, for example,
be delivered by technology.
Soft service activities referred to pure and intangible services requiring high
customer interaction and a high degree of customization. They are inseparable
and should be sold, made and consumed at the same time.
376 Murray, J.Y. and Kotabe, M. (1999). SourcingstrategiesofU.S.servicefrms:Amodifedtransaction-costanalysis. Strategic Management Journal, 20(9):
791-809.
377 Sanchez-Peinado, E., Pla-Barber, J. and Hbert, L. (2007). Strategic variables that infuence entry mode choice in service frms. Journal of International
Marketing, 15(1): 67-91; Blomstermo, A., Deo Sharma, D. and Sallis, J. (2006). Choice of foreign market entry mode in service frms. International
Marketing Review, 23(2): 221-229; Sanchez-Peinado, E. and Pla-Barber, J. (2006). Amultidimensionalconceptofuncertaintyanditsinfuenceontheentry
modechoice:Anempiricalanalysisintheservicesector. International Business Review, 15(3): 215-232.
002_080678_HFDST 05.indd 77 16-09-2008 15:10:32
5.4.6. Offshore Locations
The variable offshorelocations was based on the answers to Q11A To which country/
countries did your company offshore activities? and Q11B To which country/
countries does your company plan to offshore activities?. Codifcation was based
on their geographic position and income level.
Offshore Locations codifed by geography
Countries and answers mentioned under other referring to a continent were divided
in the following major areas and regions
378
(Appendix 5.17 and 5.18 Codifcation
development for offshore locations by countries and by major areas and regions):
Africa included the regions Eastern, Middle, Northern, Southern and Western
Africa.
Asia included the regions Eastern, Southern, Central, South-eastern and Western
Asia.
Europe included the regions Eastern,Northern,SouthernandWesternEurope.
Latin America and the Caribbean included the regions Caribbean, Central and
SouthAmerica.
NorthernAmerica.
Oceania included the regions Australia/New Zealand, Melanesia, Micronesia and
Polynesia.
Offshore Locations codifed by income Level
Every country mentioned by respondents was assigned to one of the following
incomelevels
379
(Appendix 5.19 Codifcation development for offshore locations by
income level):
High income referred to economies with GNI
380
per capita of US$ 10,066 or
more.
Upper middle income referred to economies with GNI per capita between
US$ 3,25610,065.
Lower middle income referred to economies with GNI per capita between
US$ 8263,255.
Lowincome referred to economies with GNI per capita of US$ 825 or less.
378 See Appendix 5.16 Countries divided in geographic regions on the basis of the defnition of major areas and regions defned by UNSTAT, United
Nations Statistics Division. (2008). Compositionofmacrogeographical(continental)regions,geographicalsub-regions,andselectedeconomicandother
groupings. UNSTAT. New York.
379 The codifcation of countries by income level is based on The World Bank. (2005). Listofeconomies. The World Bank. Washington D.C.
380 GNI: Gross National Income referring to the aggregate value of the balances of gross primary incomes for all sectors; gross national income is
identical to gross national product (GNP) as understood in national accounts generally. Available at: http://web.worldbank.org/WBSITE/EXTERNAL/
DATASTATISTICS/ 0,,contentMDK:20420458~menuPK:64133156~pagePK:64133150~piPK:64133175~theSitePK:239419,00.html
002_080678_HFDST 05.indd 78 16-09-2008 15:10:32
5.4.7. Level at which Offshoring Decisions are taken and responsibility for managing
Offshoring Activities
The variable organizational level at which offshore decisions are taken was based
on the answers of respondents in Tracks A and B to Q14 At which level of the
organization are offshore decisions taken?. The variable responsible formanaging
offshoring activities was based on the answers of respondents in Tracks A and B
to Q16 Who is/are responsible within your organization for managing (future)
offshoring activities?. All answers related to both questions were codifed in the
following categories (Appendices 5.20 and 5.21 Codifcation development for
organizational level at which offshore decisions are taken and responsibility is
taken for managing offshoring activities):
Executive and top management level referred to the highest rank in the
organizational hierarchy.
Middle management referred to the middle rank in the organizational
hierarchy.
Otherstakeholders within the organization.
5.4.8. Departments involved in Offshoring
The variable departments involved in offshoring was based on the answers of
respondents in Tracks A and B to Q15 Which department(s) is/are involved in
offshoring (future) business activities?. All answers related to departments within
the organization involved in offshoring were codifed in the following categories
(Appendix 5.22 Codifcation development for departments involved in offshoring
activities):
Executiveandtopmanagementlevel.
Middlemanagement.
Individualdepartments.
Wholeorganization.
Otherinternalandexternalstakeholders.
5.5. Data Analysis
Of the 575 respondents, 213 had already relocated activities before, 34 were
planning to do so within the next three years and 328 respondents did not offshore
business activities and were not planning to do so within the next three years as is
shown in Table 5.3.
002_080678_HFDST 05.indd 79 16-09-2008 15:10:32
table 5.3 Overview of respondents that A) have relocated their activities before, B) those that are planning to do so within
the next three years and c) those that have no previous experience in doing so, nor have plans to relocate activities within
the next three years.
Offshoring by service frms operating from the Netherlands participating in the sample
survey of the frst feld study
Frequency Percentage
A. Yes, our company has offshored activities before 213 37.04
B. Yes, our company is planning to offshore activities within the next three years 34 5.91
C. No, our company did not offshore business activities and is not planning to do so within the
next three years
328 57.04
Total 575 100.00
Further analysis of the data of this frst feld study focused on the respondents
with previous offshoring experience and those expressing offshoring plans for
the future, a total of 247 valid responses. Descriptive statistics were used for the
analysis of the collected data in this feld study. In the frst phase of the analysis,
SPSS (version 15) was used for presenting the frequencies and percentages per
variable for Tracks A and B. If a respondent answered more than one variable in the
same sub-category, it was counted only one time in the main category. The reason
being that the nature of the majority of the questions included was yes/no, e.g.
were your motivations for offshoring related to saving costs (or one of the other
categories in the preliminary codifcation)? The respondent could either choose
this answer or not. The open answers, after being assigned to one of the main and
sub-categories, were also treated as a yes/no answer.
In the next phase of the analysis, theory was formulated with a smaller set of
high-level concepts through constant comparison between empirical fndings
and theory. For this part of the analysis regarding the type of offshoring as the
dependent variable versus other independent variables, respondents in Track B
were excluded due to the relatively low number of observations. The same applied
to respondents with a missing value or who gave an answer which could not be
assigned to one of the main categories, i.e. frms referring to having employed both
types of offshoring and/or having relocated both core and non-core activities, and
answers in the category meaningless. After the variables and their categories were
developed, the cross tabulation method was used to identify and test the strength of
the relationship between the nominal variables. The propositions were formulated
based on the research fndings in this phase of the analysis. Several questions
had different N-values. To minimize the infuence of these different values in N
between different categories within one variable, the effect was measured using
the adjusted residuals. The latter penalize for the fact that large expected counts
tend to have larger residuals
381
.
The analysis of the discrete variables on a nominal scale was performed using the
chi-square test except if more than 20% of the cells had expectations less than
fve. In that case the chi-square test is regarded as not reliable
382
. If a statistically
signifcant relationship was established, the Cramers V test was done to estimate
381 Agresti, A. (2002, 2
nd
edition). CategoricalDataAnalysis. John Wiley & Sons, Inc, Hoboken. New Jersey: 81.
382 Rossi, P.H., Wright, J.D. and Anderson, A.B. (1983). Handbookofsurveyresearch. Academic Press Inc. London: 560 and 561.
002_080678_HFDST 05.indd 80 16-09-2008 15:10:32
the strength of such an association. The confdence level was set at 95% for all
tests. On the basis of the standard error, a confdence interval was performed with
a correction for different N-values due to the different observations for captive
offshoring and offshore outsourcing
383
. Subsequently, the independant variables
with a signifcant association for type of offshoring were tested for their mutual
relationship in order to build an emergent model for type of offshoring and to
formulate a theoretical conjecture.
5.6. empirical findings
In the next paragraphs, the empirical fndings are presented. Where relevant and
apparent, in analyzing the data, distinctions were made between:
type of offshoring: foreign direct investment (captive offshoring), contractual
agreement with a third party (offshoring outsourcing) or a combination of
both;
degree of experience in offshoring: frms with previous experience in offshoring
or in the planning phase of relocating their activities;
type of service frms: hard or soft service frms;
frm size: service frms < 100 FTE or 100 FTE;
type of offshoring activities: hard or soft offshoring activities; and
core or non-core activities.
5.6.1. Describing the sample
In this section, service frms in the sample are further described according to the
four service categories they represent; their headquarters location; the extent to
which they had previous experience in offshoring or were planning to relocate
activities within the next three years; their size based on the number of full time
employees (FTE); and the number of activities they had relocated or were planning
to relocate. Data for variables frm size, hard/soft service frms and activities, as well
as offshore locations divided in regions and major areas and by income level were
obtained from secondary sources, while data for the other variables were obtained
from the questionnaires completed by the respondents and the interviews per
telephone.
383 To minimize the infuence differences in N-values between two groups within one variable (e.g. captive offshoring vs. offshore outsourcing), the
effect using the adjusted residual was measured. Adjusted residuals penalize for the fact that large expected counts tend to have larger residuals.
Looking at the cells with the largest adjusted residuals showed where the model was working least well. Hair, J.F.Jr, Black, W.C., Babin, B.J., Anderson,
R.E. and Tatham, R.L. (2006, 6
th
edition). MultivariateDataAnalysis, Pearson/Prentice Hall. Upper Saddle River, New Jersey: 175.
002_080678_HFDST 05.indd 81 16-09-2008 15:10:32
service categories
The 247 valid responses in Tracks A and B consisted of 86.23% service frms with
offshoring experience and of 13.77% service frms with offshoring plans within the
next three years. The respondents were represented in distinctive service categories
as follows: 74.09% business services, 11.74% transport, 9.72% fnancial, and 4.45%
telecommunications (Appendix 5.23 Codifcation development for frms divided
by service categories). See Table 5.4 below for an overview of the respondents
distribution over the four service categories and the different tracks.
table 5.4 Overview of distribution of respondents in 1) tracks A and B combined; 2) track A; and 3) track B.
Respondents distributed over the four selected service frm categories
1) Tracks A and B combined Frequency Percentage
Business services 183 74.09
Transport 29 11.74
Financial services 24 9.72
Telecommunications 11 4.45
Total 247 100.00
2) Track A Frequency Percentage
Transport 27 12.68
Total 213 100.00
3) Track B Frequency Percentage
Transport 2 5.88
Total 34 100.00
type of service firms
As shown in the codifcation section, service frms were codifed in hard and soft
service frms. The majority (55.92%) of the respondents with offshoring experience
consisted of hard service frms versus 44.08% soft service frms. In contrast, the
majority of respondents planning for offshoring were soft service frms (61.29%)
versus 38.71% hardservicefrms (Table 5.5).
table 5.5 respondents divided into hard and soft service frms for respondents in tracks A and B.
Respondents in Tracks A and B divided into hard and soft service frms
Type of service frm Frequencies Track A Percentages Track A Frequencies Track B Percentages Track B
Hard service frms 118 55.92 12 38.71
Soft service frms 93 44.08 19 61.29
Total 211
384
100.00 31
385
100.00
384 Two respondents, who previously relocated their activities, completed the questionnaire anonymously and could therefore not be assigned to one
of the categories hard or soft service frms (N=213-2).
385 Three respondents, who previously relocated their activities, completed the questionnaire anonymously and could therefore not be assigned to one
of the categories hardorsoftservicefrms (N=34 - 3).
002_080678_HFDST 05.indd 82 16-09-2008 15:10:32
A chi-square test performed did not establish a signifcant relationship between
hard and soft service frms and their level of experience in offshoring (p = 0.0727;
Table 5.6).
table 5.6 hard and soft service frms versus level of experience in offshoring for respondents in tracks A and B.
Type of service frm versus level of offshoring experience
Type of service
frm
Track A Track B
Total
Actual cell
count
Expected
cell count
Adjusted
residuals
Standard
error
Actual cell
count
Expected
cell count
Adjusted
residuals
Standard
error
Hard service frms 118 113,35 1.8 2,97 12 16,65 -1.8 0,13 130
Soft service frms 93 97,65 -1.8 2,30 19 14,35 1.8 0,26 112
Total 211
386
211,00 31
387
31,00 242
X
2
= signifcant, p = 0.0727

headquarters Location
The total of 247 valid responses was divided in 61.45% Dutch and 38.55% foreign
frms operating from the Netherlands. The latter category included those service
frms whose headquarters were located at a foreign location while operating from
the Netherlands (Table 5.7).
table 5.7 Overview of respondents divided between those having their headquarters in the netherlands and those
headquartered at a foreign location for respondents in tracks A and B.
headquarters location of respondents in Tracks A and B
Headquarters
location of
respondents
Frequencies Track A Percentages Track A Frequencies Track B Percentages track B Total
The Netherlands 123 57.21 30 88.24 153
Foreign location 92 42.79 4 11.76 96
Total 215
388
100.00 34 100.00 249
Table 5.8 gives an overview of the countries in which the headquarters of
respondents in Tracks A and B were located. While the majority of respondents
had their headquarters in the Netherlands (A: 57.21% and B: 88.24%), 18.60% of the
respondents in Track A were headquartered in the US. Followed in the top fve of
headquarter locations by France (5.58%), Japan (4.19%) and Germany (3.72%).
386 Two respondents, who previously relocated their activities, completed the questionnaire anonymously and could therefore not be assigned to one
of the categories hardorsoftservicefrms(N=213-2).
387 Three respondents, who previously relocated their activities, completed the questionnaire anonymously and could therefore not be assigned to one
of the categories hardorsoftservicefrms (N=34 - 3).
388 Two respondents referred to two countries as location of headquarters (N=213+2).
002_080678_HFDST 05.indd 83 16-09-2008 15:10:32
table 5.8 Overview of countries where the respondents service frms of tracks A and B are headquartered.
headquarters location per country of respondents in Tracks A and B
Headquarters location per country Frequencies Track A Percentages Track A Frequencies Track B Percentages Track B
the Netherlands 123 57.21 30 88.24
United States 40 18.60 2 5.88
France 12 5.58 0 0.00
Japan 9 4.19 0 0.00
Germany 8 3.72 0 0.00
Belgium 3 1.40 0 0.00
United Kingdom 5 2.33 1 2.94
Sweden 3 1.40 0 0.00
Switzerland 3 1.40 0 0.00
Norway 2 0.93 0 0.00
Canada 1 0.47 1 2.94
Cuba 1 0.47 0 0.00
Curacao 1 0.47 0 0.00
Denmark 1 0.47 0 0.00
Finland 1 0.47 0 0.00
India 1 0.47 0 0.00
Luxembourg 1 0.47 0 0.00
Total 215
389
100.00 34 100.00
firm size
The service frms were divided into two categories according to their size expressed
in number of full time employees, i.e. SMEswith lessthan100FTE (A: 66.82% and B:
87.10%); andlargefrmswith 100ormoreFTE (A: 33.18% and B 12.90%) as is shown in
Table 5.9. The majority of service frms participating in this research were SMEs.
table 5.9 Overview of frm size for respondents in tracks A and B.
Firm size in FTE for respondents in Tracks A and B
Number of employees (FTE) Frequencies Track A Percentages Track A Frequencies Track B Percentages Track B
SMEs < 100 141 66.82 27 87.10
Large frms 100 70 33.18 4 12.90
Total 211
390
100.00 31
391
100.00
Level of Offshoring experience
The respondents taken into account for further analysis were divided in Track A
(86.23%), frms with previous experience in offshoring, and Track B (13.77%), those
planningforoffshoringwithinthenextthreeyears (Table 5.10).
389 Two respondents referred to two countries as locationofheadquarters (N=213+2).
390 Two service frms in Track A completed the questionnaire anonymously, i.e. there was no information available for assigning them to a specifc frm
size (N=213-2).
391 Three service frms in Track B completed the questionnaire anonymously, i.e. there was no information available for assigning them to a specifc frm
size (N=34-3).
002_080678_HFDST 05.indd 84 16-09-2008 15:10:32
392 Two service frms in Track A completed the questionnaire anonymously meaning that there was no information available for assigning them to a
specifc frm size (N=213-2).
393 Three service frms in Track B completed the questionnaire anonymously, i.e. there was no information available for assigning them to a specifc frm
size (N=34-3).
table 5.10 Overview of number of service frms that previously relocated activities and those planning to so within the
next three years (per May 2005).
Overview of level of offshoring experience for respondents in Tracks A and B
Experience in offshoring or planning to do so Frequency Percentage
Firms with offshoring experience 213 86.23
Firms with offshoring plans in the next three years 34 13.77
Total 247 100.00
Further analysis showed that respondents with offshoring experience were more
often than expected largefrms as opposed to those planning which were more often
than expected represented by SMEs. A chi-square test established the signifcance
of these differences between frm size and level of experience at p = 0.0222
(Phi = -0.147, p = 0.0222; Cramers V = 147, p = 0.0222; N = 242). This outcome was
supported by the adjusted residuals and standard error (Table 5.11).
table 5.11 relationship between frm size and level of experience for respondents in tracks A and B.
Firm size versus level of offshoring experience for respondents in tracks a and b
Firm size
Track A Track B
Total
Actual count
Expected
count
Adjusted
residual
Standard
error
Actual count
Expected
count
Adjusted
residual
Standard
error
SMEs <100 FTE 141 146,48 -2.3 3,54 27 21,52 2.3 0,43 168
Large frms 100
FTE
70 64,52 2.3 1,60 4 9,48 -2.3 0,03 74
Total 211
392
211,00 31
393
31,00 242
X
2
number of Offshoring Activities
The 247 respondents who had relocated activities before or were planning to do so
are linked to a total of 399 activities.
table 5.12 Overview of number of activities that service frms relocated already or are planning to so within the next
three years.
Number of activities that are relocated or will be offshored within the next three years
Offshoring activities Frequencies
Activities that have been relocated already 344
Activities that will be relocated within the next three years 55
Total 399
002_080678_HFDST 05.indd 85 16-09-2008 15:10:32
5.6.2. how to Offshore
In this section, the results are presented of the offshore behavior of service frms
regarding their choice for a specifc entry mode when offshoring, i.e. offshoring in
the form of a foreign direct investment (captiveoffshoring), via a third party (offshore
outsourcing) or a combination of both types of offshoring. This choice for a foreign
entry mode to relocate activities was key in the analysis of this research. In order to
explore whether the offshore behavior of service frms infuenced their choice for a
specifc type of offshoring, it was tested whether other variables, discussed in this
chapter, had an association with relocating activities in the form of a foreign direct
investment or contractual agreement with a third-party offshore provider.
choice for type of Offshoring
The majority of service frms that previously offshored activities (69.95%) or are
planning to do so (52.94%) referred to captiveoffshoring as their mode of entry into
a foreign offshore location as is shown in Table 5.13.
table 5.13 Overview of type of offshoring used (in the future) by respondents in tracks A and B.
Type of offshoring of respondents in Tracks A and B used (in the future) to enter a foreign offshore location
Type of offshoring Frequencies Track A Percentages Track A Frequencies Track B Percentages Track B
Captive offshoring 149 69.95 18 52.94
Offshore outsourcing 33 15.49 8 23.53
Combination 31 14.55 8 23.53
Total 213 100.00 34 100.00
When offshoring their activities under direct control, i.e. captive offshoring, the
majority of respondents in Track A (45.49%) did so in the form of a greenfeld by
starting a new company at the offshore location. The majority of respondents in
Track B (45.71%) planned to do so in the form of a jointventure as is shown in Table
5.14.
table 5.14 Overview of form of captive offshoring used (in the future) by respondents in tracks A and B.
Form of captive offshoring of respondents in Tracks A and B used (in the future) to enter a foreign offshore location
Form of captive offshoring Frequencies Track A Percentages Track A Frequencies Track B Percentages Track B
Greenfeld 111 45.49 7 20.00
Brownfeld 10 4.10 2 5.71
Acquisition 39 15.98 4 11.43
Joint Venture 41 16.80 16 45.71
Merger 10 4.10 2 5.71
Other 13 5.33 3 8.57
Meaningless 20 8.20 1 2.86
Total 244 100.00 35 100.00
002_080678_HFDST 05.indd 86 16-09-2008 15:10:33
Level of experience versus type of Offshoring
A routine check of the adjusted residuals, supported by the standard error,
indicated that experienced frms preferred captive offshoring and frms planning to
relocate activities preferred offshoreoutsourcing. However, a chi-square test did not
establish a signifcant relationship between the type of offshoring and the degree
of experience in offshoring between respondents in Tracks A and B (p = 0.1297;
Table 5.15).
table 5.15 type of offshoring versus level of experience in offshoring for respondents in tracks A and B.
Level of experience in offshoring for respondents in Tracks A and B
Level of offshoring
experience
Captive offshoring Offshore outsourcing
Total
Actual count
Expected
count
Adjusted
residual
Standard
error
Actual count
Expected
count
Adjusted
residual
Standard
error
Previous offshoring
experience (Track A)
149 146,13 1.5 3,70 33 35,88 -1.5 0,57 182
Planning for
offshoring (Track B)
18 20,88 -1.5 0,24 8 5,13 1.5 0,07 26
Total 167 167,00 41 41,00 208
394
X
2
= not signifcant, p = 0.1297
Conclusion: Captiveoffshoring was the preferred foreign entry mode of both those
frms with previousexperience in relocating activities as well as those planning to do
so. There was no signifcant relationship established between the type of offshoring
and the level of respondents experience in offshoring. Hence, the following
proposition was formulated:
Proposition 1: There is no relationship between level of experience in offshoring
and type of offshoring.
Further analysis was done to test whether there was a relationship between the
choice of service frms for a specifc form of captive offshoring versus their level of
experience in relocating activities, i.e. the difference between respondents in Track
A (frms that previously relocated activities) and B (frms planning to offshore).
As the answers merger and brownfeld had a relatively low frequency compared to
the other forms of captive offshoring and three of the expected values were less
than fve (Table 5.16), they were pooled in the category other. A new chi-square
test performed (Table 5.17) established a signifcant relationship between frms
with previous offshoring experience choosing more often to make a foreign direct
investment for their offshoring operations in the form of a greenfeld versus those
planning to offshore in the form of a jointventureat p = 0.0005 (Phi = 0.262, p =
0.0005; Cramers V = 0.262, p = 0.0005; N = 258). These fndings were supported by
the adjusted residuals and the standard error.
394 39 answers were excluded from further analysis referring to a combination of entry modes (N=247-39).
002_080678_HFDST 05.indd 87 16-09-2008 15:10:33
table 5.16 form of captive offshoring versus level of experience for respondents in tracks A and B.
Form of captive offshoring versus level of experience in offshoring for respondents in Tracks A and B
Form of captive
offshoring
Track A Track B
Total
Actual count
Expected
count
Adjusted
residuals
Standard
error
Actual count
Expected
count
Adjusted
residuals
Standard
error
Greenfeld 111 102,45 3.2 2,80 7 15,55 -3.2 0,06 118
Acquisition 39 37,33 0.8 0,72 4 5,67 -0.8 0,03 43
Joint Venture 41 49,49 -3.8 0,77 16 7,51 3.8 0,20 57
Merger 10 10,42 -0.4 0,10 2 1,58 0.4 0,01 12
Brownfeld 10 10,42 -0.4 0,10 2 1,58 0.4 0,01 12
Other 13 13,89 -0.7 0,15 3 2,11 0.7 0,02 16
Total 224 224,00 34 34,00 258
395
table 5.17 form of captive offshoring (merger and brownfeld pooled in the category other) versus level of experience for
respondents in tracks A and B.
Form of captive offshoring versus level of experience in offshoring for respondents in Tracks A and B
Form of captive
offshoring
Track A Track B
Total
Actual count
Expected
count
Adjusted
residuals
Standard
error
Actual count
Expected
count
Adjusted
residuals
Standard
error
Greenfeld 111 102,45 3.2 2,80 7 15,55 -3.2 0,06 118
Acquisition 39 37,33 0.8 0,72 4 5,67 -0.8 0,03 43
Joint Venture 41 49,49 -3.8 0,77 16 7,51 3.8 0,20 57
(Merger +
Brownfeld + Other)
33 34,73 -0.9 0,57 7 5,27 0.9 0,06 40
Total 224 224,00 34 34,00 258
X
2
There was a signifcant relationship between frms with previous offshoring
experience, choosing more often to make a foreign direct investment for their
offshoring operations in the form of a greenfeld versus those planning to offshore
in the form of a jointventure.
headquarters Location versus type of Offshoring
Foreign service frms chose more often than expected foreign direct investment
as foreign mode of entry versus their Dutch counterparts, who relocated
their activities more often than expected via contractual agreement with a
third party (Table 5.18). A chi-square test performed established a signifcant
association between service frms with their headquarters in the Netherlands
and those located at a foreign location versus type of offshoring at p = 0.0001
(Phi = -0.286, p = 0.0001; Cramers V = 0.286, p = 0.0001; N = 184; Table 5.18).
395 21 answers in the category meaningless were excluded from further analysis (N=279-21).
002_080678_HFDST 05.indd 88 16-09-2008 15:10:33
table 5.18 headquarters location versus type of offshoring for respondents in track A.
Headquarters location versus type of offshoring for respondents in Track A
Headquarters
Location
Total
Actual cell
count
Expected
cell count
Adjusted
residual
Standard
error
Actual cell
count
Expected
cell count
Adjusted
residual
Standard
error
The Netherlands 72 82,07 -3.9 1,86 28 17,93 3.9 0,52 100
Foreign location 79 68,93 3.9 2,08 5 15,07 -3.9 0,04 84
Total 151 151,00 33 33,00 184
396
X
2
Conclusion: Service frms headquarteredataforeignlocation chose more often than
expected captive offshoring as their foreign entry mode and frms headquartered
intheNetherlands offshore outsourcing. A routine check of the adjusted residuals
showed that the association was strongest for the latter type of offshoring. Based
on these fndings the following proposition was formulated:

Proposition 2: Service frms headquartered at a foreign location are more likely
to choose captive offshoring for relocating their activities than service frms
headquartered in the Netherlands.
type of service firms versus type of Offshoring
In this paragraph, an analysis is made whether a relationship existed between hard
andsoftservicefrms in terms of their choice for entry mode, i.e. captive offshoring or
offshore outsourcing. As is shown in Table 5.19, there was no signifcant difference
between the two categories of frms (p = 0.8789). The majority of both types of
service frms refer to captive offshoring as their preferred entry mode.
table 5.19 hard or soft service frms versus type of offshoring for respondents in track A.
Type of service frms Hard/Soft versus type of offshoring for respondents in Track A
Type of service
frm
Total
Actual cell
count
Expected
cell count
Adjusted
residual
Standard
error
Actual cell
count
Expected
cell count
Adjusted
residual
Standard
error
Hard service frms 86 85,61 0,15 2,27 18 18,39 -0,15 0,25 104
Soft service frms 63 63,39 -0,15 1,60 14 13,61 0,15 0,21 77
Total 149 149,00 32 32,00 181
397
X
2
Conclusion: No signifcant relationship was established between hard and soft
service frms and type of offshoring. Therefore, the following proposition was
formulated:
Proposition3: There is no relationship between hard and soft service frms and their
choice for a specifc type of offshoring.
396 31 answers referring to a combination of entry modes were excluded from further analysis (N=215-31).
397 32 respondents were excluded from analysis: one respondent who could not be linked, 31 respondents referring to a combination of entry modes
(N = 213-32).
002_080678_HFDST 05.indd 89 16-09-2008 15:10:33
firm size versus type of Offshoring
The majority of both large and SMEs opted for captive offshoring to relocate their
activities. Testing whether there was a relationship between type of offshoring and
frm size showed no signifcance (p = 0.6005).
table 5.20 firm size versus type of offshoring for respondents in track A.
Firm size versus type of offshoring for respondents in Track A
Firm size
Total
Actual cell
count
Expected
cell count
Adjusted
residual
Standard
error
Actual cell
count
Expected
cell count
Adjusted
residual
Standard
error
SMEs < 100 100 101,25 -0.5 2,73 23 21,75 0.5 0,39 123
Large frms 100 49 47,75 0.5 1,13 9 10,25 -0.5 0,10 58
Total 149 149,00 32 32,00 181
398
X
2
Conclusion: No signifcant relationship was established between frm size and
type of offshoring, hence:
Proposition4: There is no relationship between frm size and type of offshoring.
5.6.3. Why Offshoring
In this paragraph, the fndings are presented regarding the motives for offshoring
and the perceived barriers for both respondents who previously relocated activities
and those who were planning to get involved in offshoring within the next three
years. Furthermore, for respondents who had actually relocated their activities,
fndings are presented regarding the goals they did achieve and those they did
not achieve. Finally, it was tested if the variables discussed in this section had a
correlation with the type of offshoring chosen to relocate activities by respondents
in Track A.
Motives for Offshoring
Tables 5.21 and 5.22 show that for respondents in both tracks who previously
relocated activities, the top three frequently mentioned and most important
motives to do so were entering new markets, saving costs and following customers/
suppliers. For respondents who were planning to offshore, savingcosts followed by
enteringnewmarkets and increasing/maintainingcompetitiveness were the top three
frequently mentioned and most important motives.
398 32 respondents were excluded from analysis: one respondent who could not be linked, 31 respondents referring to a combination of entry modes
(N = 213-32).
002_080678_HFDST 05.indd 90 16-09-2008 15:10:33
table 5.21 Overview of frequently mentioned motives for offshoring activities (in the future) for respondents in tracks
A and B.
Frequently mentioned motives of respondents in Tracks A and B to offshore activities (in the future)
Frequently mentioned motives Frequencies Track A Percentages Track A Frequencies Track B Percentages Track B
Save costs 78 19.7 16 22.86
Follow customers/suppliers 68 17.17 5 7.14
Enter new markets 84 21.21 12 17.14
Follow competitors 3 0.76 2 2.86
Increase/maintain competitiveness 43 10.86 11 15.71
Increase quality/service 19 4.8 3 4.29
Focus on core activities 12 3.03 3 4.29
Increase fexibility 20 5.05 8 11.43
Quick access to technology 8 2.02 1 1.43
Availability qualifed employees in offshore
location
34 8.59 4 5.71
Advantages of legislation and regulations
(e.g. privacy rules) in offshore location
9 2.27 4 5.71
Other 14 3.54 1 1.43
Meaningless 4 1.01 0 0
Total 396 100.00 70 100.00
table 5.22 Overview of most important motives for offshoring activities (in the future) for respondents in tracks A
and B.
Most important motives of respondents in Tracks A and B to offshore activities (in the future)
Most important motives Frequencies Track A Percentages Track A Frequencies Track B Percentages Track B
Save costs 44 20.66 9 26.47
Increase/maintain competitiveness 21 9.86 6 17.65
Availability qualifed employees in offshore
location
11 5.16 1 2.94
Increase quality/service 6 2.82 0 0.00
3 1.41 2 5.88
Other 12 5.63 3 8.82
Total 213 100.00 34 100.00
When codifying all answers referring to most important motives into main
categories, respondents who previously relocated activities frequently mentioned
those related to marketaccessseeking. Respondents who were planning to relocate
activities frequently mentioned motives related to strategic asset seeking (Tables
5.23 and 5.24).
002_080678_HFDST 05.indd 91 16-09-2008 15:10:33
table 5.23 Overview of frequently mentioned motives for offshoring activities (in the future) divided into main categories
for respondents in tracks A and B.
Frequently mentioned motives of respondents in Tracks A and B to offshore activities (in the future) divided into main categories
Main category Sub-category
Frequencies
Track A
Percentages
Track A
Frequencies
Track B
Percentages
Track B
Market access seeking
Follow customers/suppliers
128 39.02 17 29.82 Enter new markets
Follow competitors
Cost advantages Save costs 78 23.78 16 28.07
Strategic asset seeking
Increase/maintain competitiveness
79 24.09 20 35.09
Increase quality/service
Focus on core activities
Increase fexibility
Quick access to technology
Strategic resource seeking
Availability qualifed employees in
offshore location
34 10.37 4 7.02
Other Other 5 1.52 0 0.00
Meaningless Meaningless 4 1.22 0 0.00
Total 328 100.00 57 100.00
table 5.24 Overview of most important motives for offshoring activities (in the future) divided into main categories for
Most important motives of respondents in Tracks A and B to offshore activities (in the future) divided into main categories
Frequencies
Track A
Percentages
Track A
Frequencies
Track B
Percentages
Track B
108 50.70 11 32.35
Enter new markets
Cost advantages Save costs 44 20.66 9 26.47
40 18.78 13 38.24
Increase fexibility
Strategic resource seeking
Availability qualifed employees in
offshore location
11 5.16 1 2.94
Other Other 6 2.82 0 0.00
Total 213 100.00 34 100.00
Further analysis on a more aggregate level for respondents in Track A showed a
trend for most important motives versus type of offshoring (Table 5.24). When
service frms were seeking costadvantages by relocating their activities, they often
used offshore outsourcing as their entry mode. If their motive was related to
marketaccess, it was more often associated with a captive entry mode. However, a
chi-square test performed showed that over 20% of the expected cell counts were
less than fve, meaning that the test was not reliable.
002_080678_HFDST 05.indd 92 16-09-2008 15:10:33
table 5.25 Offshore locations divided by income level versus most important motives for respondents in track A.
Offshore locations divided by income level versus most important motives for respondents in Track A
Most important
motives
Total
Actual count
Expected
count
Adjusted
residuals
Standard
error
Actual count
Expected
count
Adjusted
residuals
Standard
error
Cost advantages 22 29,53 -3,7 0.37 14 6,47 3,7 0.19 36
Market access
seeking
83 77,10 2,3 2.21 11 16,90 -2,3 0.13 94
Strategic asset
seeking
28 26,25 0,9 0.47 4 5,75 -0,9 0.03 32
Strategic resource
seeking
8 8,20 -0,2 0.08 2 1,80 0,2 0.01 10
Other 5 4,92 0,1 0.04 1 1,08 -0,1 0.00 6
Total 146 146,00 32 32,00 178
399
In order to further test whether there was an association between the type of
offshoring and the most important motives, the category answers related to strategic
resourceseeking with a low cell count were pooled in the category other while a new
chi-square test was performed. This test established a signifcant relationship at
p = 0.0031 (Phi = 0.279, p = 0.0031; Cramers V = 0.279, p = 0.0031; N = 178).
A routine check of the adjusted residuals indicated that the strongest association
existed between captive offshoring and motives related to market access, as well
as between offshore outsourcing and costadvantages.
table 5.26 Offshore locations divided by income level versus most important motives (strategic resource seeking and
other pooled in one category) for respondents in track A.
Most important
motives
Total
Actual count
Expected
count
Adjusted
residuals
Standard
error
Actual count
Expected
count
Adjusted
residuals
Standard
error
Cost advantages 22 29,53 -3,7 0.37 14 6,47 3,7 0.19 36
Market access
seeking
83 77,10 2,3 2.21 11 16,90 -2,3 0.13 94
Strategic asset
seeking
28 26,25 0,9 0.47 4 5,75 -0,9 0.03 32
Strategic resource
seeking+ Other
13 13,12 -0,1 0.11 3 2,88 0,1 0.02 16
Total 146 146,00 32 32,00 178
400
X
2
Conclusion: The top three of motives for offshoring included cost savings
and entering new markets, following customer/suppliers (Track A) and increasing/
maintainingcompetitiveness (Track B).
399 35 answers were excluded from further analysis: four answers were referring to the category meaningless and 31 answers were referring to a
combination of entry modes. (N= 213-35).
400 35 answers were excluded from further analysis: four answers referring to the category meaningless and 31 answers referring to a combination of
entry modes. (N= 213-35).
002_080678_HFDST 05.indd 93 16-09-2008 15:10:33
On a more aggregated level, when all motives were codifed in main categories,
market access seeking stood out as the most important category of motives. For
respondents with previous offshoring experience, the research results showed a
signifcant relationship between their most important motives for offshoring
and their choice for a specifc foreign entry mode. Those respondents seeking
costadvantages chose offshore outsourcing as their entry mode and those seeking
market access more often chose captive offshoring. Therefore, the following
Proposition 5: Service frms seeking objectives predominantly related to market-
access are more likely to relocate their activities by way of captive offshoring than
service frms seeking objectives predominantly related to cost advantages.
goals achieved by Offshoring
Respondents who previously relocated activities were asked which goals they
achieved by offshoring their activities. Goals related to increasing/maintaining
competitiveness, saving costs and entering new markets were frequently mentioned.
A small percentage of respondents (3.74%) mentioned they had notachievedanyof
theirgoals.
table 5.27 Overview of frequently mentioned goals achieved by offshoring for respondents in track A.
Frequently mentioned goals achieved by offshoring of respondents in Track A
Goals achieved Frequencies Track A Percentages Track A
Increase/maintain competitiveness 83 20.70
Cost savings 72 17.96
Enter new markets 64 15.96
Follow customers/suppliers 37 9.23
Increase quality/service 27 6.73
Increase fexibility 24 5.99
Recruit qualifed employees 19 4.74
Focus on core activities 12 2.99
Follow competitors 7 1.75
Capture advantages of favorable legislation and regulations (e.g. tax legislation) in offshore location 6 1.50
Other 27 6.73
No goals were achieved 15 3.74
Meaningless 8 2.00
Total 401 100.00
When codifying these answers into main categories, goals related to strategicasset
seeking were most frequently mentioned as having been achieved.
002_080678_HFDST 05.indd 94 16-09-2008 15:10:34
table 5.28 Overview of frequently mentioned goals achieved by offshoring divided into main categories for respondents
in track A.
Frequently mentioned goals achieved by offshoring of respondents in Track A divided into main categories
Frequencies
Track A
Percentages
Track A
117 35.14
Increase fexibility
Capture advantages of favorable legislation and regulations (e.g. tax legislation) in
offshore location
93 27.93 Enter new markets
Follow competitors
Cost advantages Cost savings 73 21.92
Strategic resource
seeking
Other Other 5 1.50
Meaningless Meaningless 8 2.40
No goals were achieved No goals were achieved 15 4.50
Total 333 100.00
The chi-square test to determine whether an association existed between achieved
goals versus type of offshoring was not reliable due to the low expected cell counts
of some of the variables (Table 5.29). However, a routine check of the adjusted
residuals indicated a trend that motives related to marketaccessseeking were most
often achieved in combination with a captive entry mode. In contrast, motives
related to costadvantages were most often achieved when combined with offshore
outsourcing. In a post-test, pooling took place of strategic resource seeking in the
category other (Table 5.30). This test did not reveal a signifcant relationship (p =
0.0513).
table 5.29 Overview goals achieved by offshoring versus type of Offshoring for respondents in track A.
Goals achieved divided into main categories by offshoring versus type of offshoring of respondents in Track A
Achieved goals
Total
Actual count
Expected
count
Adjusted
residuals
Standard
error
Actual count
Expected
count
Adjusted
residuals
Standard
error
Cost advantages 40 46,25 -2,4 0,85 17 10,75 2,4 0,25 57
Market access
seeking
69 63,28 2,0 1,76 9 14,72 -2,0 0,10 78
Strategic asset
seeking
80 77,08 1,0 2,12 15 17,92 -1,0 0,21 95
Strategic resource
seeking
13 13,79 -0,5 0,17 4 3,21 0,5 0,03 17
Other 1 2,43 -2,1 0,00 2 0,57 2,1 0,01 3
No goals achieved 12 12,17 -0,1 0,15 3 2,83 0,1 0,02 15
Total 215 215,00 50 50,00 265
401
401 68 answers were excluded from further analysis: eight answers in the category meaningless and 60 answers referring to a combinationofentrymodes
(N=333-68).
002_080678_HFDST 05.indd 95 16-09-2008 15:10:34
402 68 answers were excluded from further analysis: eight answers in the category meaningless and 60 answers referring to a combinationofentrymodes
(N=333-68).
table 5.30 Overview goals achieved divided into main categories (strategic resource seeking and other pooled in one
category) versus type of offshoring for respondents in track A.
Goals achieved divided into main categories by offshoring versus type of offshoring of respondents in Track A
Achieved goals
Total
Actual count
Expected
count
Adjusted
residuals
Standard
error
Actual count
Expected
count
Adjusted
residuals
Standard
error
Cost advantages 40 46,25 -2,4 0,75 17 10,75 2,4 0,22 57
Market access
seeking
69 63,28 2,0 1,57 9 14,72 -2,0 0,09 78
Strategic asset
seeking
80 77,08 1,0 1,90 15 17,92 -1,0 0,18 95
Strategic resource
seeking + Other
14 16,23 -1,3 0,16 6 3,77 1,3 0,05 20
No goals achieved 12 12,17 -0,1 0,13 3 2,83 0,1 0,02 15
Total 215 215,00 50 50,00 265
402
goals not achieved by Offshoring
The majority of respondents (52.05%) referred to the fact that they achieved their
goals. Those who did not, most frequently referred to entering new markets and
savingcostsas goals that they did not achieve. In the category other goals that were
not achieved frequent answers were a lack of strategic assets, such as focus on core
activitiesand quickdelivery.
table 5.31 Overview of frequently mentioned goals that were not achieved by offshoring for respondents in track A.
Frequently mentioned goals that were not achieved by offshoring of respondents in Track A
Goals not achieved
Frequencies
Track A
Percentages
Track A
Cost savings 11 4.51
Quick access to technology 9 3.69
Capture advantages of favorable legislation and regulations (e.g. tax legislation) in offshore location 7 2.87
Takes longer than expected to achieve goals 5 2.05
Other 19 7.79
All goals were achieved 127 52.05
Meaningless 16 6.56
Total 244 100.00
After codifcation of these answers in main categories, most frequently mentioned
goals not achieved by service frms in Track A were related to strategicassetseeking.
X
2
002_080678_HFDST 05.indd 96 16-09-2008 15:10:34
table 5.32 Overview of frequently mentioned goals that were not achieved by offshoring divided into main categories
for respondents in track A.
Frequently mentioned goals that were not achieved by offshoring of respondents in Track A divided into main categories
Frequencies
Track A
Percentages
Track A
37 16.30
Increase fexibility
Capture advantages of favorable legislation and regulations (e.g. tax legislation)
in offshore location
Market access seeking Follow customers/suppliersEnter new markets 20 8.81
Cost advantages Cost savings 11 4.85
Strategic resource seeking Recruit qualifed employees 5 2.20
Other
Takes longer than expected to achieve goals
11 4.85
Other
All goals achieved All goals were achieved 127 55.95
Total 227 100.00
reasons for not achieving goals by Offshoring
The top three of frequently mentioned reasons for not achieving these goals by
offshoring were that it was diffculttomanage, it was diffculttogetaccessorgrowon
the foreignmarket and otherreasons fornotachievinggoals, such as lackofsuffcient
strategicresources, qualityand fexibility(Table 5.33).
table 5.33 Overview of frequently mentioned reasons for not achieving goals for respondents in track A.
Frequently mentioned reasons for not achieving goals of respondents in Track A
Reasons for not achieving goals Frequencies Track A Percentages Track A
Diffcult to manage 13 12.38
Diffcult to access or grow on foreign market 13 12.38
Takes longer than expected to reach goals 10 9.52
Cultural differences 8 7.62
Communication 7 6.67
Lack of qualifed employees in offshore location 6 5.71
Legislation and regulations 5 4.76
Other 22 20.95
Meaningless 21 20.00
Total 105 100.00
After codifcation of these answers into main categories, most frequently
mentioned reasons for not achieving their goals were related to managementissues
(Table 5.34).
002_080678_HFDST 05.indd 97 16-09-2008 15:10:34
table 5.34 Overview of frequently mentioned reasons for not achieving goals divided into main categories for respondents
in track A.
Frequently mentioned reasons for not achieving goals of respondents in Track A divided into main categories
Main category Sub-category Frequencies Track A Percentages Track A
Management issues
Diffcult to manage
31 31.96
Cultural differences
Communication
Takes longer than expected to reach goals
Diffcult to access or grow on foreign market Diffcult to access or grow on foreign market 13 13.40
Unfavorable government policy Legislation and regulations 8 8.25
Unavailability of strategic resources Lack of qualifed employees in offshore location 8 8.25
Other Other 16 16.49
Total 97 100.00
Conclusion: Based on the self-reported measures of respondents, the majority did
achieve all or most of their goals by offshoring. A relatively low percentage referred
to havingachievednoneoftheirgoals. Increase/maintaincompetitiveness, costsavings
and enteringnewmarkets belonged to the top three of frequently mentioned goals
achieved. The latter two goals were also discussed in the previous paragraph as
being the most important motives for relocating activities and jobs involved. In
addition, they were mentioned in the top three of goals that were not achieved, as
well as othergoalsnotachieved such as focusoncoreactivities and quickdelivery. After
all answers were codifed in main categories, goals related tostrategicassetseeking
were most frequently mentioned both as having been achieved and not achieved.
Those frms that did not achieve their goals, the minority of service frms with
previous offshoring experience, mentioned in their top three that offshoring
activities were diffcult to manage, it was diffcult to get access or to grow on foreign
markets and other reasons for not achieving goals such as lack of suffcient strategic
resources,qualityandfexibility. After codifcation of all answers in main categories
took place, management issues stood out as reasons why these service frms did
achieve their goals.
The research results did not show a signifcant relationship between goals achieved
and type of offshoring. However, they did indicate a trend that goals related to cost
advantages were more often than expected achieved by relocating activities via a
third party and those related to marketaccess by captive offshoring. Based on these
fndings, the following proposition was formulated:
Proposition6: There is no relationship between objectives achieved by service frms
when relocating their activities and their choice for a specifc type of offshoring.
002_080678_HFDST 05.indd 98 16-09-2008 15:10:34
Barriers to Offshoring
Tables 5.35 and 5.36 show that for respondents who previously relocated activities,
the top three of both frequently mentioned and most important barriers were
culturaldifferences, legislationandregulations and the fact that offshoring activities
were diffcult to manage. For respondents who were planning to offshore the top
three of frequently mentioned and most important barriers were the same, but
referred to in a different order; 20.89% of the respondents in Track A mentioned
perceiving no barrier at all for offshoring their activities versus 1.45% of the
respondents in Track B.
table 5.35 Overview of frequently mentioned barriers to offshoring activities (in the future) for respondents in tracks
A and B.
Frequently mentioned barriers of respondents in Tracks A and B to offshore activities (in the future)
Frequently mentioned barriers Frequencies Track A Percentages Track A Frequencies Track B Percentages Track B
Cultural differences 66 20.89 14 20.29
Legislation and regulations (e.g. privacy rules) 51 16.14 10 14.49
Diffcult to manage 38 12.03 20 28.99
Lack of qualifed employees in offshore location 19 6.01 5 7.25
Quality of work 19 6.01 7 10.14
Communication 14 4.43 3 4.35
Political situation 9 2.85 4 5.80
Financial and administrative 8 2.53 2 2.90
Other 9 2.85 3 4.35
None 66 20.89 1 1.45
Total 316 100.00 69 100.00
table 5.36 Overview of most important barriers to offshoring activities (in the future) for respondents in tracks A and B.
Most important barriers of respondents in Tracks A and B to offshore activities (in the future)
Most important barriers Frequencies Track A Percentages Track A Frequencies Track B Percentages Track B
Cultural differences 34 16.19 5 14.71
Legislation and regulations (e.g. privacy rules) 32 15.24 7 3.33
Diffcult to manage 21 10.00 10 4.76
Quality of work 13 6.19 5 2.38
Lack of qualifed employees in offshore location 13 6.19 1 0.48
Communication 11 5.24 4 1.90
Other 3 1.43 1 0.48
None 66 31.43 1 0.48
Total 210
403
100.00 34 100.00
After codifcation of all answers into main categories as shown in Tables 5.37 and
5.38 barriers related to managementissues stood out as frequently mentioned and
as most important barriers for offshoring activities in both Tracks A and B.
403 Excluded from further analysis were missingvalues from three respondents (N=213-3).
002_080678_HFDST 05.indd 99 16-09-2008 15:10:34
table 5.37 Overview of most frequently mentioned barriers for offshoring activities (in the future) divided into main
categories for respondents in tracks A and B.
Frequently mentioned barriers of respondents in Tracks A and B to offshore activities (in the future)
divided into main categories
Frequencies
Track A
Percentages
Track A
Frequencies
Track B
Percentages
Track B
Management issues
Diffcult to manage
92 33.82 26 50.00
Communication
Financial and administrative
Unfavorable government policy
Political situation
56 20.59 13 25.00
Legislation and regulations (e.g. privacy rules)
Unavailability of strategic resources Lack of qualifed employees in offshore location 21 7.72 5 9.62
Unavailability of strategic assets Quality of work 20 7.35 7 13.46
No barriers None 66 24.26 1 1.92
Total 272 100.00 52 100.00
table 5.38 Overview of most important barriers for offshoring activities (in the future) divided into main categories for
Most important barriers of respondents in Tracks A and B to offshore activities (in the future) divided into main categories
Frequencies
Track A
Percentages
Track A
Frequencies
Track B
Percentages
Track B
Management issues
Diffcult to manage
68 32.38 19 55.88 Cultural differences
Communication
Unfavorable government policy Legislation and regulations (e.g. privacy rules) 33 15.71 8 23.53
Unavailability of strategic resources Lack of qualifed employees in offshore location 13 6.19 1 2.94
Unavailability of strategic assets Quality of work 13 6.19 5 14.71
No barriers None 66 31.43 1 2.94
Total 210
404
100.00 34 100.00
Testing the relationship between most important barriers and different types of
offshoring showed that over 20% of the expected values were too low. Therefore,
a chi-square test with a reliable outcome could not be performed (Table 5.39). It
also showed that unfavorable government policy and management issues behaved
differently compared to the rest of the answers. Therefore, a second chi-square test
was performed whereby unavailabilityofstrategicresources and strategicassets, both
producing low expected cell counts, were pooled in the category other (Table 5.40).
The test did not produce a signifcant result (p = 0.1934). However, a routine check
of the adjusted residuals indicated a trend that for captive offshoring, unfavorable
government policy was the most important barrier, as management issues was for
404 Excluded from further analysis were missingvalues from three respondents (N=213-3).
002_080678_HFDST 05.indd 100 16-09-2008 15:10:35
405 109 answers were excluded from further analysis: 66 answers referring to nobarriers, seventeen referring to answers in the category meaningless,
three missing values and 23 answers referring to a combinationofentrymodes (N= 213-66-17-3-23).
table 5.39 Most important barriers divided into main categories versus type of offshoring for respondents in track A.
Most important barriers divided into main categories versus type of offshoring for of respondents in Track A
Most important
barriers
Total Actual
count
Expected
count
Adjusted
residual
Standard
error
Actual
count
Expected
count
Adjusted
residual
Standard
error
Unfavorable
government policy
25 21,81 1.8 0,44 2 5,19 -1.8 0,01 27
Management issues 43 45,23 -1.1 0,94 13 10,77 1.1 0,17 56
Unavailability of
strategic resources
9 9,69 -0.5 0,10 3 2,31 0.5 0,02 12
Unavailability of
strategic assets
7 7,27 -0.2 0,07 2 1,73 0.2 0,01 9
Total 84 84,00 20 20,00 104
405
table 5.40 Most important barriers divided into main categories (with pooling of unavailability of strategic resources and
assets in one category) versus type of offshoring for respondents in track A.
Most important barriers divided into main categories versus type of offshoring for respondents in Track A
Most important
barriers
Total
Actual
count
Expected
count
Adjusted
residual
Standard
error
Actual
count
Expected
count
Adjusted
residual
Standard
error
Unfavorable
government policy
25 21,81 1.8 0,44 2 5,19 -1.8 0,01 27
Management issues 43 45,23 -1.1 0,94 13 10,77 1.1 0,17 56
Unavailability of
strategic assets and
resources
16 16,96 -0.6 0,23 5 4,04 0.6 0,04 21
Total 84 84,00 20 20,00 104
X
2
Conclusion: Culturaldifferences, legislationandregulations and offshoring activities
being diffcult to manage were the top three of frequently and most important
perceived barriers for those frms who did previously relocate their activities and
those planning who were planning to do so. After codifcation of all answers in
main categories, management issues stood out as barriers to offshoring activities.
20.89% of the respondents in Track A mentioned perceiving no barrier at all for
offshoring their activities versus 1.45% of the respondents in Track B.
The research results did not show a signifcant relationship between respondents
perceived barriers and their choice for a specifc type of offshoring. However, they
indicated a trend that for captive offshoring unfavorablegovernmentpolicy was the
most important barrier as managementissues was for offshore outsourcing. Based
on these fndings the following proposition was formulated:
Proposition 7: There is no relationship between most important barriers and type
of offshoring.
002_080678_HFDST 05.indd 101 16-09-2008 15:10:35
5.6.4. What to Offshore
This section elaborates on which activities respondents chose to relocate or were
planning to offshore in the future. It also includes the research results for activities
that were previously relocated and subsequently (will be) withdrawn.
The top three of activities offshored by respondents who previously relocated
activities were ITandrelated servicesand sales as well as the category otheractivities
offshored. The latter included answers such as all (supporting) activities, call center
and contact offce. Those respondents planning to relocate activities referred in
their top three to operations, ITandrelatedservices, with marketingand sales sharing
a third place (Table 5.41).
table 5.41 Overview of offshoring activities for respondents in tracks A and B.
Offshoring activities of respondents in Tracks A and B
Offshoring activity Frequencies Track A Percentages Track A Frequencies Track B Percentages Track B
IT and related services 52 15.03 11 20
Sales 50 14.45 6 10.91
Operations 36 10.4 12 21.82
Transport and logistic services 32 9.25 3 5.45
Service 31 8.96 5 9.09
Human resource management 25 7.23 3 5.45
Marketing 24 6.94 6 10.91
Legal and other advisory services 17 4.91 2 3.64
Procurement 12 3.47 0 0.00
Financial and administrative services 12 3.47 2 3.64
Research and Design 10 2.89 2 3.64
Management tasks 5 1.45 2 3.64
Other 38 10.98 1 1.82
Total 346 100.00 55 100.00
When asked whether they referred to their offshoring activities as core or non-core,
the majority of respondents in both Tracks A and B referred to them as belonging
to their corebusiness (A: 69.48%; B: 58.82%; Table 5.42).
table 5.42 Overview of offshoring activities divided into core and non-core activities based on answers of respondents
in tracks A and B.
Offshoring activities divided into core and non-core activities for respondents in Tracks A and B
Core and non-core activity Frequencies Track A Percentages Track A Frequencies Track B Percentages Track B
Core activities 148 69.48 20 58.82
Non-core activities 41 19.25 10 29.41
Both type of activities 24 11.27 4 11.76
Total 213 100.00 34 100.00
002_080678_HFDST 05.indd 102 16-09-2008 15:10:35
From the research results shown in Table 5.43 it can be concluded that there was
a signifcant relationship between the relocation of core and non-core activities
and type of offshoring. A chi-square test established the signifcance of this
relationship at p = 0.0004 (Phi = 0.275, p = 0.0004; Cramers V = 0.275, p = 0.0004;
N = 164). A routine check of the adjusted residuals indicated that core activities
are more often relocated by making a foreign direct investment, while non-core
activities offshoring occurred more often via contractual agreement with a third-
party offshore provider.
table 5.43 core and non-core activities versus type of offshoring for respondents in track A.
Core and non-core offshoring activities versus type of offshoring for respondents in Track A
Type of activities
Total
Actual count
Expected
count
Adjusted
residuals
Standard
error
Actual count
Expected
count
Adjusted
residuals
Standard
error
Core activities 114 107,01 3.5 3,11 16 22,99 -3.5 0,23 130
Non-core activities 21 27,99 -3.5 0,34 13 6,01 3.5 0,17 34
Total 135 135,00 29 29,00 164
406
X
2
Conclusion: The majority of respondents referred to their relocated activities
as core activities. Research results showed a signifcant relationship between
core and non-core activities and the type of offshoring. It also showed that core
activities were more often than expected relocated in the form of a foreign direct
investment. In contrast, non-coreactivities were more often than expected relocated
via a contractual agreement with a third-party offshore provider. Hence:
Proposition8:Core activities are more likely to be relocated via captive offshoring
than non-core activities.
hard and soft service Activities
The majority of activities relocated by respondents in Track A (56.39%) were soft
serviceactivities whereas the majority of service frms planning to offshore (51.85%)
referred to hardserviceactivities (Table 5.44). Overall softserviceactivities dominated
the type of activities relocated to foreign locations.
406 49 answers were excluded from further analysis: 31 answers referring to a combination of entrymodes, 18 answers referring to a combinationofcore
andnon-coreactivities (N=213-49).
002_080678_HFDST 05.indd 103 16-09-2008 15:10:35
table 5.44 Activities relocated (in the future) by respondents in tracks A and B divided into hard and soft service
activities.
Offshoring activities divided into hard and soft service activities for respondents in Tracks A and B
Type of activity Frequencies Track A Percentages Track A Frequencies Track B Percentages Track B
Hard service activities 140 43.61 28 51.85
Soft service activities 181 56.39 26 48.15
Total 321
407
100.00 54
408
100.00
Further analysis of the distribution of hard and soft service activities over the
different foreign entry modes showed that captive offshoring was most frequently
used to relocate both type of activities (Table 5.45).
table 5.45 Activities relocated by respondents in track A distributed over the different types of offshoring.
Hard and soft service activities distributed over foreign entry modes for respondents in Track A
Type of activity Captive offshoring Offshore outsourcing Combination Total
Hard service activities 98 21 21 140
Soft service activities 136 14 31 181
Total 234 35 52 321
409
When analyzing hard and soft service activities versus type of offshoring, a
signifcant relationship was established at p = 0.0441 (Phi = -0.123, p = 0.0441;
Cramers V = 0.123, p = 0.0441; N = 269). A routine check of the adjusted residuals
indicated indeed an association between offshore outsourcing, which was
more often than expected chosen to relocate hard service activities versus captive
offshoring to relocate softserviceactivities (Table 5.46).
table 5.46 hard and soft service activities versus type of offshoring for respondents in track A.
Hard and soft service activities versus type of offshoring for respondents in Track A
Type of activity
Total
Actual count
Expected
count
Adjusted
residual
Standard
error
Actualcount
Expected
count
Adjusted
residual
Standard
error
Hard service
activities
98 103,52 -2.0 2,67 21 15,48 2.0 0,34 119
Soft service
activities
136 130,48 2.0 3,57 14 19,52 -2.0 0,19 150
Total 234 234,00 35 35,00 269
410
X
2
407 25 answers were excluded from further analysis: two answers in the category meaningless and 23 answers in the category other that could not be
assigned to hardorsoftactivities (N= 346-2-23).
408 One answer was excluded from further analysis since it could not be assigned to hardorsoftactivities (N= 55-1).
409 25 answers were excluded from further analysis: two answers in the category meaningless and 23 answers in the category other that could not be
assigned to hardorsoftactivities (N= 346-2-23).
410 52 answers were excluded from further analysis referring to a combinationofentrymodes (N=321-52).
002_080678_HFDST 05.indd 104 16-09-2008 15:10:35
Conclusion: Findings showed that the majority of relocated activities were soft
serviceactivities. Though frms planning to offshore intent to relocate relatively more
hard service activities while frms with previous offshoring experience relocated
relatively more soft service activities. Furthermore, a signifcant relationship was
established between respondents level of experience in offshoring versus hard
and soft service activities indicating that offshore outsourcing was more often
than expected chosen to relocate hardserviceactivities versus captive offshoring to
relocate softserviceactivities. Hence, the following proposition was formulated:
Proposition 9: Soft service activities are more likely to be relocated via captive
offshoring than hard service activities.
5.6.5. Where to Offshore
In providing further insight into the offshore behavior of service frms, this section
presents the research fndings for the respondents preferred offshore locations.
Offshore locations were analyzed based on their geographic position (countries,
regions and major areas) as well as on their income level.
Offshore Locations by countries
Apart from China (4
th
in ranking) and India (5
th
in ranking shared with France),
WesternEuropeancountries ranked in the top fve of countries to which respondents
in Track A relocated their activities. India and China headed the list with preferred
offshore locations for respondents in Track B. For a complete overview of countries
mentioned as (future) offshore locations see Appendix 5.17 Offshore locations by
countries.
Offshore Locations by regions
The top three of offshoring regions for respondents in Track A were Western
Europe (16.92%) followed by Northern (12.12%) and Eastern Europe (10.58%). For
respondents in Track B this top three included Eastern Europe and Southern Asia
in shared frst place (17.54%) followed by EasternAsia(14.04%). See Table 5.47 for
overview offshore regions for respondents in Tracks A and B.
002_080678_HFDST 05.indd 105 16-09-2008 15:10:35
table 5.47 Overview of offshore regions for respondents in tracks A and B.
Offshoring regions of respondents in Tracks A and B
Offshoring regions Frequencies Track A Percentages Track A Frequencies Track B Percentages Track B
Northern Europe 63 12.12 4 7.02
Western Europe 88 16.92 4 7.02
Southern Europe 42 8.08 3 5.26
Eastern Europe 55 10.58 10 17.54
Western Asia 11 2.12 1 1.75
South-eastern Asia 32 6.15 2 3.51
Southern Asia 35 6.73 10 17.54
Central Asia 2 0.38 0 0.00
Eastern Asia 42 8.08 8 14.04
Northern America 35 6.73 2 3.51
South America 16 3.08 2 3.51
Central America 3 0.58 2 3.51
Caribbean 5 0.96 0 0.00
Australia/New Zealand 19 3.65 1 1.75
Southern Africa 6 1.15 2 3.51
Northern Africa 4 0.77 0 0.00
Eastern Africa 1 0.19 0 0.00
Other 61 11.73 6 10.53
Total 520 100.00 57 100.00
Offshore Locations by Major Area
Both for respondents in Tracks A (40.67%) and B (40.43%), Europe stood out as a
major area to which they have relocated their activities followed by Asia (A: 24.87%;
B: 36.17%). Third in ranking is North America (11.14%) for respondents in Track A
and LatinAmericaincludingtheCaribbean (6.38%) for Track B. See Table 5.48 for an
overview of major offshoring areas for Tracks A and B.
table 5.48 Overview of offshore regions divided into major areas for respondents in tracks A and B.
Offshoring locations divided in major areas for respondents in Tracks A and B
Major area Region
Frequencies
Track A
Percentages
Track A
Frequencies
Track B
Percentages
Track B
Europe
Northern Europe
157 40.67 19 40.43
Western Europe
Southern Europe
Eastern Europe
Asia
Western Asia
96 24.87 17 36.17
South-eastern Asia
Southern Asia
Central Asia
Eastern Asia
North America Northern America 43 11.14 2 4.26
Latin America and the Caribbean
South America
24 6.22 3 6.38 Central America
Caribbean
Oceania Australia/New Zealand 19 4.92 1 2.13
Africa
Southern Africa
24 6.22 2 4.26 Northern Africa
Eastern Africa
Other Other 23 5.96 3 6.38
Total 386 100.00 47 100.00
002_080678_HFDST 05.indd 106 16-09-2008 15:10:35
Offshore Locations by income Level
The majority of respondents with previous offshoring experience relocated their
activities to offshore locations with a highincomelevel (Table 5.49).
table 5.49 Offshore locations divided by income level in four categories for respondents in tracks A and B.
Offshore locations divided by income level for respondents in Tracks A and B
Income level in GNI
411
per capita Frequency Track A Percentage Track A Frequency Track B Percentage Track B
High income ( US$ 10,066) 129 35.25 8 15.69
Upper middle income (US$ 3,25610,065) 63 17.21 11 21.57
Lower middle income (US$ 8263,255) 69 18.85 12 23.53
Low income ( US$ 825) 37 10.11 10 19.61
Unknown
412
68 18.58 10 19.61
Total 366 100.00 51 100.00
Offshore Locations by income Level versus type of Offshoring
A chi-square test established no signifcant relationship between foreign entry
mode and income level at offshore location (p = 0.1047; Table 5.50).
table 5.50 Offshore locations divided by income level in four categories versus type of offshoring for respondents in
track A.
Offshore locations divided by income level versus type of offshoring for respondents in Track A
Income level in
GNI
413
per capita
Total
Actual count
Expected
count
Adjusted
residual
Standard
error
Actual count
Expected
count
Adjusted
residual
Standard
error
High income
( US$ 10,066)
93 86,23 2.2 2,52 15 21,77 -2.2 0,21 108
Upper middle
income (US$
3,25610,065)
42 42,31 -0.1 0,91 11 10,69 0.1 0,13 53
Lower middle
income
(US$ 8263,255)
40 45,51 -2.1 0,85 17 11,49 2.1 0,25 57
Low income
( US$ 825)
23 23,95 -0.5 0,39 7 6,05 0.5 0,07 30
Total 198 198,00 50 50,00 248
414
X
2
DATASTATISTICS/0,,contentMDK:20420458~menuPK:64133156~pagePK:64133150~piPK:64133175~theSitePK:239419,00.html
412 The category unknown includes all answers referring to offshorelocations that could not be assigned to one of the disjoint income level categories,
e.g. Asia,sixteendifferentcountries,Europeandover10countriesworldwide.
414 118 answers were excluded from further analysis: 58 answers referring to a combinationofentrymodes, 60 answers in the category unknown (N =
366-118).
002_080678_HFDST 05.indd 107 16-09-2008 15:10:35
However, a routine check of the adjusted residuals showed a difference between
high income level and all other income levels, i.e. when offshoring via a third party,
activities were more likely to be relocated to lowerincomelevel countries. In contrast,
activities offshored in a captive way were more likely to be relocated to higherlevel
income countries. Subsequently, the relation was tested between type of offshoring
versus higher income level countries and lower income level countries (including
upper middle income, lower middle income and low income). This post-test did
indeed show a signifcant relationship between type of offshoring and income
level at p = 0.0306 (Phi = 0.0137, p = 0.0306; Cramers V = 0.0137, p = 0.0306; N =
248). A routine check of the adjusted residuals confrmed an association between
higher income level offshore locations and captive offshoring versus lower income
level offshore locations and offshore outsourcing (Table 5.51).
table 5.51 Offshore locations divided by income level in two categories (high income versus upper middle, lower middle
and low income combined) versus type of offshoring for respondents in track A.
Offshore locations divided by higher and lower income level versus type of offshoring for respondents in Track A
Income level
Total
Actual count
Expected
count
Adjusted
residual
Standard
error
Actual count
Expected
count
Adjusted
residual
Standard
error
Higher income 93 86,23 2.2 2,52 15 21,77 -2.2 0,21 108
Lower income 105 111,77 -2.2 2,87 35 28,23 2.2 0,71 140
Total 198 198,00 50 50,00 248
415
X
2
Conclusion: As far as the offshore locations divided by geography were concerned,
research fndings showed that the top fve of countries included not only Western
European countries, but also India and China for both tracks of respondents (See
Appendix 5.18 for Offshore locations by countries). Whereas for frms with
previous offshoring experience regions in Europe dominated their top three
offshore regions, frms planning to relocate activities put SouthernandEasternAsia
high on their list of preferred regions. Divided into major areas, Europe and Asia
were the preferred offshore areas for both tracks.
The majority of respondents with previous offshoring experience relocated their
activities to offshore locations with a highincomelevel. Further analysis established
a signifcant relationship between high income level and all other income levels
(includes upper middle income, lower middle income and low income level), i.e.
when activities were offshore outsourced, respondents preferred to go to lower
income level countries versus captive offshoring to higher level income countries.
Therefore, the following proposition was formulated:
Proposition 10: Activities offshored to a location with a higher income level are
more likely to be relocated via captive offshoring than those relocated to a location
with a low income level.
415 118 answers were excluded from further analysis: 58 answers referring to a combination of entry modes, 60 answers in the category unknown (N = 366-
118).
002_080678_HFDST 05.indd 108 16-09-2008 15:10:36
5.6.6. Deciding on and managing Offshoring
This section elaborates on the research results related to the decision-making
and managing of offshoring activities. In doing so, it presents the results related
to the responsibility for managing and implementing offshoring activities. It also
includes the level at which offshoring decisions were taken and the departments
involved in the implementation of offshoring.
Level in the Organization at which Offshoring Decisions are taken
The majority of respondents in both tracks referred most frequently to Board of
Directors/Board of Management as well as CEO/Director/President/Managing Director
as the level at which offshoring decisions were taken (Table 5.52).
table 5.52 Overview of level in the organizational hierarchy at which offshoring decisions are taken.
Level at which offshoring decisions are taken within organizations of respondents in Tracks A and B
Level in organizational hierarchy Frequencies Track A Percentages Track A Frequencies Track B Percentages Track B
Board of directors/Board of Management 110 40.74 10 27.03
CEO/Director/President/Managing Director 95 35.19 25 67.57
Head of business unit/Head of department 18 6.67 0 0.00
CFO/Financial director/Treasurer/ Controller 13 4.81 1 2.70
Senior vice-president/Vice-president 10 3.70 0 0.00
Manager 9 3.33 0 0.00
CIO/Director of technology 6 2.22 0 0.00
Other 9 3.33 1 2.70
Total 270 100.00 37 100.00
After codifcation of these answers into main categories of hierarchy levels
responsible for taking offshoring decisions within the organization, the executive
and top management level stood out for service frms participating in both tracks
(Table 5.53).
table 5.53 Overview of level in the organizational hierarchy at which offshoring decisions are taken divided into main
categories.
Level at which offshoring decisions are taken within organizations of respondents in Tracks A and B divided into main categories
Frequencies
Track A
Percentages
Track A
Frequencies
Track B
Percentages
Track B
Executive and top management level
Board of Directors/Board of Management
195 84.78 33 97.06
CEO/Director/President/Managing Director
CFO/Financial director/ Treasurer/Controller
Senior vice president/Vice-president
CIO/Director of technology
Middle management
Head of business unit/Head of department
26 11.30 0 0.00
Manager
Other internal and external stakeholders Other 9 3.91 1 2.94
Total 230 100.00 34 100.00
002_080678_HFDST 05.indd 109 16-09-2008 15:10:36
Departments involved in Offshoring (future) Business Activities
In addition to the fact that BoardofDirectors/BoardofManagement were frequently
referred to as being responsible for taking offshoring decisions, they were also
frequently mentioned as being involved in the implementation process of
offshoring. Furthermore, the following top three of individual departments were
involved in this implementation process: Finance and administration, Strategy and
Internationalbusinessdevelopment.
table 5.54 Overview of departments and other stakeholders involved in offshoring (future) business activities.
Departments and other stakeholders involved in offshoring (future) business activities for respondents in Tracks A and B
Departments and other stakeholders Frequencies Track A Percentages Track A Frequencies Track B Percentages Track B
Finance and administration 58 16.57 10 16.67
Strategy 50 14.29 13 21.67
Board of Directors/Board of Management 38 10.86 6 10.00
International business development 36 10.29 6 10.00
HRM 27 7.71 4 6.67
International affairs 22 6.29 3 5.00
Marketing, sales and after-sales 21 6.00 1 1.67
Middle management 17 4.86 1 1.67
Whole organization 15 4.29 4 6.67
ICT 9 2.57 2 3.33
CEO/Director/President/Managing Director 8 2.29 2 3.33
Operations 8 2.29 5 8.33
Legal 5 1.43 1 1.67
Other 32 9.14 2 3.33
Total 350 100.00 60 100.00
When analyzing the answers on a more aggregate level, it was shown that apart
from several individual departments, especially executive and top management was
involved in the implementation process.
table 5.55 Overview of departments and other stakeholders involved in offshoring (future) business activities divided
in main categories.
Departments and other stakeholders involved in offshoring (future) business activities for respondents in Tracks A and B divided into
main categories
Frequencies
Track A
Percentages
Track A
Frequencies
Track B
Percentages
Track B
Individual departments
International business development
124 52.54 21 58.33
International affairs
Finance and administration
HRM
Strategy
ICT
Operations
Legal
Marketing, sales and after-sales
46 19.49 8 22.22
Middle management Middle management 17 7.20 1 2.78
Whole organization Whole organization 15 6.36 4 11.11
Total 236 100.00 36 100.00
002_080678_HFDST 05.indd 110 16-09-2008 15:10:36
responsibilities for managing (future) Offshoring Activities
When it came to the responsibility for managing offshoring activities, the top of the
hierarchy within organizations - represented by CEO/Director/President/Managing
Director/CFO/CCO-stood out (Table 5.56).
table 5.56 Overview of responsibility in the organizational hierarchy for managing (future) offshoring activities.
Responsibility for managing offshoring activities referred to by respondents in Tracks A and B
Organizational hierarchy Frequencies Track A Percentages Track A Frequencies Track B Percentages Track B
CEO/Director/President/Managing
Director/CFO/CCO
120 47.43 22 52.38
Manager 37 14.62 5 11.90
Head business unit/Head of department 36 14.23 9 21.43
Board of Directors/Board of Management 24 9.49 1 2.38
CIO/Director of technology 20 7.91 3 7.14
Other 12 4.74 2 4.76
Total 253 100.00 42 100.00
On a more aggregate level, the research fndings showed that responsibility for
managing offshoring activities was most frequently mentioned to be at the
executive and top management level within the organizations of respondents
(Table 5.57).
table 5.57 Overview of responsibility in the organizational hierarchy for managing (future) offshoring activities divided
into main categories.
Responsibility for managing offshoring activities referred to by respondents in Tracks A and B divided into main categories
Frequencies
Track A
Percentages
Track A
Frequencies
Track B
Percentages
Track B
CEO/Director/President/Managing Director/
CFO/CCO
155 64.32 24 61.54
Middle management
Head business unit/Head of department
70 29.05 13 33.33
Manager
Total 241 100.00 39 100.00
Conclusion: Research fndings showed that adapting to the local culture at
the offshore location, human resources and organizational structure were the
most frequently mentioned challenges for managing offshoring activities for
respondents in Tracks A and B. Furthermore, they indicated that the highest level
in the organizational hierarchy, executive and top management level, was most
frequently mentioned by respondents to be involved in both the decision-making
and in the implementation process. Following these fndings, the sample invited
to participate in the subsequent feld studies represented the higher echelons of
service frms.
002_080678_HFDST 05.indd 111 16-09-2008 15:10:36
5.6.7. future Plans for Offshoring
In this section the research results regarding the future plans of those frms that
previously relocated activities and jobs involved are presented. It includes their
plans to (not) continue offshoring or relocate additional activities; category of
activities they are planning to relocate; and their motives for (not) doing so.
future Offshoring Plans
The majority of respondents in Track A (71.36%) that previously relocated activities
to foreign locations, mentioned they plan to offshore (more) activities in the future
as is shown in Table 5.58.
table 5.58 Offshore plans of respondents that previously relocated activities.
Offshoring plans of respondents in Track A
Offshoring plans Frequencies Track A Percentages Track A
Yes, our company is planning to offshore (more) activities in the future 152 71.36
No, our company is not planning to offshore (more) activities in the future 61 28.64
Total 213 100.00
Motives for (more) Offshoring
The three frequently mentioned motives for offshoring (more) activities in the
future were enteringnewmarkets, savingcosts and increaseormaintaincompetitiveness
(Table 5.59).
table 5.59 Overview of frequently mentioned motives for offshoring (more) activities in the future by respondents in
track A.
Frequently mentioned motives to offshore (more) activities in the future by respondents in Track A
Motives
Frequencies
Track A
Percentages Track A
Save costs 53 19.49
Quick access to technology 6 2.21
Capture advantages of favorable legislation and regulations (e.g. tax legislation)
in offshore location
5 1.84
Other 14 5.15
Meaningless 2 0.74
Total 272 100.00
Codifed in main categories, the top three drivers for offshoring (more) activities in
the future were motives related to marketaccessseeking followed by strategicasset
seeking and costsavings (Table 5.60).
002_080678_HFDST 05.indd 112 16-09-2008 15:10:36
table 5.60 Overview of frequently mentioned motives for offshoring (more) activities in the future by respondents in
track A divided into main categories.
Frequently mentioned motives to offshore (more) activities in the future by respondents in Track A
Main category Sub-category Frequencies Track A Percentages Track A
81 35.37
Enter new markets
66 28.82
Increase fexibility
Capture advantages of favorable legislation and regulations (e.g. tax
legislation) in offshore location
Cost advantages Save costs 53 23.14
Strategic resource
seeking
Other Other 6 2.62
Total 229 100.00
Further analysis was done to test whether a relationship existed between motives
for future offshoring plans and type of offshoring for respondents in Track A. Due to
the fact that 30% of expected cell counts were lower than 5, the test was not reliable.
Therefore, a post-test was performed by pooling the category strategic resource
seeking in the category other (Table 5.62). The test showed a signifcant relationship
between motives for future offshoring and the preferred way in which activities
are relocated p = 0.0446 (Phi = 0.202, p = 0.0446; Cramers V = 0.202, p = 0.0446;
N = 198). A routine check of the adjusted residuals indicated that captive offshoring
was associated with market access seeking, whereas cost advantages and to a lesser
extent strategic asset and strategic resource seeking were most often mentioned in
combination with offshore outsourcing.
table 5.61 Overview of motives for offshoring (more) activities in the future versus type of offshoring for respondents
in track A.
Motives for future offshoring plans versus type of offshoring for respondents in Track A
Frequently
mentioned motives
Total
Actual count
Expected
count
Adjusted
residual
Standard
error
Actual count
Expected
count
Adjusted
residual
Standard
error
Cost advantages 32 35,45 -1,4 0,62 13 9,55 1,4 0,17 45
Market access
seeking
62 54,36 2,8 1,54 7 14,64 -2,8 0,07 69
Strategic asset
seeking
45 47,27 -0,9 0,91 15 12,73 0,9 0,17 60
Strategic resource
seeking
13 14,18 -0,7 0,17 5 3,82 0,7 0,04 18
Other 4 4,73 -0,7 0,03 2 1,27 0,7 0,01 6
Total 156 156,00 42 42,00 198
416
416 36 answers were excluded from further analysis: 34 answers referring to a combinationofentrymodes and two answers in the category meaningless
(N=234-36).
002_080678_HFDST 05.indd 113 16-09-2008 15:10:36
table 5.62 Overview of motives (with pooling of strategic resource seeking and other in one category) for offshoring
(more) activities in the future versus type of offshoring for respondents in track A.
Motives for future offshoring plans versus type of offshoring for respondents in Track A
Frequently
mentioned motives
Total
Actual count
Expected
count
Adjusted
residual
Standard
error
Actual count
Expected
count
Adjusted
residual
Standard
error
Cost advantages 32 35,45 -1,4 0,62 13 9,55 1,4 0,17 45
Market access
seeking
62 54,36 2,8 1,54 7 14,64 -2,8 0,07 69
Strategic asset
seeking
45 47,27 -0,9 0,91 15 12,73 0,9 0,17 60
Strategic resource
seeking + Other
17 18,91 -1,0 0,19 7 5,09 1,0 0,07 24
Total 156 156,00 42 42,00 198
417
X
2
Motives for not Offshoring
As is shown in Table 5.63, the top three of motives for not relocating (more) activities
in the future were: it providednoaddedvalue, it was tooearlyintheprocesstodecide
on offshoring new activities and other motives for not offshoring such as activities are
notsuitableforoffshoring, it wasnotnecessary andit wastimeforconsolidation.
table 5.63 Overview of frequently mentioned motives for not offshoring (more) activities in the future by respondents
in track A.
Frequently mentioned motives for not offshoring (more) activities in the future by respondents in Track A
Frequently mentioned motives for not offshoring Frequencies Track A Percentages Track A
Lack of added value by offshoring 12 18.46
Too early to decide on offshoring new activities 10 15.38
It is diffcult to manage 6 9.23
Increase/maintain competitiveness is not necessary in this way 6 9.23
Market situation not favorable at this moment 6 9.23
Other 16 24.62
Meaningless 9 13.85
Total 65 100.00
After codifcation of these answers in main categories, the most frequently
mentioned motives for not offshoring (more) activities in the future was a lackof
needorinteresttoaccessnewmarkets.
417 36 answers were excluded from further analysis: 34 answers referring to a combinationofentrymodes and two answers in the category meaningless
(N=234-36).
002_080678_HFDST 05.indd 114 16-09-2008 15:10:36
table 5.64 Overview of frequently mentioned motives for not offshoring (more) activities in the future by respondents in
track A divided into main categories.
Frequently mentioned motives for not offshoring (more) activities in the future by respondents in Track A
Frequencies
Track A
Percentages
Track A
Lack of need or interest to access markets Market situation not favorable at this moment 14 21.54
Lack of need for strategic asset seeking Increase/maintain competitiveness is not necessary in this way 6 9.23
Management issues It is diffcult to manage 6 9.23
Too early to decide on offshoring new activities Too early to decide on offshoring new activities 10 15.38
Lack of added value by offshoring Lack of added value by offshoring 12 18.46
Other reasons for not offshoring in the future Other 8 12.31
Total 65 100.00
Degree of withdrawing Activities
The majority (87.32%) of respondents who previously relocated activities did not
withdraw them. The minority withdrew a few (10.80%) or all activities (1.88%)
(Table 5.65).
table 5.65 Activities withdrawn by respondents in track A.
Activities withdrawn by respondents in Track A
Activities withdrawn Frequencies Track A Percentages Track A
All activities have been withdrawn 4 1.88
A few activities have been withdrawn 23 10.80
No activities have been withdrawn 186 87.32
Total 213 100.00
Motives for withdrawing Activities
The three most important motives for withdrawing their activities to the
Netherlands was the fact that it was diffcult to manage, change of international
growthstrategy and increaseoflaborcostsatoffshorelocation shared in ranking by a
lackofqualityorservice (Table 5.66).
table 5.66 Overview of motives for withdrawing previously relocated activities by respondents in track A.
Frequently mentioned motives for withdrawing activities (in the future) by respondents in Track A
Motives for withdrawing Frequencies Track A Percentages Track A
Focus on other foreign markets 2 5.88
Diffcult to manage 6 17.65
Incompatibility of local and company culture 1 2.94
Lack of quality/service 1 2.94
Increase of labor costs at offshore location 3 8.82
Suffcient qualifed employees in the Netherlands 1 2.94
Other 18 52.94
Meaningless 1 2.94
Total 34 100.00
After codifcation of the answers in main categories (Table 5.67) motives related
to managementissues were most frequently mentioned as drivers for withdrawing
activities.
002_080678_HFDST 05.indd 115 16-09-2008 15:10:36
table 5.67 Overview of motives for withdrawing previously relocated activities by respondents in track A divided into
main categories.
Frequently mentioned motives for withdrawing activities in the future by respondents in Track A divided into main categories
Frequencies
Track A
Percentages
Track A
Change of international growth strategy Focus on other foreign markets 7 21.88
Management issues
Diffcult to manage
11 34.38
Incompatibility of local and company culture
Offshoring does not provide added value
Lack of quality/service
9 28.13 Increase of labor costs in offshore location
Suffcient qualifed employees in the Netherlands
Other
4 12.50
Other
Total 32 100.00
Activities to be withdrawn
The minority of respondents who withdrew or will withdraw activities referred
most frequently to ITandrelatedservices (Table 5.68).
table 5.68 Overview of previously relocated activities that are withdrawn by respondents in track A.
Previously relocated activities withdrawn to the Netherlands by respondents in Track A
Withdrawn activities Frequencies Track A Percentages Track A
IT and related services 7 23.33
Operations 5 16.67
Other 15 50.00
Meaningless 3 10.00
Total 30 100.00
The majority of respondents (66.67%) referred to their offshoring activities as their
corebusiness.
table 5.69 core and non-core activities that are withdrawn by respondents in track A.
Core and non-core activities that are withdrawn to the Netherlands for respondents in Track A
Type of activities Frequencies Track A Percentages Track A
Core activities 18 66.67
Non-core activities 7 25.93
Both core and non-core activities 2 7.41
Total 27 100.00
reasons for continuing Offshoring Activities
There is no substantial difference in frequency of answers given by respondents
with regard to good(fnancial)performanceoftherelocatedactivities and importance
for the companys strategy as reasons for continuing offshoring activities (Table
5.70).
002_080678_HFDST 05.indd 116 16-09-2008 15:10:37
table 5.70 reasons for continuing offshoring activities for respondents in track A.
Reasons for continuing offshoring activities for respondents in Track A
Reasons for continuing offshoring Frequencies Track A Percentages Track A
Good (fnancial) performance of offshored activities 115 45.45
Offshoring is important for companys strategy 121 47.83
Other reasons for continuing offshoring activities 10 3.95
Meaningless 7 2.77
Total 253 100.00
Reasons for continuing to offshore were divided in a similar way across the entry
modes. A routine check of the adjusted residuals indicated that the reason to
continue offshoring activities differed slightly between entry modes, i.e. captive
offshoring was more associated with importance for the companys strategy and
offshore outsourcing with good(fnancial)performance. However, the relationship
between entry mode and experienced barriers was not signifcant (p = 0.8510;
Table 5.71).
table 5.71 reasons for continuing offshoring versus versus type of offshoring for respondents in track A.
Reasons for continuing offshoring versus versus type of offshoring for respondents in Track A
Reasons for
continuing
offshoring
activities
Total
Actual count
Expected
count
Adjusted
residual
Standard
error
Actual count
Expected
count
Adjusted
residual
Standard
error
Good (fnancial)
performance of
offshored activities
83 84,41 -0.5 2,21 18 16,59 0.5 0,27 101
Offshoring
important for
companys strategy
83 81,90 0.4 2,21 15 16,10 -0.4 0,21 98
Other 7 6,69 0.3 0,07 1 1,31 -0.3 0,00 8
Total 173 173,00 34 34,00 207
418
X
2
5.7. summary findings
Based on descriptive statistics, a body of understanding was created about
the offshoring behavior of service frms based on the following variables: frm
size, headquarters location, type of service frms (hard and soft), degree of offshoring
experience, motives, typeofoffshoringactivitiesbothcoreandnon-coreandhardandsoft
service activities, goals achieved and income level at offshore locations. Subsequently,
it was tested if these variables had an infuence on the choice of service frms for a
specifc type of offshoring. A signifcant relationship was established between type
of offshoring as the dependent variable and the following independent variables:
motives, headquarterslocation, typeofoffshoringactivitiesbothcoreandnon-coreand
hardandsoftoffshoringactivities, goalsachieved and incomelevelatoffshorelocations.
418 46 answers were excluded from further analysis: 39 answers referring to a combinationofentrymodes and seven answers in the category meaningless
(N = 253-46).
002_080678_HFDST 05.indd 117 16-09-2008 15:10:37
The literature fndings from Chapter 3 were brought back by comparing the
empirical fndings of this frst feld study to the characteristics associated with
captive offshoring and offshore outsourcing summarized in Figure 3.1. In contrast
to the literature fndings, the empirical fndings suggested that frm characteristics
related to frmsize, levelofexperienceinoffshoring and typeofoffshoringfrms(hard
or soft service frms) did not serve as indicators for service frm offshore behavior
regarding their choice for a specifc foreign entry mode while typeofactivities(hard/
soft and core/non-core), headquarters location, income level (higher/lower) at offshore
locations and motives did (Figure 5.1).
figure 5.1 empirical fndings regarding independent variables showing a signifcant relationship with type of offshoring
compared to literature fndings in chapter 3 depicted in figure 3.1.
Subsequently, the independent variables with a signifcant association for type of
offshoring were tested for their mutual relationship in order to build an emergent
model for the decision making of service frms regarding the type of offshoring.
5.8. exploring the relationship between the independent variables
In this section, it was tested whether a mutual relationship existed between motives,
headquarters location, type of offshoring activities both core/non-core and hard/
soft offshoring activities, goals achieved and income level at offshore locations.
5.8.1. Motives versus core and non-core Activities
A routine check of the adjusted residuals and standard error indicated that core
activities were associated with market access seeking and non-core activities with
cost advantages. However, the expected cell count for the chi-square test was too
Income level Lower income level Higher income level
Need to perform on
intra-firm basis
Core activity Non-core activity
Level of
Soft service activity Hard service activity
Foreign entry mode Offshore outsourcing Captive offshoring
activity characteristics
offshore location
type of offshoring
Most important objectives
objectives
Market access seeking Cost advantages
Headquarters location
firm characteristics
Foreign location The Netherlands
- +
- +
- +
002_080678_HFDST 05.indd 118 16-09-2008 15:10:37
low to be reliable (Table 5.72). Therefore, the category answers related to strategic
resource seeking with the lowest expected cell count were pooled in the category
other while a new test was performed (Table 5.73). This test confrmed that the
aforementioned relationship was indeed signifcant at p = 0.0015 (Phi = 0.288, p =
0.0015; Cramers V = 0.288, p = 0.0015; N = 186).
table 5.72 core and non-core activities versus most important motives for respondents in track A.
Core and non-core activities versus most important motives for respondents in Track A
Most important
motives
Core activities Non-core activities
Total
Actual count
Expected
count
Adjusted
residuals
Standard
error
Actual count
Expected
count
Adjusted
residuals
Standard
error
Cost advantages 17 24,33 -3,5 0,25 14 6,67 3,5 0,19 31
Market access
seeking
89 80,06 3,2 2,40 13 21,94 -3,2 0,17 102
Strategic asset
seeking
28 29,83 -0,8 0,52 10 8,17 0,8 0,12 38
Strategic resource
seeking
8 7,06 0,8 0,08 1 1,94 -0,8 0,00 9
Other 4 4,71 -0,7 0,03 2 1,29 0,7 0,01 6
Total 146 146,00 40 40,00 186
419
table 5.73 core and non-core activities versus most important motives (with strategic resource seeking and other pooled
in one category) for respondents in track A.
Core and non-core activities versus most important motives for respondents in Track A
Most important
motives
Total
Actual count
Expected
count
Adjusted
residual
Standard
error
Actual count
Expected
count
Adjusted
residuals
Standard
error
Cost advantages 17 24,33 -3,5 0,25 14 6,67 3,5 0,19 31
Market access
seeking
89 80,06 3,2 2,40 13 21,94 -3,2 0,17 102
Strategic asset
seeking
28 29,83 -0,8 0,52 10 8,17 0,8 0,12 38
Strategic resource
seeking + other
12 11,77 0,1 0,15 3 3,23 -0,1 0,02 15
Total 146 146,00 40 40,00 186
420
5.8.2. Motives versus hard and soft service Activities
When analyzing a possible association between hard and soft services versus
most important motives, the frst chi-square test included all main categories of
most important motives (Table 5.74). This test showed the expected cell count
to be too low. Therefore, the test was not reliable and showed that the category
strategic resource seeking with a low expected cell count, produced a relatively
big difference in the analysis vis vis the other variables. Furthermore, a routine
check of the adjusted residuals indicated that soft activities were associated with
marketaccessseeking,whereas costadvantages were associated with relocating hard
419 27 answers were excluded from further analysis: 24 answers referring to both coreasnon-coreactivities, three answers in the category meaningless
(N = 213-27).
420 27 answers were excluded from further analysis: 24 answers referring to both core as non-core activities, three answers in the category meaningless
(N = 213-27).
X
2
002_080678_HFDST 05.indd 119 16-09-2008 15:10:37
activities for respondents who previously relocated activities. In order to create a
more meaningful test, strategicresourceseeking was pooled with the category other
(Table 5.75). A chi-square test established a signifcant relationship between most
important motives and hard and soft service activities at p = 0.0001 (Phi = 0.382, p
= 0.0001; Cramers V = 0.382, p = 0.0001; N = 149).
table 5.74 Most important motives versus hard and soft service activities for respondents in track A.
Most important motives versus hard and soft service activities for respondents in Track A
Most important
motives
Hard service activities Soft service activities
Total
Actual count
Expected
count
Adjusted
residuals
Standard
error
Actual count
Expected
count
Adjusted
residuals
Standard
error
Cost advantages 27 15,74 4,4 0,49 7 18,26 -4,4 0,07 34
Market access
seeking
24 35,19 -3,7 0,41 52 40,81 3,7 1,22 76
Strategic asset
seeking
12 11,58 0,2 0,15 13 13,42 -0,2 0,17 25
Strategic resource
seeking
5 4,17 0,6 0,04 4 4,83 -0,6 0,03 9
Other 1 2,32 -1,2 0,00 4 2,68 1,2 0,03 5
Total 69 69,00 80 80,00 149
421
table 5.75 Most important motives (with strategic resource seeking and other pooled in one category) versus hard and
soft service activities for respondents in track A.
Most important motives versus hard and soft service activities for respondents in Track A
Most important
motives
Hard service activities Soft service activities
Total
Actual count
Expected
count
Adjusted
residual
Standard
error
Actual count
Expected
count
Adjusted
residual
Standard
error
Cost advantages 27 15,74 4,4 0,49 7 18,26 -4,4 0,07 34
Market access
seeking
24 35,19 -3,7 0,41 52 40,81 3,7 1,22 76
Strategic asset
seeking
12 11,58 0,2 0,15 13 13,42 -0,2 0,17 25
Strategic resource
seeking + Other
6 6,48 -0,3 0,05 8 7,52 0,3 0,08 14
Total 69 69,00 80 80,00 149
422
X
2
421 64 answers were excluded from further analysis: four answers in the category meaningless and 22 answers referring to activities that could not be
categorized into hardorsoftactivities, 38 answers referring to a combination of hardandsoftactivities (N= 213-64).
422 64 answers were excluded from further analysis: four answers in the category meaninglessand 22 answers referring to activities that could not be
categorized into hardorsoftactivities, 38 answers referring to a combination of hardandsoftactivities (N= 213-64).
002_080678_HFDST 05.indd 120 16-09-2008 15:10:37
5.8.3. core and non-core Activities versus hard and soft service Activities
A chi-square test did not establish a signifcant relationship (p = 0.4690) between
different types of activities. Though a routine check of the adjusted residuals
indicated that coreactivities were to some extent associated with softserviceactivities
and non-coreactivities with hardserviceactivities (Table 5.76).
table 5.76 core and non-core activities versus hard and soft service activities for respondents in track A.
Core and Non-core activities versus Hard and Soft service activities for respondents in Track A
Type of activities
Hard activities Soft activities
Total
Actual count
Expected
count
Adjusted
residuals
Standard
error
Actual count
Expected
count
Adjusted
residuals
Standard
error
Core activities 44 45,78 -0,7 0,97 59 57,22 0,7 1,44 103
Non-core activities 16 14,22 0,7 0,23 16 17,78 -0,7 0,23 32
Total 60 60,00 75 75,00 135
423
X
2
5.8.4. Offshore Locations by income Level versus Motives
The test for most important motives versus offshore locations by income level was
not reliable due to the low expected cell counts of some of the variables (Table
5.77). The adjusted residuals and the standard error indicated a trend that high
income locations were associated with market access seeking. Lower income level
locations were preferred if cost advantages were the most important objective to
relocate activities. Strategic resource seeking was also associated with lower income
level locations. A post-test was carried out whereby strategic resource seeking
was pooled with the category other (Table 5.78). This test did show a signifcant
relationship at p = 0.0000 (Phi = 0.686, p = 0.0000; Cramers V = 0.686, p = 0.0000;
N = 101). Furthermore, a routine check of the adjusted residuals and standard
error indicated an association between service frms seeking cost advantages who
preferred lower income level offshore locations versus those seeking market access
showing a preference for higherincomeleveloffshore locations.
table 5.77 Offshore locations divided by income level versus most important motives for respondents in track A.
Most important
motives
Higher income level Lower income level
Total
Actual count
Expected
count
Adjusted
residuals
Standard
error
Actual count
Expected
count
Adjusted
residuals
Standard
error
Cost advantages 4 15,79 -5,2 0,03 25 13,21 5,2 0,44 29
Market access
seeking
38 22,33 6,4 0,77 3 18,67 -6,4 0,02 41
Strategic asset
seeking
8 11,44 -1,7 0,08 13 9,56 1,7 0,17 21
Strategic resource
seeking
4 3,81 0,1 0,03 3 3,19 -0,1 0,02 7
Other 1 1,63 -0,7 0,00 2 1,37 0,7 0,01 3
Total 55 55,00 46 46,00 101
424
423 78 answers were excluded from further analysis: 31 answers referring to a combination of hardandsoftactivities, 23 answers in the category unknown
and 24 answers referring to both coreandnon-coreactivities (N= 213 - 78 = 135).
424 112 answers were excluded from further analysis: 81 answers referring to multiple offshorelocations that are divided into different income categories
and 28 answers that could not be categorized into a distinctive incomecategory and two answers in the category meaningless (N = 213-112).
002_080678_HFDST 05.indd 121 16-09-2008 15:10:37
table 5.78 Offshore locations divided by income level versus most important motives (with strategic resource seeking
and other pooled in one category) for respondents in track A.
Most important
motives
Total
Actual
count
Expected
count
Adjusted
residuals
Standard
error
Actual
count
Expected
count
Adjusted
residuals
Standard
error
Cost advantages 4 15,79 -5,2 0,03 25 13,21 5,2 0,44 29
Market access
seeking
38 22,33 6,4 0,77 3 18,67 -6,4 0,02 40
Strategic asset
seeking
8 11,44 -1,7 0,08 13 9,56 1,7 0,17 21
Strategic resource
seeking + other
5 5,45 -0,3 0,04 5 4,55 0,3 0,04 10
Total 55 55,00 46 46,00 101
425
X
2
5.8.5. Offshore Locations by income Level versus core and non-core Activities
Core and non-core activities showed a signifcant association with offshore
locations by income level, with a value of p = 0.0347 level (Phi = 0.219, p = 0.0347;
Cramers V = 0.219, p = 0.0347; N = 93). A routine check of the adjusted residuals
indicated that core activities are associated with a higher income level offshore
location. Non-core activities were associated with a lower income level offshore
location (Table 5.79).
table 5.79 Offshore locations by income level versus core and non-core activities for respondents in track A.
Offshore locations divided by higher and lower income level versus core and non-core activities for respondents in Track A
Type of activities
Total
Actual count
Expected
count
Adjusted
residual
Standard
error
Actual count
Expected
count
Adjusted
residual
Standard
error
Core activities 42 37,46 2.1 0,91 25 29,54 -2.1 0,44 67
Non-core activities 10 14,54 -2.1 0,12 16 11,46 2.1 0,23 26
Total 52 52,00 41 41,00 93
426
X
2
5.8.6. Offshore Locations by income Level versus hard and soft service Activities
Analyzing a possible association between hard and soft service activities and
offshore locations divided by income level, revealed a signifcant relationship
at p = 0.0000 (Phi = -0.605, p = 0.0000; Cramers V = 0.605, p = 0.0000; N = 71).
A routine check of the adjusted residuals indicated that softserviceactivitieswere
more often relocated to higherincomelevel countries versus hardserviceactivitiesto
lowerincomelevelcountries (Table 5.80).
425 112 answers were excluded from further analysis: 81 answers referring to multipleoffshorelocations that are divided into different income categories
and 28 answers that could not be categorized into a distinctive incomecategory and two answers in the category meaningless (N = 213-112).
426 120 answers were excluded from further analysis: 82 answers referring to multipleoffshorelocations, 28 answers that cannot be categorized into a
distinctiveincomecategory and 10 answers referring to both coreandnon-coreactivities (N = 213-120).
002_080678_HFDST 05.indd 122 16-09-2008 15:10:38
table 5.80 Offshore locations by income level versus hard and soft service activities for respondents in track A.
Offshore locations divided by higher and lower income level versus hard and soft service activities for respondents in Track A
Type of activities
Total
Actual count
Expected
count
Adjusted
residuals
Standard
error
Actual count
Expected
count
Adjusted
residuals
Standard
error
Hard service
activities
8 18,68 -5,1 0,08 31 20,32 5,1 0,60 39
Soft service
activities
26 15,32 5,1 0,44 6 16,68 -5,1 0,05 31
Total 34 34,00 37 37,00 37 71
427
X
2
5.8.7. headquarters Location versus core and non-core Activities
A chi-square test performed for headquarters locationof respondents in Track A and
core and non-core activities did not reveal a signifcant relationship (p = 0.2869).
A routine check of the adjusted residuals indicated that core activities were
more associated with frms with headquarters abroad and non-core activities with
respondents locatedintheNetherlands.
table 5.81 headquarters location of respondents in track A versus core and non-core activities.
Headquarters location of respondents in Track A versus core and non-core activities
Headquarters
location
The Netherlands Foreign location
Total
Actual count
Expected
count
Adjusted
residuals
Standard
error
Actual count
Expected
count
Adjusted
residuals
Standard
error
Core activities 86 83,01 1,1 2,30 62 64,99 -1.1 1,54 148
Non-core activities 20 22,99 -1,1 0,32 21 18,01 1.1 0,34 41
Total 106 106,00 83 83,00 189
428
X
2
5.8.8. headquarters Location versus hard and soft service Activities
A chi-square test for headquarters locationof respondents in Track A and hard and
soft service activities did not reveal a signifcant relationship (p = 0.2481; Table
5.82). A routine check of the adjusted residuals indicated that softserviceactivities
were more associated with frms headquarteredabroad as hardserviceactivities were
with frms headquarteredintheNetherlands.
427 143 answers were excluded from further analysis: 80 answers referring to a region which could not be categorized into one income level, 42 answers
referring to a combination of hardandsoft activities and 30 answers in the category unknown (N = 213 - 142 = 71).
428 24 answers referring to a combination of bothcoreandnon-coreactivities were excluded from further analysis (N = 213 - 24).
002_080678_HFDST 05.indd 123 16-09-2008 15:10:38
table 5.82 headquarters location of respondents in track A versus hard and soft service activities.
Headquarters location of respondents in Track A versus hard and soft service activities
Headquarters
location
Total
Actual count
Expected
count
Adjusted
residuals
Standard
error
Actual count
Expected
count
Adjusted
residuals
Standard
error
Hard service
activities
45 41,53 1,2 1,00 25 28,47 -1.2 0,44 70
Soft service
activities
44 47,47 -1,2 0,97 36 32,53 1.2 0,74 80
Total 99 99,00 61 61,00 150
429
X
2
5.8.9. headquarters Location versus higher and Lower income Level
Offshore Locations
A chi-square test for headquarterslocationof respondents in Track A and incomelevel
of the offshore locations did not reveal a signifcant relationship (p = 0.9253).
table 5.83 headquarters location of respondents in track A versus higher and lower income level of offshore locations.
Headquarters location of respondents in Track A versus higher and lower income level of offshore locations
Headquarters
location
Total
Actual count
Expected
count
Adjusted
residuals
Standard
error
Actual count
Expected
count
Adjusted
residuals
Standard
error
Higher income level 47 47,25 -0,1 1,06 25 24,75 0,1 0,44 72
Lower income level 37 36,75 0,1 0,77 19 19,25 -0,1 0,30 56
Total 84 84,00 44 44,00 128
430
X
2
5.8.10. headquarters Location versus Motives
A chi-square test performed for headquarterslocationof respondents in Track A and
motives did not reveal a signifcant relationship (p = 0.9069). A routine check of the
adjusted residuals indicated that motives related to strategicresourceseeking were
to a small extent associated with respondents headquarteredintheNetherlands.
429 63 answers were excluded from further analysis: 40 answers referring to a combination of hard and soft activities and 23 answers referring to an
activity that could not be classifed as hardorsoft (N = 213 - 63).
430 95 answers were excluded from further analysis: 70 answers referring to multiple offshorelocations that are divided into different income categories
and 25 answers that cannot be categorized into a distinctive income category. (N = 213-95).
002_080678_HFDST 05.indd 124 16-09-2008 15:10:38
table 5.84 headquarters location of respondents in track A versus motives for offshoring (with strategic resource seeking
and other pooled in one category).
Headquarters location of respondents in Track A versus motives for offshoring
Headquarters
location
Total
Actual count
Expected
count
Adjusted
residuals
Standard
error
Actual count
Expected
count
Adjusted
residuals
Standard
error
Cost advantages 26 25,26 0,3 0,46 18 18,74 -0,3 0,27 44
Market access
seeking
61 62,01 -0,3 1,51 47 45,99 0,3 1,06 108
Strategic asset
seeking
22 22,97 -0,3 0,37 18 17,03 0,3 0,27 40
Strategic resource
seeking + other
11 9,76 0,6 0,13 6 7,24 -0,6 0,05 17
Total 120 120,00 89 89,00 209
431
X
2
5.9. An emergent Model regarding type of Offshoring
The results from the descriptive statistics, as described in the previous paragraphs,
are depicted in Figure 5.2: an emergent model for the choice of service frms for
a specifc type of offshoring. The core theme, type of offshoring, was related to
major issues such as motives for offshoring, type of offshoring activities and offshore
headquarters location. Descriptive statistics established a signifcant mutual
relationship between them. Except for the relationship between coreandnon-core
versus hardandsoftserviceactivities and between headquarterslocation and all other
independent variables.
figure 5.2 Mutual relationship between the independent variables and the type of offshoring.
*Headquarters location showed a signifcant relationship with entry mode though did not have a statistically signifcant relationship with the other
431 Four answers were excluded from further analysis in the categoryunknown (N = 213-4).
offshore outsourcing captive offshoring
Core
activities
Soft
activities
Higher
income
Market
access
Non-core
activities
Hard
activities
Lower
income
Cost
advantages
Dutch Foreign
Headquarters location*
002_080678_HFDST 05.indd 125 16-09-2008 15:10:38
5.10. theoretical conjecture and empirical generalizations
In order to generate theory, the next step of this research study focused on
developing a theoretical conjecture and validating the empirical generalizations
about the variables which potentially determined the behavior of service frms
operating from the Netherlands. Comparing literature fndings to the results from
the feld research presented in this chapter, the following theoretical conjecture
regarding the offshore behavior of service frms was developed:
Inthepast,theoffshoringphenomenonwasmainlyperceivedasatoolforcostsavingsby
relocatingnon-coreactivitiesviathirdpartiestoso-calledlowwagecountries.Although
offshoringmaybearesultofpressuresforcostreductions,servicefrmsfocusincreasingly
on relocating their core activities including jobs involved by way of a foreign direct
investmentandaremotivatedbystrategicopportunitiessuchasfollowingcustomersand
suppliers, entering new markets and availability of qualifed employees. Service frms
includecountrieswithahighincomelevelastheirpreferredoffshorelocation.
Based on the results from the descriptive statistics, ten propositions were
formulated in this chapter. In order to refne theory, the next phase of this research
study will focus on validating these empirical generalizations on project level
(versus frm level in the frst phase of the research) and include a larger variety
of different categories of service frms (versus the four categories of service frms
participating in the frst phase).
5.11. Limitations
This frst feld study was executed at frm level and answers of respondents could
not be linked to specifc offshore projects. For example, the motives for relocating
activities answered by service frms implementing more than one offshoring
project, could not be linked to specifc offshoring activities and offshore locations.
Therefore, the unit of analysis of the subsequent feld study was project level in
order to directly link specifc offshoring projects to motives, barriers, type of
offshoring activities, offshore locations and frm characteristics.
The codifcation process used to assign different variables to categories was based
on the underlying uniformities of their properties and on the frequency of answers.
This process might invoke a certain degree of subjectivity for those variables that
cannot be easily assigned to one of the categories, because of some overlap that
occurred in answers given by the respondents. This occurred in particular for
answers given in the category other,which provided a certain amount of freedom
for respondents to formulate their answers in order to collect rich data.
002_080678_HFDST 05.indd 126 16-09-2008 15:10:38
Subsequent to measuring the correlation between different variables, further
analysis on the explanatory value of motives, barriers, offshore locations, type
of offshoring activities and frm characteristics could not take place due to
discontinuity of the data refected in different N/n-values for various questions in
the sample survey.
This study included a limited number of service categories, namely transport,
fnancial, telecommunications and business services. This limited the
generalizability of the research results. In the feld studies presented in Chapters
6 and 7, more service frm categories were included.
Another limitation of this study was that no information was available about
respondents who answered that they had no experience in offshoring nor planned
to relocate their activities within the next three years (Track C). In the next feld
study more information is generated about respondents in Track C, enabling a
comparison of their profle with respondents in Tracks A and B respectively, namely
those frms with previous offshoring experience and those planning to relocate
activities in the future.
In this survey offshoring experience was divided in those service frms having
experience in offshoring and those planning to do so in the future. The
questionnaire did not include a question on the different levels of experience
expressed in number of years. Therefore, analysis did not allow measuring the
difference between more and less experienced service frms.
Service frms in Track B were asked about their plans within the next three years.
This is an extensive period of time given the pace of change in the feld of offshoring
by service frms. In the next survey, therefore, this period will be limited to twelve
months.
002_080678_HFDST 05.indd 127 16-09-2008 15:10:38
002_080678_HFDST 05.indd 128 16-09-2008 15:10:38
chapter 6
Refning an Emergent Model regarding Choice for
Type of Offshoring
6.1. introduction
This feld study was conducted to explore the combined interpretations of top
management of service frms regarding their offshoring behavior and their
choice for captive offshoring or offshore outsourcing. Fifteen top managers were
interviewed who were involved in 45 offshoring projects. This allowed more in-
depth insights on how the offshoring behavior of service frms infuenced their
choice for type of offshoring. The emergent model built in the previous chapter
was refned by answering the sub-research questions:
1) Does the offshoring behavior of service frms have an infuence on their choice for a
typeofoffshoring?
2) If so, which determinants of this offshoring behavior are related to their choice for
captiveoffshoringoroffshoreoutsourcing?
The type of sampling used for this feld study is referred to as theoretical sampling.
The interviewees participating in this feld study were selected based on their
involvement in the decision-making and managing of offshoring projects in the
different service categories as included in the feld research discussed in Chapter 7.
These were IT, wholesale, fnancial, publishing, construction, agriculture, energy,
transport and logistics, health care and recreation services. The interviewees
represented small and medium sized as well as large-sized frms. The reason
being that from the fndings of the previous feld study it was derived that both
categories of frms engaged in offshoring. Although the unit of analysis was project
level, the higher echelon in the frms hierarchy was invited to participate in this
feld research. The interviewees represented the following categories: CEO/CIO/
Founder/Chairman of the Board (6), Managing Director (3), Director Offshoring/
Executive Director/Director (4), Sales and Logistics Manager (1) and Management
Advisor (1). The reason was that from the research results discussed in Chapter 5,
it was apparent that this was the level of management which was involved in the
different stages of offshoring projects.
003_080678_HFDST 06.indd 129 16-09-2008 15:11:02
6.3. codifcation
The preliminary coding used to organize the data for the items objectives, barriers,
frm size, offshore locations, objectives achieved and type of service frms and
activities was based on the codifcation process discussed in paragraph 5.4. After
data collection the service frms were codifed based on: type of offshoring frms
(hard/soft service frms) and frm size (SMEs = < 100 FTE and large frms = 100
FTE). The offshoring projects were codifed based on: type of offshoring activities
(hard/soft offshoring activities; core/non-core offshoring activities), objectives
(cost advantages, market access, strategic resource and strategic asset seeking) and
barriers for offshoring (management issues), offshore locations (divided in major
geographic areas and by income level) and objectives achieved (cost advantages,
market access, strategic asset and strategic resource seeking). For an overview of the
codifcation process of objectives, barriers and objectives achieved see Appendices
6.1 to 6.3. The initial categories of the other variables were revised; and based on
newly acquired evidence they were further refned and new ones were added. Table
6.1 outlines the fnal categories used to frame coding of the data.
table 6.1 Overview of the fnal coding based on research fndings from the interviews.
Potential determinants for Captive Offshoring Potential determinants for Offshore O utsourcing
Objectives
Market access seeking Cost advantages
Barriers
More management issues Less management issues
Type of activities
Labor skill involved in offshoring activities
High-skilled labor Low-skilled labor
Scale of the project in number of FTEs
Large scale Small scale
Experience in offshoring
Experienced Less experienced
6.4. Questionnaire Design
The questionnaire designed for the interviews was based on the research results
discussed in Chapter 5, which were formulated in ten propositions. Constructs
built in the previous chapter that were derived from secondary resources instead of
respondents answers, were not considered in the questionnaire. Those constructs
not validated in the interviews appear in dark grey in Figure 6.1 on page 152.
Interviewees were asked questions about the following items (see Appendix 6.4 for
a complete list of the questions used to guide the in-depth interviews):
Firm/interviewee profle involvement in offshoring projects:
Category of service frm.
Position of interviewee.
Number of offshoring projects involved in.
003_080678_HFDST 06.indd 130 16-09-2008 15:11:02
Per project the following topics were covered:
Offshore location.
Number of years of experience in offshoring project.
Foreign market experience prior to offshoring.
Number of relocated jobs.
Skill level of relocated jobs.
Type of offshoring chosen for specifc project.
Category of offshoring activity.
Core or non-core offshoring activity.
Ex-ante and ex-post objectives for offshoring project.
Ex-ante and ex-post barriers to offshoring project.
Goals (not) achieved with the specifc offshoring project.
The questions refected the variables referred to in propositions 1, 5, 6, 7 and 8 in
Chapter 5. The following new themes arose during the interviews and were included
in the questionnaire: scale of the projects (number of FTEs involved in relocating
an activity) and labor skill of the jobs involved with offshoring. Furthermore,
during the frst interviews, it became apparent that the objectives and barriers for
offshoring often changed during the offshoring process of the project. Therefore,
questions regarding both variables were divided in ex-ante and ex-post objectives
and barriers.
Foreign market experience was added as a question to analyze whether this
variable infuenced the choice of service frms for captive offshoring or offshore
outsourcing, as is suggested in literature
432
. The question on foreign market
experience was not included in the questionnaires of the sample survey discussed
in the previous chapter, because in-depth interviews allowed elaborating on and an
explanation of the difference between foreign market experience and offshoring
experience. This would then not confuse interviewees with two similar questions
in the sample survey.
432 Blomstermo, A., Deo Sharma, D. and Sallis, J. (2006).Choiceofforeignmarketentrymodeinservicefrms. International Marketing Review, 23(2): 221-
229.
003_080678_HFDST 06.indd 131 16-09-2008 15:11:02
The interviews took place according to an interview protocol. Firstly, interviewees
were provided with a brief description of the research project including defnitions
of captive offshoring and offshore outsourcing. Secondly, the same questions in
essentially the same phrasing and sequence was used for all respondents. The
selected 15 managers together were involved in 45 projects (see Appendix 6.5.1
to 6.5.15 for profles of offshoring projects, interviewees and service frms). Each
manager/executive was invited to describe and explain the offshoring projects
he was involved in. The interviews took place between October 2006 and January
2008. A second interview for verifcation purposes took place during the period
November 2006 through April 2008. The advantage of an open-ended interview
was, in addition to the sample survey used in the other two feld studies, the richness
of the data obtained and the insider view provided by the articulation of organizational
members collective viewpoints on particular organizational occurrences
433
.
The standardized structure of the interviews helped to systematically collect
useful data in this study
434
. It might, at the same time, have reduced fexibility
and spontaneity of interviewees and consequently have constrained and limited
the openness and relevance of questions and answers
435
. In order to capture
spontaneity and to cover the same broad topics in each interview, the possibility
was maintained to discuss areas of special signifcance to interviewees that were
not included in the questionnaire. This resulted in new themes that emerged
during the interviews in addition to those identifed in the previous chapter. The
individual interviews, both face-to-face and over the telephone, were recorded and
lasted on average 90 minutes. After every interview, the fndings were transcribed
and discussed again with the interviewees in a second interview to verify whether
the transcription refected their answers. Results were compared to the literature
fndings and the questionnaire was adjusted as a result of new themes arising
during the interviews held in the previous phase. After completing ffteen interviews
no new themes arose
436
.
6.6. Data Analysis
The grounded theory approach allowed rigorous analysis and coding of the
concepts conveyed in interviews
437
. Data was analyzed by developing different case
studies and cross-comparing them to illustrate the combined interpretations of
top managers regarding the offshore behavior of service frms and their choice for
captive offshoring or offshore outsourcing. Illustrative verbatim sections taken
from the transcripts were used in this chapter to represent the essence of individual
statements and any deviations.
433 Suddaby, R. (2006). Whatgroundedtheoryisnot. Academy of Management Journal, 49(4): 633-642.
434 Patton, M.Q. (2002, 3rd edition). Qualitativeeducationandresearchmethods. Sage Publications. Thousands Oaks, California.
435 Ibidem
436 Glaser and Strauss (1967) refer to the fact that concepts emerge fairly quickly from the data. Furthermore, Martin and Turner (1986) note that
while referring in this context to Glaser and Strauss: Our own experience verifes this. By the time three or four sets of data have been analyzed, the
majority of useful concepts will have been discovered.. Glaser, B.G. and Strauss, A.L. (1967). Thediscoveryofgroundedtheory:Strategiesforqualitative
research. Aldine de Gruyter. Hawthorne, New York; Martin, P.Y. and Turner, B.A. (1986). Groundedtheoryandorganizationalresearch.The Journal of
Applied Behavioral Science, 22(2): 149.
437 Yin, R.K. (2003, 2nd edition ). Casestudyresearch:Designandmethods. Sage Publications. Beverly Hills, California; Strauss, A. and Corbin, J. (1990).
Basics of qualitative research: Groundedtheory,procedures,andtechniques. Sage Publications. Newbury Park, California.
003_080678_HFDST 06.indd 132 16-09-2008 15:11:02
In contrast with phenomenological research, the primary interest in grounded
theory is not the stories of the interviewees themselves
438
. Rather, they are a means
of collecting information on the social situation under examination. Therefore,
in order to answer the research questions posed in Paragraph 6.1. the interviews
in this research were not presented in their raw form. The empirical data derived
from the interviews was used in conjunction with the data collected from the
two sample surveys. Throughout the process of analysis, original responses were
continuously revisited to ensure that the analysis was consistent with the data. This
iterative process
439
resulted in constructs and theoretical insights as described in
the remainder of this chapter (Figure 6.1).
The information in the matrices derived from the interviews (Appendix 6.5.1 to
6.5.15) was enriched with the frm size and with a BIK-code
440
determining the
service category. Furthermore, the type of service frm and activity, i.e. hard or
soft, was added. The matrices were created to assist the search for similarities and
differences in the data collected from the interviews. Based on the research results
of this feld study, fndings from the sample survey, discussed in Chapter 5, were
refned. In Propositions 11 and 12 new topics were added while Propositions 1
and 7 were refned and adjusted. This combination resulted in a refning of the
emergent model built in the previous chapter.
6.7. firm characteristics represented by the sample
Matrix 6.1 provides an overview of service frms represented by the sample of top
managers based on: category of service frms; frm size; type of service frm (hard/
soft); number of years of offshoring experience; foreign market experience prior to
offshoring (yes/no); and number of offshoring projects.
438 Suddaby, R. (2006). Whatgroundedtheoryisnot. Academy of Management Journal, 49(4): 633-642.
439 Brown, S.L. and Eisenhardt, K.M. (1995). Productdevelopment:Pastresearch,presentfndings,and futuredirections. Academy of Management Review,
20(2): 343-378.
440 BIK refers to branch categorization of the chamber of commerce (Branch Indeling Kamer van Koophandel). Available at: http://www.kvk.nl/
Branches/010_Zoeken_van_brancheinformatie/debranchewijzer/debranchewijzer.asp
003_080678_HFDST 06.indd 133 16-09-2008 15:11:02
Matrix 6.1 Overview of service frms represented by the sample of top managers based on: category of service frms;
frm size; type of service frm (hard/soft); number of years of offshoring experience; foreign market experience prior to
offshoring (yes/no); and number of offshoring projects.
Category of service frm divided by
size and in hard/soft service frms
441
Number of years
offshoring experience
Foreign market experience
prior to offshoring
Number of
offshoring projects
1. IT-frm/L/H 8 Yes 1
2. Import and distribution company of fresh
and frozen seafood products/L/H
17 Yes 5
3. Publishing/L/H 12 Yes 3
4. Financial services/SME/S 4 No 2
5. Agriculture/SME/H 12 No 4
6. Engineering/SME/H 15 Yes 4
7. Construction/L/H 6 Yes 6
8. Financial services/L/S 5 Yes 2
9. Trading in and design of shoes/SME/H 3 No 1
10. Dental laboratory/SME/H 6 No 1
11. Healthcare services/SME/S 6 Yes 2
12. Recreation services/SME/S 2 No 1
13. Transport and logistics/L/H 12 Yes 6
14. Energy/L/H 2 Yes 3
15. IT-frm/L/H 21 Yes 4
The sample represents service frms with the following characteristics:
The frms belonged to different service categories, i.e. IT, wholesale, fnancial,
publishing, construction, agriculture, energy, transport and logistics,
healthcare and recreation services.
The majority of the frms in this sample were hard service frms (eleven) versus
four soft service frms.
The eight large service frms involved in this third feld study executed a total
of 30 projects (eighteen captive offshoring and twelve offshore outsourcing
projects) versus ffteen projects by the seven small and medium-sized frms
(seven captive offshoring and eight offshore outsourcing projects).
Regardless of size, the majority of service frms in the sample had more than
fve years experience in offshoring.
With the exception of two frms, all service frms had some form of foreign
market experience prior to offshoring.
441 H = Hard service frm; and S = Soft service frm; L = Large frm 100 FTE; SME = Small or medium sized frm < 100 FTE.
003_080678_HFDST 06.indd 134 16-09-2008 15:11:02
6.8. characteristics of the Offshoring Projects
Of the 45 projects examined for this study, 25 were implemented via a foreign direct
investment involving nine joint ventures, fve acquisitions, nine newly established
frms (greenfeld) and two existing subsidiaries (brownfeld).
Matrix 6.2 provides an overview of the characteristics of the projects implemented
by service frms based on the categories: service activity, type of activity (hard or
soft; and core or non-core), number of jobs relocated and labor skill involved in
relocating jobs, objectives and barriers for offshoring, offshore location, type
of offshoring (captive offshoring or offshore outsourcing) and objectives (not)
achieved.
Matrix 6.2 Overview of offshoring projects related to category and type of offshoring activities (core/non-core; hard and
soft); objectives and barriers for offshoring; offshore locations; objectives achieved; and type of offshoring.
442 C = Core service activity; and NC = Non-core service activity.
443 H = Hard service activity; and S = Soft service activity.
444 L = Low skilled labor; M = Medium skilled labor; H = High skilled labor.
445 Objective referred to in italics was perceived to be the most important objective compared to other objectives mentioned by respondents. In case
respondents referred to two objectives as most important, both were referred to in italic in the matrix.
446 Barrier referred to in italics was perceived to be the most important barrier compared to other barriers mentioned by respondents. In case
respondents referred to two barriers as most important, both were referred to in italic in the matrix.
447 L = Low income level (GNI per capita of US$825); LM = Lower middle income level (GNI per capita between US$ 8263,255); UM = Upper middle
income level (GNI per capita between US$ 3,25610,065); H = High income level (GNI per capita of US$ 10,066). As = Asia; Af = Africa; Eu = Europe;
NA = North America.
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IiomlhemiuislivoI
heuIlhuudimpoiluud
expoiliesliiclious
Ix-posl: ,ANGUAGE,
diIIeieucesiucuIluie,
Iuuguuge,diIIicuIllo
muuuge
Viel Numl
AsiulI
OIIshoie
oulsouiciug
Objeclives
uchieved
P
r
o
j
c
c
t
#
003_080678_HFDST 06.indd 135 16-09-2008 15:11:03
S.
PiepuiuliouoI
IishlClH
2SIoi
piojecls
2,3,4,S,6
combiuedl
I
impiovequuIilv
Ix-posl:)MPROVE
QUALITY,coslsuviugs
IocuIbuieuuciucv Iudouesiul
AsiulIM
OIIshoie
oulsouiciug
Objeclives
uchieved
6. PiepuiuliouoI
IishlClH
2SIoi
piojecls
2,3,4,S,6
combiuedl
I
impiovequuIilv
Ix-posl: )MPROVE
QUALITY,coslsuviugs
,ACKOFRELIABILITY
REGARDINGINTELLECTUAL
PROPERTY,quuIilv
Chiuul
AsiulIM
OIIshoie
oulsouiciug
Objeclivecosl
ieducliou
uchieved;lhough
quuIilvuol
impioveduudIuck
oIieIiubiIilv
ieguidiug
piolecliouoI
iuleIIecluuI
piopeilv
7.
Pie-piessuclivilies
iuvoIviuglhe
lvpeselliugoI
uilicIes,quuIilv
checkuud
coulioIlClH
600lH Ix-uule:#OSTREDUCTION
uvuiIubiIilvoIquuIiIied
empIovees
Ix-posl:
#OSTREDUCTION,
upgiudiugquuIilv,
impioviugcouluclwilh
uulhois,deIeguliug
muuugeiiuIlusks
Ix-uule:Nolhiid
puilvuvuiIubIelo
impIemeul
oIIshoiiug,iuleiuuI
iesisluuce
Ix-posl:Nobuiiieis
Iudiul
Asiul I
Cuplive
oIIshoiiug
bvu
gieeuIieId
Objeclives
uchieved
8.
9.
Pie-piessuclivilies
iuvoIviuglhe
lvpeselliugoI
uilicIes,quuIilv
checkuud
coulioIlClH
600Ioi
bolh
piojecls
combiuedl
H
Ix-uule:#OSTREDUCTION,
uvuiIubiIilvoIquuIiIied
empIovees
Ix-posl: #OSTREDUCTION,
upgiudiugquuIilv,
impioviugcouluclwilh
uulhois,deIeguliug
muuugeiiuIlusks
Ix-uule:IuleiuuI
iesisluuce
Ix-posl:Nobuiiieis
8.PhiIippi
ueslAsiul
IM
9.Iudiul
AsiulI
OIIshoie
oulsouiciug
Objeclives
uchievedIoibolh
piojecls
10. I1-
uclivilieslNClH
30lH Ix-uule:1UALITY,cosl
eIIecliveuess,scuIubiIilv
Ix-posl: 1UALITY,
SCALABILITY,cosl
eIIecliveuess
Ix-uule:"IG
INVESTMENT,
chuugemuuugemeul,
iuleiuuI
commuuiculiou
ieguidiug
empIovees,
couviuciuglhebouid,
cuIluiuIdiIIeieuces
Ix-posl: ,ACKOF
CLEARMILESTONES,
duiuliouoIlhe
piojecl,uuIoieseeu
lusksuudiespousibi-
Iilies,WORKAROUNDS,
woikiugwilhlwo
svslems,scuIubiIilv
oIcouliuclwilh3
id
puilv
Iudiul
AsiulI
OIIshoie
oulsouiciug
SIowsluilwilh
highpoleuliuIIoi
successiulhe
Iuluie
11. I1-
huidwuielNClH
120lH 3CALABILITY,euleiiugiulo
muikel,shuiiug
kuowIedgeIoiuIuigei
muikel
Ix-uule:Chuugiug
ieIulioushipwilh
oIIshoiepiovidei
Ix-posl:UuIoieseeu
commuuiculiou
piobIems
eIgiuml
IuiopelH
OIIshoie
oulsouiciug
Objeclives
uchieved;lhoughil
lookuIoloIlime,
eueigv,IiuuuciuI
iesouiceslomuke
ilusuccess.Ilis
uolslubIevel;
cousluul
muuugemeul
ulleuliouueededlo
keeppiojeclou
liuck
12. PiepuiuliouoI
bioIogicuI
goodslClH
<10lI Ix-uule:0ROXIMITYTO
SOURCE,coslsuviugs,
impiovequuIilv,
iucieusescuIe
Ix-posl:Muikeluccess
Ix-uule:1UALIFIED
MANAGEMENT,
commuuiculiou,
liusl,quuIilvoIwoik,
cIimule,IeguIuud
IiuuuciuIissues
Ix-posl:QuuIiIied
muuugemeul
Chiuul
AsiulIM
OIIshoie
oulsouiciug
Aboul80oI
objeclives
uchieved;Iucloiv
IuucliousweII
lhoughdiduol
mukeupioIilso
Iui
13. Cooidiuuliou
uclivilieslClS
2lH 0ROXIMITYTOSOURCE
coslsuviugs
Ix-uule:
#OMMUNICATION,
liusl,quuIilvoIwoik
Ix-posl:
Commuuiculiou
1huiIuudl
AsiulIM
Cuplive
oIIshoiiug
bvujoiul
veuluie
Objeclives
uchieved;piojecl
ieIeiiedlous
exliemeIv
successIuI"
14. ReuluIoIIuim
equipmeul l ClH
<S0lI,M Ix-uule:0ROXIMITYTO
SOURCE,coslsuviugs,
Ix-uule:1UALITYOF
WORK,
Ilhiopiul
AIiiculI
Cuplive
oIIshoiiug
Objeclives
uchieved
impiovequuIilv,
iucieusescuIe
Ix-posl:IucieusescuIe
commuuiculiou,
liusl,goveiumeul
poIicvuoluIIowiug
loowuuIiim
Ix-posl:QuuIilvoI
woik
bvujoiul
veuluie
003_080678_HFDST 06.indd 136 16-09-2008 15:11:04
1S. IieeziugoI
bioIogicuIIiuil
pioduclslClH
<S0lI Ix-uule:0ROXIMITYTO
SOURCE,coslsuviugs,
impiovequuIilv,
iucieusescuIe
Ix-posl:IucieusescuIe
Ix-uule:
#OMMUNICATION
RELIABILITY,quuIilvoI
woik,goveiumeul
poIicvieguidiugIuud
lilIeiighls
Ix-posl:ReIiubiIilv
joiul veuluiepuilv
Seibiul
Iuiopel
UM
Cuplive
oIIshoiiug
bvujoiul
veuluie
40oIobjeclives
uchieved.OveiuII
uolsosuccessIuI
uslheieuie
piobIemswilhlhe
joiulveuluie
puiluei
16. DigiluIizuliouoI
diuwiugs|CAD-
CompuleiAdded
Desigu)uud
pioducliouoI
mups|GIS-
GeogiuphicuI
IuIoimuliou
Svslems)lClH
<S0lI #OSTREDUCTION,
piocessiuuovuliou
Ix-uule: -ANAGING
THEPROCESS,
commuuiculiugiu
diIIeieulIuuguuges,
IuckoIkuowIedge
ieguidiugwoikiug
wilh
phologiummeliic
lechuoIogv
Ix-posl: )NTERNAL
POLITICSAND
RESISTANCE,iuleiuuI
compeliliou,IossoI
iepululiou
Igvpll
AIiicul
IM
Cuplive
oIIshoiiug
bvujoiul
veuluie
SuccessIuI
ieguidiugcosl
ieducliou.Ilwus
uolgiveueuough
limeloieuchils
IuIIpoleuliuIiu
leimsoIpiocess
iuuovuliou
17. SoIlwuie
deveIopmeul lNCl
H
<S0lH Ix-uule:Coslieducliou
kuowIedgeseekiug
Ix-uule:
#OMMUNICATIONIN
DIFFERENTLANGUAGES
LACKOF$UTCH
SPECIFICATIONS
REQUIREMENTSFORTHE
PROCESSOF
TECHNOLOGY
Ix-posl:Iucieusiug
coslsduelowhich
oIIshoieIoculiou
becumeIessulliuclive
Russiul
Iuiopel
UM
OIIshoie
oulsouiciug
Objeclivecosl
ieducliouuchieved
despileiucieusiug
coslsduiiug
impIemeululiouoI
lhepiojecl
18. CiviI
eugiueeiiuglClH
<S0lH Ix-uule: IucieusepioIil
muigius
Ix-posl: )NCREASEPROFIT
MARGINSENSURING
CONTINUITY,cieulepioIil
ceulei
Ix-uule: 3CALABILITY,
couchiugRomuuiuu
empIovees,liuveI
limes,iuIiusliucluie
Ix-posl:IuleiuuI
iesisluuce
Romuuiul
Iuiopel
UM
Cuplive
oIIshoiiug
bvuu
ucquisiliou
Objeclives,
iucieusiugpioIil
muigius,cieuliugu
pioIilceulei uud
lheiebv eusuiiug
couliuuilv
uchieved.Duelo
lheIeuiuiugcuive,
ilbecumeeusieilo
muuugelhepiojecl
uudIesscoslIvlo
doso
19. DeveIopliuiu
secuiilv
svslemslClH
<S0lH Ix-uule:5TILIZINGAND
SECURINGEXISTING
KNOWLEDGEOFLOCAL
PEOPLETORESPONDTO
DEMANDFORCAPACITY
FROMTHE.ETHERLANDS,
coslieducliou
Ix-posl:Reduciugcosls
peihoui
Ix-uule: 3CALABILITY
ASTHECOSTSFOR
MANAGINGTHE
OFFSHORINGPROJECT
ARETOOHIGHAND
PRODUCTIVITYTOOLOW,
disluucebelweeulhe
NelheiIuudsuud
Iudouesiu,highcosls
iuvoIvedIoi
empIoviuguIuIIlime
speciuIisl
Ix-posl:IuckoIuu
iucieuseiu
kuowIedgeduelou
loouuiiowIocusou
iuiIwuveugiueeiiug
Iudouesiul
AsiulIM
Cuplive
oIIshoiiug
bvujoiul
veuluie
Objeclives
uchieved.1hough
diIIicuIlloIuilhei
expuudoIIshoiiug
ucliviliesduelo
uuiiowIocusou
iuiIwuv
eugiueeiiug
20. IusluIIuliouwoik
oushipslClH
<10lMlI Gelliuguccesslo
quuIiIiedempIovees
Nobuiiieis PoIuudl
Iuiopel
UM
Cuplive
oIIshoiiug
bvu
gieeuIieId
Objeclive
uchieved
oushipsl ClH
S0lMlI Ix-uule: &OLLOW
CUSTOMERScoslsuviugs
Ix-posl: /NTIME
DELIVERYBYCOOPERATING
WITHARELIABLEPARTNER,
VA1issues Romuuiul
Iuiopel
UM
Cuplive
oIIshoiiug
bvu
gieeuIieId
Objeclives
uchieved
coslsuviugs
003_080678_HFDST 06.indd 137 16-09-2008 15:11:04
oushipslClH
400Ioi
piojecls
22,23,24,
2S
combiuedl
M,I
Ix-uule: IoIIowcIieuls
Ix-posl: /NTIME
coslsuviugs
Nobuiiieis Chiuul
AsiulIM
Cuplive
oIIshoiiug
bvujoiul
veuluie
Objeclives
uchieveduudcIieul
poilIoIioisbooked
liII2013
23.
24.
IusluIIuliouwoik
oushipslClH
400Ioi
piojecls
22,23,24,
2S
combiuedl
M,I
Ix-uule:IoIIow
cuslomeis
Ix-posl: /NTIME
coslsuviugs
Nobuiiieis 23.
VielNuml
AsiulI
24.
1uikevl
AsiulUM
Cuplive
oIIshoiiug
bvu
gieeuIieId
IuVielNum
objeclivesuie
uchieveduudlhe
muikelis
boomiug.Piojecl
iu1uikevuol
successIuI
2S. PioducliouoI
iolisseiieslClH
400Ioi
piojecls
22,23,24,
2S
combiuedl
M,I
Ix-uule:&OLLOW
SUPPLIER,IuvoiubIe
exchuugeiuledoIIui,
movepioduclioucIosei
locuslomeis
Ix-posl:/NTIME
WITHARELIABLEPARTNER
ANDSOLIDCONTRACTUAL
AGREEMENTS cosl
suviugs
Obluiuiuggieeu
cuidsIoiempIovees
Uuiled
Slulesl
Noilh
AIiiculH
Cuplive
oIIshoiiug
bvujoiul
veuluie
SuccessIuIsoIui.
1houghilisloo
euiIvlodeleimiue
whelheiuII
objecliveshuve
beeuuchieved
26. Veudoipuvmeuls
uudbuckoIIice
uclivilieslClH
4,000lM,
I
Ix-uule: )MPROVING
QUALITYCOSTREDUCTION,
ugiIilvmuuugemeul,
iiskmuuugemeul
impioviugIeveIoI
seivicespiovided
iuleiuuIIvuudquuIilv,
ugiIilvmuuugemeul,
iiskmuuugemeul
Ix-uule:2ESISTANCE
WITHINTHEFIRM,
exisliugiuIesuud
ieguIulious
Ix-posl:
Muuugemeulissues
ieIuledlogelliug
usedloudiIIeieul
wuvoIwoikiug
Iudiul
AsiulI
Cuplive
oIIshoiiug
bvu
biowuIieId
Coslshuvebeeu
subsluuliuIIv
ieduced.Olhei
objeclivessuchus
ugiIilvuudiisk
muuugemeul,
quuIilvuiediIIicuIl
lomeusuie
27. IiuuuciuI
iepoiliuglClH
2,000Ioi
piojecls
27,28
combiuedl
M,H
Coslieducliou Resisluucewilhiulhe
Iiim
PoIuudl
Iuiopel
UM
OIIshoie
oulsouiciug
Objeclive
uchieved
28. I1uuduppIiculiou
muuugemeullNCl
H
2,000Ioi
piojecls
27,28
combiuedl
H
#OSTREDUCTION,uol
huviuglodeuIwilh
uou-coieuclivilies
Resisluucewilhiulhe
Iiim
IudiulAsiul
I
OIIshoie
oulsouiciug
Objeclives
uchieved
29. DisliibulioulClH <10lM,I &LEXIBILITY,speed,
suviuglimesovoucuu
Iocusouolheilusks
,OSSOFPROFIT
MARGINS,coulioI
jupuulAsiu
lH
Soulh
Koieul
AsiulI
IluIv,
Geimuuv,
eIgium,
IugIuudl
IuiopelH
PoIuud,
Seibiu,
Ciouliul
Iuiopel
UM
Dubuil
AsiulH
OIIshoie
oulsouiciug
1heiehusbeeuu
IossoIpioIil
muigiusduelo
iuvoIviugulhiid
puilv,howevei,lhe
objeclivesuie
uchieved
30. DeuluI
lechuiqueslClH
1S0lI Ix-uule:Coslieducliou
Ix-posl: Coslieducliou,
iucieusevoIume,
eIIicieucv
Ix-uule:Resisluuce
wilhiulheiudusliv
Ix-posl:VA1issues
imposedbvlhe
Dulchgoveiumeul
Chiuul
AsiulIM
Cuplive
oIIshoiiug
bvujoiul
veuluie
Objeclives
uchieved
31. PioduclioulClH 1S0Ioi
piojecls
31,32
combiuedl
H
uvuiIubIeexpeiliseul
lheoIIshoieIoculiou
Ix-posl: -ARKETACCEss,
coslsuviugs,expeilise
Commuuiculiou,
IegisIuliou,
liuuspoiluliouuud
desiguiugwuleilighl
couliuclswilhlhe
disliibulois
Chiuul
AsiulIM
OIIshoie
oulsouiciug
IiislcoupIeoI
veuisiuveslmeul
biggeilhuu
expecled.1oduv
suIeshuve
compeusuledIoi
lhulIoss
003_080678_HFDST 06.indd 138 16-09-2008 15:11:05
32. PioduclioulClH 1S0Ioi
piojecls
31,32
combiuedl
H
AccesslokuowIedge CuIluiuIdiIIeieuces PoiluguIl
IuiopelH
OIIshoie
oulsouiciug
Objecliveuchieved
33. ModeI
buiIdiuglClH
S,SlH Ix-uule:#OSTSAVINGS,
soIviug cupucilv
piobIems,IIexibiIilv
Ix-posl:Muikeluccess
Ix-uule:
#OMMUNICATIONIN
DIFFERENTLANGUAGES,
iuleiuuliouuIbuukiug
Ix-posl:Illooku
IouglimebeIoielhe
seivicewusdeIiveied
uccoidiugloquuIilv
uudlechuoIogv
iequiiemeuls.
1uikevl
AsiulUM
OIIshoie
oulsouiciug
Objeclives
uchieved
34. Roudliuuspoil,
dispulcheislClH
1,S00Ioi
piojecls
34,3S,36,
37,38,39,
40
combiuedl
I,M
"USINESSOPPORTUNITIES
DUETOMOREFLEXIBLE%5
LEGISLATIONREGARDING
ROADTRANSPORT,cosl
udvuuluges
Ix-uule:IegisIuliou
Ix-posl:CuIluiuI
buiiieis
Huuguivl
IuiopelU
M
Cuplive
oIIshoiiug
bvuu
ucquisiliou
Objeclives
uchieved
3S.
36.
Roudliuuspoil,
dispulcheislClH
1,S00Ioi
piojecls
34,3S,36,
37,38,39,
40
combiuedl
I,M
#OSTADVANTAGES
BUSINESSOPPORTUNITIES
Ix-uule:IegisIuliou
Ix-posl:CuIluiuI
buiiieis
Geimuuvl
IuiopelH
Cuplive
oIIshoiiug
bvuu
ucquisiliou
Objeclives
uchieved
37.
38.
Roudliuuspoil,
dispulcheisl ClH
1,S00Ioi
piojecls
34,3S,36,
37,38,39,
40
combiuedl
I,M
#OSTADVANTAGES,
BUSINESSOPPORTUNITIES
Ix-uule:IegisIuliou
Ix-posl:CuIluiuI
buiiieis
PoIuudl
IuiopelU
M
37.Cuplive
oIIshoiiug
bvuu
ucquisiliou
38.Cuplive
oIIshoiiug
bvu
gieeuIieId
Objeclives
uchieved
39. Roudliuuspoil,
dispulcheislClH
1,S00Ioi
piojecls
34,3S,36,
37,38,39,
40
combiuedl
I,M
IoIIowcuslomeis Ix-uule:IegisIuliou
Ix-posl:CuIluiuI
buiiieis
PoIuudl
IuiopelU
M
Cuplive
oIIshoiiug
bvu
gieeuIieId
Objeclives
uchieved
40. Roudliuuspoil,
wuiehousiug,
dispulcheislClH
1,S00Ioi
piojecls
34,3S,36,
37,38,39,
40
combiuedl
I,M
Ix-uule:IoIIow
cuslomeis
Ix-posl: "USINESS
OPPORTUNITIES,IoIIow
cuslomeis,cosl
udvuuluges
Ix-uule:uieuuciucv
loeslubIishuuew
compuuv|IiscuIuud
udmiuisliulive
buideu)
Ix-posl:IegisIuliou
Huuguivl
IuiopelU
M
Cuplive
oIIshoiiug
bvujoiul
veuluie
Objeclives
uchieved
41. DulueulivoIussel
muuugemeullNCl
H
1S0lI Coslsuviugs Nobuiiieis Iudiul
AsiulI
OIIshoie
oulsouiciug
Objeclive
uchieved
42. 1hedeveIopmeul
uudmuuugemeul
oIduluuud
uppIiculiou
svslemsusweIIus
I1-
iuIiusliucluielNCl
H
300lM,H #ONTINUITYINDELIVERY
SERVICES,expecled
uuuvuiIubiIilvoI
quuIiIiedempIoveesiu
lheNelheiIuuds,cosl
suviugs
Ix-uule: PoIilicuI
iuslubiIilv
PoIuud
uudeilhei
Seibiuoi
Romuuiul
IuiopelU
M
OIIshoie
oulsouiciug
Piojeclisiu
pIuuuiugphuse;uo
iesuIlsvello
iepoil
43. WiiliugoI
soIlwuielNClH
40lH Ix-uule:Cupucilv
Ix-posl: Sliulegic
decisioulosluil
deveIopiugsoIlwuieuud
uewlechuoIogv
Ix-uule:No
expeiieucewilh
oIIshoiiug
Ix-posl: Nobuiiieis
Iudiul
AsiulI
OIIshoie
oulsouiciug
Objeclive
uchievedlomuke
useoIlhe
uuIimiledcupucilv
oIempIoveesiu
Iudiu.1hough,
quuIilvcouIdbe
impiovedupou
uudcoslsweieloo
highduelo
iuvoIvemeuloIu
lhiidpuilv
003_080678_HFDST 06.indd 139 16-09-2008 15:11:05

6.9. Previous foreign Market and Offshoring experience
The interview data was analyzed as to whether, according to the combined
interpretation of managers, there was an association between the type of offshoring
and their frms foreign market experience prior to offshoring respectively their
frms offshoring experience.
6.9.1. foreign Market experience as an enabler for Offshoring
Most service frms, represented by the managers interviewed, had some kind of
foreign market experience prior to offshoring their activities. The frst offshoring
projects initiated were, according to the managers interviewed, often not based on
a strategic decision, but it was merely a coincidence. As one CEO put it:

In1986IwasinIndiatoseeifthiscouldbeanewmarkettoconquer.Thiswasnotthe
casebutIrealizedthecountryhadmanyadequatelyskilledpeopleandthatIcouldmake
use of these resources. So the main objective to offshore IT activities was the unlimited
capacityofemployees.InadditionthefactthatmostIndiansspeakgoodEnglishworked
inour favor.Lateron,offshoringbecameastrategicdecision.Thisiswhenitbecamemy
coredevelopmentdepartment.FounderandChairmanITsoftwarefrm
Offshoringismoreofacoincidence.Wemetpeopleataninternationalconferenceand
thatishowwestartedinRussia.Ofcourseyoumustbeopen-mindedtowardsrelocating
business activities to these countries in particular. You need to feel some kind of a
connection with the partners in these countries. Characteristics specifc for Russia are
thelevelofsoftwareknowledgeandtheentrepreneurshipoftheRussianbusinesspeople.
Theyarepreparedtotakerisks. ManagingDirectorengineeringfrm
quuIilv REGARDINGTHE
PRODUCTAND
THEREFOREDISTANCETO
THEENDUSERIuckoI
IuleiuelIuciIilies,
IuckoIlukiug
owueishipoIpiojecls
bvIudiuuempIovees
Ix-posl:CuIluiuI
diIIeieucesiesuIliug
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003_080678_HFDST 06.indd 140 16-09-2008 15:11:06
Foreign market experience might serve as an enabler to offshoring due to a network
already being in place that can be used when offshoring, as was illustrated by a
managing director:
Yes,priortooffshoring,wehadaprojectinLebanonandthroughthisprojectwecame
in contact with a company in Cairo, Egypt. When the owner of this company moved to
Canada,wedecidedin2000tobuya51%-shareintheEgyptiancompanytooffshoreour
activitiesto.ManagingDirectorengineeringfrm
Foreign market experience could infuence the choice for a specifc type of
offshoring, for example in case of an existing subsidiary, which could be a reason
for choosing captive offshoring over relocating activities via a third party:
ThecombinationofhavinganexistingnetworkinIndiaandthe factthatthiscountrys
wagesarelowmadeitanobviouschoice.Tobehonest,Ithinkitwasmoreopportunistic
thinkingthananythingelse.Idontbelieveanyonereallysatdownandwrotealistpros
andcons.Wewerealreadythereandthoughtletstrysomethingnewbyoffshoringpart
of our activities to our subsidiary. Executive Director and Global Head of Service Management for
ServicesDivisionfnancialservicesfrm
Others referred to the frms frst offshoring project as captive regardless of their
previous foreign market experience:

Thefrmhasbeeninvolvedinoffshoringsince1995.Atthattimeweestablishedacaptive
centerinthe formofa jointventurewithanotherEuropeanfrmandalocalpartnerat
theoffshorelocationinIndia.ThiscaptivecenterislocatedinChennaiandtodateisstill
owned by us. Since 1995, more activities have been successfully offshored to Bangalore
inIndiaandtoManilainthePhilippines.Myexpectationsarethatthisstrategywillbe
continuedinthefuture.CEOpublishingfrm
In quite a number of projects there was simply no choice because there was no
third party available to carry out the job. Previous foreign market experience was
therefore not an issue and captive offshoring was the only option:
[.......]aprioritherewasnoonethatcoulddothejob.Wewouldhavepreferredtooffshore
outsourceouractivitiesfromthestartin1995.However,wewereactuallyforcedtodoa
captivefrst.Thereasonbeingthattherewerenosuitablepartiesthatcouldofferusthe
servicewewerelookingfor.Inordertorelocateactivitiesviaathirdpartyyoureallyneed
tobeabletochoose frommorethanoneparty.Ifyoualsowanttogetcompetitiveprices
andquality,youneedatleasta fewcompetingparties.Thiswayyouarenotcompletely
dependantononecompany.[]Nowweareoneofffteenpartiesthatarespecializedin
pre-pressactivitiessowearereadytosellourbusinessandinvolvea foreignthirdparty
tooffshore.Wedontneedthecaptivecenteranymore.[]Ifotherscandoit,whykeepit
underyourowncontrol?CEOpublishingfrm
003_080678_HFDST 06.indd 141 16-09-2008 15:11:06
We choose captive offshoring by way of establishing a joint venture. The company in
China already existed but did not operate in the Netherlands and Northern Europe.
We bought a share in the Chinese frm and they bought a share in our frm. We did not
consider offshore outsourcing because it would be extremely diffcult to fnd a Chinese
thirdpartythatcouldprovidetheseveryspecifcservices.DirectorandMajorShareholderfrm
deliveringdentaltechniquestodentistsanddentallaboratories
Althoughitwasntouraimtodevelopitourselves,wewereforcedtodosobecausethere
wasnothirdpartythathadasuitablesysteminplace.Weneededapartnerwhocould
offerusfexibilityandtherightlevelofscalability.Thisisaveryimportantrequirementin
stockbroking,becausesometimesitisbusyandeveryoneneedstopitchin,whereaswhen
thingsstarttoslowdownagain,youdontneedthesamenumberofpeopletogetthejob
done.Therefore,ouraimwastobeasfexibleinourcostsaspossible;bothupwardsand
downwards.However,therewasntapartythatwasinterestedtodoeverything.Wehad,
forexample,someinterestfromcompaniesthatwantedtodothetransactionsforusbut
didnotwanttodealwiththeadministrationside.ManagingDirectorfnancialservicesfrm
Based on the combined interpretations of managers, an association was established
between previous foreign market experience and offshoring in that, based on an
existing network, the decision to offshore was easier. However, they did not show
a strong association between foreign market experience and their choice for a
specifc type of offshoring.
6.9.2. Making use of Lessons Learned
A number of managers referred to the fact that relocating their frst offshoring project
via a third party was often a transition to captive offshoring, because it was suggested
to be easier as a frst step:
Thefrstprojectin1986wasviaathirdparty.Thatwasalearningcurve.OnceIhaddone
thisIrealizedthat,Imyself,coulddothejobbetter.From1987onwards,alltheotherprojects
weredonebywayofcaptiveoffshoring.Iamanentrepreneurandnotamanager,therefore,
Iliketohavesomecontrolovermyprojects.Ifocusednotoncostsavings.Onthecontrary,I
hadtoinvestquitealottogetwhereIamnow.FounderandChairmanITsoftwarefrm
Westartedviaathirdpartybecausethiswaseasiesttodo forus.Weneededanentryinto
Chinaandhadtosetupawholenewstructure.Afterthisphase,weusedcaptiveoffshoring
becausewithoffshoreoutsourcingwewouldloseouraddedvaluetowardsthecustomer.We
needtomakesurethatcustomersneedustogettheirproducts.Ifwestartusingthirdparties,
thenwhatstostopourcustomers fromdealingdirectlywiththesethirdpartiesthemselves?
Wewouldhavelostouradvantage.ManagementAdvisortradingcompanyinbasicorganiccommodities
003_080678_HFDST 06.indd 142 16-09-2008 15:11:06
Based on the combined interpretation of managers interviewed, an association
was established between offshoring experience and type of offshoring. Therefore,
Proposition 1 formulated in Chapter 5 was adjusted:
Proposition 1: Service frms with fve or more years of offshoring experience are
more likely to choose captive offshoring for relocating their activities than frms
with less than fve years experience.
6.10. Objectives
This section discusses whether there was an association between objectives for
offshoring and type of offshoring based on the combined interpretations of the
managers interviewed.
6.10.1. A combination of Objectives
In general, there was a combination of objectives that led to relocating business
activities to a foreign location infuencing the choice for a specifc type of
offshoring:
Onethingstandsout:thequalitymustbegood.InthecaseofChina,thequalityisofthe
sameorhigherstandardasintheNetherlandsbutthecostsarefarless.Costsavingsisthe
mainobjectivebutnotifyouhavetosacrifcequalityforit.FounderandCEOhealthcarefrm
Costsavingsandcontinuityinthedeliveryofexpertise.Wearelookingforapartnerthat
wantstoengageinalongtermpartnershipandtodeveloptheexpertiserequiredwhile
deliveringonacontinuousbasis.OurexpectationisthatpeoplewithITskillswillbecome
scarceintheNetherlands.Inawaywefeelthatweareforcedtolookatforeignlocations.
CIOenergydistributioncompany
Thereweretwomainreasons foroffshoringthepre-pressactivities.Tostartwiththere
wasalackofqualifedemployeesonthelocalmarket.Ourfrmfocusesonveryspecialized
work and we could not fnd employees with the required skills to do this kind of work.
In addition, the employee turnover was high, thus creating a continuous demand for
personnel. This was a major push factor towards India where plenty of well-educated
peoplearewillingtowork.MorepeoplegraduatedailyinIndiafortheirmastersdegreein
maththanthetotalnumberofpeoplewhohavesuchadegreeintheNetherlands.Besides
this,peopleinIndiahaveexcellentknowledgeoftheEnglishlanguage.Thereisalsothe
issueofcostreduction.LaborcostsinIndiawereonetenthofthelaborcostshere,which
hasbeenagreatpullfactor.Thepre-pressactivitiesareoneofourcoreactivitiesandalot
ofproftcouldbeobtainedifthecostinvolveddecreased.CEOpublishingfrm
Initially there were four motives to offshore these activities: improving quality of
standardized processes, fexibility, and risk management as well as decreasing costs.
Especially the improvement in quality and the lowering of costs were important.
ExecutiveDirectorandGlobalHeadofServiceManagementforServicesDivisionfnancialservicesfrm
003_080678_HFDST 06.indd 143 16-09-2008 15:11:06
Cost savings, capacity problems, fexibility. [.] We came to realize that our Turkish
suppliercouldbuildthesemodelsquickly,atlowcostandofhighquality.[]Wearenow
looking at alternative offshore locations besides Turkey. These include Spain (Tenerife),
Indonesia(Java),China(Shenzhen)andIndia.ManagingDirectorrecreationfrm
In most offshoring projects there was a combination of objectives related to cost
advantages, market access seeking and strategic asset and resource seeking, with
different priorities, that drove service frms to relocate their activities.
6.10.2. Objectives as a Moving target
After the decision on offshoring was taken and the implementation of the project
started, the managers and executives stated that often the initial objectives for the
project(s) changed (in priority):
Theobjectivesdidchangefrommerecapacityseekingtothestrategicdecisiontostartup
adevelopmentdepartment.FounderandChairmanITsoftwarefrm
Ourobjectivedidchange.ItwastoincreasethecompetenciesoftheRomanianpeoplein
ordertoturnthecompanyintoaproftcenterinRomania.Thiswayitcouldalsoservethe
Romanianmarket.ManagingDirectorengineeringfrm
The change in priorities of objectives was particularly apparent in objectives
related to cost advantages which were referred to as most important ex-ante and,
according to the interviewees, were less important ex-post:
Costsavingsbymovingtheproductionlineclosertothesource.Thequalityisalsobetter
because the fsh is prepared at the location where it is caught. In the beginning cost
savingswasthemostimportantobjective.Thischangedduringtheprocesswhenquality
becamethemostimportantobjective.Directorimportanddistributioncompanyoffreshandfrozen
seafoodproducts
Costreductionisatthisstageveryimportantforus.Ido,however,predictthatinayearor
socostreductionwillnolongerbethemainobjective.Insteadthepossibilityofincreasing
in volume will become the most important objective. Director and Major Shareholder frm
deliveringdentaltechniquestodentistsanddentallaboratories
This change (in priority) of objectives could also lead to a different choice in type
of offshoring or to a need for changing a third-party offshore provider when the
existing one was unable to meet the new demand:
Yes,ourobjectiveshavechangedovertime.Nowthatithasreallytakenoff,wefocuson
deliveryontimeandneedareliablepartnerforthat.Ifwehaveanunreliablepartnerat
oneoftheselocations,wewontbeabletocompletetheorderontime,whichwillleadto
dissatisfedclientsandeventuallyinfuenceourfnancialperformance.On-timedelivery,
003_080678_HFDST 06.indd 144 16-09-2008 15:11:06
guaranteed by a contractual agreement with a reliable party, becomes more important
thancostsavings.Therefore,weneedtochangepartners.ChairmanoftheBoardconstruction,
installationandtechniquefrm
We chose offshore outsourcing, because of the availability of capable third parties.
[] This project started more as a test but because of its success, it has now become a
focus point for our company. We plan to relocate more and more of these jobs. Besides
this,wearealsothinkingaboutbecomingasupplierofmodels forotherfrms.Thisisa
marketaccessstrategyforwhichwewillprobablyusecaptiveoffshoringtorelocatemore
activitiesinthefuture.ManagingDirectorrecreationfrm
6.10.3. seeking Market Access and cost Advantages
When respondents referred to market access-related motives as important reasons
for relocating their activities, captive offshoring was often their preferred foreign
entry mode:
Wehadtofollowourcustomersastheyweremovingtheirshipyardstolocationsabroad.
All other reasons such as cost savings were secondary. Chairman of the Board construction,
installationandtechniquefrm
We started with offshoring in India in 2002. We already had about a million existing
customersinIndiathroughoursubsidiarythere.Webuiltourbusinessfromthere.Forus,
offshoringinIndiawasdoneviathissubsidiary.ExecutiveDirectorandGlobalHeadofService
ManagementforServicesDivisionfnancialservicesfrm
Managers strongly associated cost advantages with offshore outsourcing:
The most important motive is still cost reduction, but improving quality, increasing
contactwithauthorsanddelegatingmanagerialissuestoathirdpartyarealsoimportant
motives.Becauseofthecostreductionbyusingathirdpartywecannowaffordtospend
moremoneyonotheractivities.CEOpublishingfrm
Cost reduction. In this industry the price is made up of 80% by labor cost. Therefore
reducingthelaborcostsbyinvolvingathirdpartytorelocateouractivitiehasasubstantial
impactonprofts.DirectorandMajorShareholderfrmdeliveringdentaltechniquestodentistsanddental
laboratories
The main motive was cost effectiveness. The problem was that we couldnt deliver the
retail stock broking product in a competitive way. The product was taking a loss. We
hadtoeitherincreasethevolumeormaketheprocessesmoreeffcient.Whenwestarted
looking into this, it turned out that the IT-costs were too high to run the system while
makingchangestokeepthesystemup-to-date.Thearchitectureandinfrastructureofthe
software package was product instead of process-orientated. We decided to develop a
newsoftwarepackagewithathirdparty.ManagingDirectorfnancialservicesfrm
003_080678_HFDST 06.indd 145 16-09-2008 15:11:06
When objectives related to cost advantages were referred to as most important,
this was more often associated by the interviewees with relocating activities via
a contractual agreement with a third party than via a foreign direct investment.
Interviewees associated market access-related objectives more often with
relocating activities in the form of a foreign direct investment and less with
offshore outsourcing. Combined interpretations of top managers involved
confirmed the findings in Chapter 5 as formulated in Proposition 5.
6.11. Barriers: predominantly Management issues
Once the decision to offshore was made, most of the barriers perceived were
viewed as something that service frms simply had to deal with and needed to
overcome. Although a number of interviewees perceived no barriers, offshoring
in general was associated with barriers, in particular management issues. Captive
offshoring was relatively stronger associated with management issues than
offshore outsourcing:
Duetothesuccesswithpreviouslyoffshoredactivities,wedidnotexperienceanybarriers,
exceptsomeresistancefromemployees,whowereabouttolosetheirjobs.Ofcourse,there
weresomeminorbarriersintheinitialphase,butthatssomethingyoucantavoidifyou
reorganizeorrelocate.CEOpublishingfrm
Themainbarrierweencounteredwasonewithintheorganization.Noteveryoneagreed
thatoffshoringwastherightwaytogoforus.Toovercomethisbarrierweputtogethera
DVD which pointed out why offshoring would be good for future business. Surprisingly
enough, the Americans were especially hard to convince. We are not a real top-down
organization. We feel that it is necessary to convince people that this is the right way
forward, rather than to tell them that this is the case. Executive Director and Global Head of
ServiceManagementforServicesDivisionfnancialservicesfrm
The choice of a joint venture in order to underpin our independence towards our
headquartersalsocreatedafewmanagerialbarriers,butweovercamethem.Managing
Directorfnancialservicesfrm
Captive offshoring in particular was associated with management issues:
Captive offshoring would involve a lot of managerial tasks like HR management,
fnancial management and facility management. We want to relocate work and do
not want to create extra work for ourselves. The managerial tasks related to offshore
outsourcingarefarlessthanforacaptive.CIOenergydistributioncompany
003_080678_HFDST 06.indd 146 16-09-2008 15:11:06
Not only management issues were an obstacle for offshoring, as one interviewee
phrased it:
Another barrier is the existing rules and regulations. The law on privacy, for example,
makesitmorediffculttooffshorebusiness.AlthoughalotofourIT-activitieshavebeen
outsourcedtoIndia,allcomputerapplicationsforbankingarelocatedintheNetherlands
because of the confdentiality of the information that these programs contain. Access
to these applications can be gained from India. Executive Director and Global Head of Service
Government policy can inhibit the choice for a specifc kind of offshoring, e.g. in
China where a frm was not allowed to invest in a joint venture. However, these
were exceptions to the rule.
InChinaitwasanissuethatthegovernmentwouldnotallow jointventures,letalone
majority joint ventures. [] Because of the communist regime we were not allowed to
ownacompanyinEthiopia.[]Landtitlerightswereanissue forour jointventurein
Serbia.ManagementAdvisortradingcompanyinbasicorganiccommodities
Just as objectives, barriers changed during the process of relocating activities.
However, a change in barriers was only in exceptional cases associated with changes
in choice for type of offshoring. Management issues were strongly associated
with offshoring, although captive offshoring was especially associated with
management issues infuencing the choice for a foreign entry mode. Therefore,
Proposition 7 was amended as follows:
Proposition7:Service frms perceiving management issues as an important barrier
for relocating their activities are less likely to choose captive offshoring than service
frms who perceive other barriers or none at all.
6.12. type of Offshoring Activities
Most of the managers interviewed referred to the relocated activities as being core
activities. From the interviews could be derived that the distinction between core or non-
core did not determine whether or not activities were relocated to a foreign location.
However, there was an association between core and non-core activities and the choice
for a foreign entry mode. Non-core activities were more associated with offshore
outsourcing. There was a slight preference for offshoring core activities in the form of
a foreign direct investment, although interviewees differed in their opinions as to the
relationship between core activities, high level of control and captive offshoring.
003_080678_HFDST 06.indd 147 16-09-2008 15:11:06
On one side of the spectrum, there was a preference for relocating core activities in
the form of a direct investment:
Coreactivitiesshouldbeexecutedunderdirectcontrol.Commoditizedactivitiescanbeoffshored
inapartnershipwithathirdparty.Ifwearegoingtobegloballyorganizedthereisaneed for
standardizedandstablequalityperformanceandmanagementsystems.Thisdemandsdirect
controlandstrictcorporaterulesandmonitoringsystems.DirectorOffshoringITfrm
These are core activities which need a lot of capacity, competitive prices and scale
advantages.Involvingathirdpartywouldincreaseourcostsandleadtoaninabilityto
meet the fuctuating demands of our customers. It is important to keep these activities
under direct control, and involving a third party is not feasible at all. Cluster Director
LogisticServicestransportandlogisticsfrm
On the other side of the spectrum, there was the view that core activities just as non-
core activities should be relocated via a contractual agreement with a third party:
Thewholediscussionaboutcoreversusnon-coreisirrelevant.Ifthereisamarket foran
activityandthereareenoughemployeestodothejob,irrespectiveofwhetheritiscoreornon-
core,youshouldrelocateactivitiesviaathirdparty.Externalparties,whoarepaidtodopart
ofyourwork,arehappytodosobecausetheycanmakeaproft.Employeeswithinthefrm,
whoearntheirwagesanyway,mayperceiveitjustasextraworkload.Itisalsoeasiertodeal
withexternalpartieswhenproblemsarisethantosolveinternalproblems.Youcanconfront
anexternalpartywithaproblemandtellthemtosolveit.Ifthisdoesnthappenyouarefree
totakeyourbusinesselsewhere.Whenitcomestoaninternal,organizationalproblem,you
needtodealwithityourself.Sowhenitcomestooffshoringwedonttakeintoconsideration
whetherthespecifcpartofthebusinessiscore-businessornot.Whatwefocusoniswhether
thereisamarketwithmorethanoneproviderwhowilltakeonthejobandwhoisableto
meetourqualityrequirements.[]Thisispurelydoneforcostreduction.Wewererelatively
late in relocating this part of our business [DvG: administrative tasks] because we were
preoccupied with offshoring our core business. We fgured that higher profts were to be
madefromoffshoringourcorebusinessthanfromrelocatingouradministrationtasks.This
iswhyweoptedtooffshoreourcore-businessfrst.CEOpublishingfrm
Although the latter view was not shared by all managers, there was a trend that
some core activities were relocated via a third party.
We did at some point consider captive offshoring for relocating our core activities,
because of the suggested higher levels of control. However, in our opinion this type of
offshoring does not really increase control. On the contrary, when doing business in
thesecountrieswithoutathirdparty,itisverydiffculttogetgoodcontroloverwhatis
happening. Our cost price would have been higher than that of local companies. Local
parties have better insights in the local market than we have as European companies
operatingatadistance.Directorimportanddistributioncompanyoffreshandfrozenseafoodproducts
003_080678_HFDST 06.indd 148 16-09-2008 15:11:06
Itismostlycorebusinessthathasbeenoffshoredbuttheactivitiesthathavebeenoffshore
outsourcedarenotallnon-corebusiness.AsitisITthatisoffshoreoutsourceditisdiffcult
todefnetheactivityalonglinesofcoreandnon-core.Allservicesthatweprovidehavean
IT-component.Whatwelookatwhenwedecidebetweenoffshoringandoutsourcingare
thecompetitiveadvantagesandtheriskinvolved.ExecutiveDirectorandGlobalHeadofService
Most offshoring projects dealt with relocation of core activities in a captive
way. In contrast, those activities referred to as non-core were without exception
associated with offshore outsourcing. The association of non-core activities in
combination with cost advantages, fexibility and focus on core with offshore
outsourcing was apparent from the interviews. These fndings supported
Proposition 9 in Chapter 5, namely that service frms relocate their non-core
activities preferably via a contractual agreement with a third party. Although
from the interviews a trend can be derived that managers considered relocating
core activities via third-party offshore providers.
6.13. Labor skill involved in Offshoring Activities
Gaining access to an adequately skilled labor pool was an important reason for
offshoring, according to the interviewees:
WeexpectpeoplewithITskillstobecomescarceintheNetherlands.Inawaywefeelthat
weareforcedtolookatforeignlocations.CIOenergydistributioncompany
Withinfveminutestheywillhave100peopleworkingforus.Thesepeopleareallhighly
educatedandskilledworkers.WecouldneverachievethatintheNetherlands.Managing
Directorfnancialservicesfrm
Managers expressed a strong association between knowledge-intensive service
activities often referred to as high-skilled labor, and captive offshoring. In
contrast, offshoring activities involving low-skilled labor were preferably
relocated via a third-party offshore provider seeking cost advantages.
Non-key positions are offshored via a third party to seek cost advantages. CIO energy
distributioncompany
In case of relocating activities with knowledge and high-skilled labor involved,
the association with more control and the ability to protect knowledge
sometimes in combination with the ability to capture profts from extensive
investments made, played a role in choosing captive offshoring for relocating
activities:
003_080678_HFDST 06.indd 149 16-09-2008 15:11:06
Wechosecaptiveoffshoringasourmodeofentrybywayofajointventure.Weboughta
51%shareinanEgyptiancompany.Wechosecaptiveoffshoringbecauseitisveryimportant
forustokeeptheknowledgewithinthecompany.Ifwelosetheknowledge,ourexistence
is in danger because we no longer have added value for our clients. In addition, captive
offshoringenablesustostayincontrolofthequalityandtobecreativewhenitcomesto
makingclientproposals.[]Thisisviacaptiveoffshoring,anacquisition,inRomania.The
reasonbeingthatitinvolvedquiteaninvestmenttoacquiretheknowledgeneededtomeet
therequirementsfortheDutchmarket.Inordernottolosethisknowledge,wekeptitunder
direct control so we could proft from our investment. [] We used captive offshoring in
ordertoprotectourknowledgeaboutthesecuritysystem.ManagingDirectorengineeringfrm
WechoseforcaptiveoffshoringtoChinabecausethroughmycontactsinHongKongthese
peoplewereabletoprovidetheeducationandtoquicklyputtogetherafrmwithqualifed
high-skilled people. It was quite unique to have a contact to these people who were very
knowledgeableinthisareaandtokeepcontroloverouroperationsbyrelocatinginacaptive
way.DirectorandMajorShareholderfrmdeliveringdentaltechniquestodentistsanddentallaboratories
Captive offshoring enabled me to keep the high-skilled employees in my company.
FounderandChairmanITsoftwarefrm
This offshoring project was a spin-off of another project. We wanted to keep the high-
skilledemployeesinIndonesiaandwechosetherefore forcaptiveoffshoring.Managing
Directorengineeringfrm
Based on the combined interpretations of the managers interviewed the following
Proposition 11: Activities involving high-labor skill jobs are more likely to be
relocated via captive offshoring than activities involving low-labor skill jobs.
6.14. scale of the Offshoring Project
Scale of relocating activities, referred to as the number of FTEs, was considered
when offshoring.
The scale of work involved with a certain activity is also taken into account when
relocating activities. Executive Director and Global Head of Service Management for Services Division
fnancialservicesfrm
Especially with regard to making a foreign direct investment, as was the case for
captive offshoring, suffcient scale was considered to be important to make it worth
the investment:
Scaleisveryimportant.Tostartaprojectoflessthan50FTEisbasicallynotworththe
investment.FounderandChairmanITsoftwarefrm
003_080678_HFDST 06.indd 150 16-09-2008 15:11:06
NowthatweareworkinginChina,weseeaconcentrationofknowledgeinoneplace.
For example, in the Netherlands 1,600 people work as dental technicians. In China we
have2,000peopleinonelocation.Thismeanswecantakeadvantageofscalabilityasit
iseasytoincreaseinvolume.Thisway,wecanmakeuseofourproductionfacilitiesina
farmoreeffcientway.DirectorandMajorShareholderfrmdeliveringdentaltechniquestodentistsand
dentallaboratories
Ifthescaleoftheseprojectsincreasesandwecanbecomesuppliers forothers,wewill
startcaptiveoffshoringinsteadofinvolvingathirdparty.ManagingDirectorrecreationfrm
A lack of (expected) scale can at the same time become a barrier for the success of
a captive offshoring project:
Thehighcostsinvolvedinemployinga fulltimespecialistattheoffshorelocation.This
becameabarrierbecausewedidnotreachabigenoughscaletomakethisproftable.
ManagingDirectorengineeringfrm
Internal use of the captive center was rather disappointing in the sense that it did not
showtheexpectedgrowth.Theobjectivetooffshore80%,versusthecurrent30%,hasnot
beenachieved.DirectorOffshoringITfrm
When the scale was considered to be insuffcient by the interviewees to make a
foreign investment, they preferred to relocate activities by a contractual agreement
with a third party:
Relocation of our activities to Russia took place via offshore outsourcing. The reason
beingthatthescalewasnotsuffcienttomakeacaptivesolutionproftable.Wewouldnot
be able to provide a captive location with a continuous fow of work. Managing Director
engineeringfrm
Top managers associated larger-scale projects often with captive offshoring.
In contrast, smaller-scale projects were more often associated with relocating
activities by a contractual agreement with a third-party offshore provider. Based
on this combined viewpoint, the following proposition was formulated:
Proposition12:Activities relocated on a larger scale are more likely to be relocated
via captive offshoring than activities relocated on a smaller scale.
003_080678_HFDST 06.indd 151 16-09-2008 15:11:07
152 OFFSHORING IN THE SERVICE SECTOR
AN EMPIRICAL INVESTIGATION ON THE OFFSHORING BEHAVIOR OF SERVICE FIRMS AND ITS INFLUENCE ON THEIR FOREIGN ENTRY MODE CHOICE

6.15. Refining the Emergent Model regarding Choice for Type of Offshoring
This research identified potential determinants in the offshore behavior of
service firms that influence the choice for a specific type of offshoring
including some deviations from common viewpoints. The research results built
on the findings in Chapter 5 and refined the emergent model discussed therein.
The interview data about past offshoring projects contributed to the emergent
model on how the offshoring behavior of service firms influenced their choice
for a foreign entry mode as built in Chapter 5 (Figure 5.2).

Figure 6.1 Model describing which potential determinants in the offshore behavior of service firms influence their choice
for type of offshoring. White: confirmed; light grey: new themes; and dark grey: findings from Chapter 5, not considered in
this part of the field study.

Captive offshoring was strongly associated with core activities and objectives
related to market access. This type of offshoring also needed sufficient scale in
order to make it worth the investment, i.e. it was associated with larger scale
projects and offshoring activities involving higher skilled jobs. Although there
was an association between foreign market experience and offshoring in the
sense that having an existing network made it easier to decide on offshoring,
interviewees did not show a strong association of their choice for type of
offshoring. The combined interpretations of managers did, however, show an
association between previous offshoring experience and type of offshoring, i.e.
service firms with previous offshoring experience more often relocate their
activities by way of captive offshoring. Furthermore, barriers related to
management issues were more often associated with captive offshoring than
with offshore outsourcing.

Cost advantage-related objectives were predominantly associated with offshore
outsourcing. This type of offshoring was also preferred for offshoring activities
involving lower skilled jobs, executing smaller scale offshoring projects and
relocating non-core activities.

Furthermore, it can be concluded that service frms lessexperiencedin or planningto
offshore were more inclined to relocate their activities by a contractual agreement
with a third party.
It was usually a combination of objectives related to costadvantages,marketaccess
seeking and strategic asset and resource seeking driving offshoring decisions. An
important notion underlying both types of offshoring was that these objectives,
just as barriers in many cases, changed (in priority) during the offshoring project.
If the objectives changed, then this could result in a different type of offshoring
during the project or after it was completed and before a new project was initiated.
In particular objectives related to costadvantages that were mentioned as important
ex-ante were replaced (in priority) during the project by objectives related to market
access and strategicresource and assetseeking.
6.16. Limitations
The selection criteria of the sample focused on managers involved in offshoring
projects representing different categories of service frms. Most service frms
(with the exception of two) have some kind of foreign market experience whereas
most activities relocated (with the exception of two) were hard services. This may
infuence the views of managers interviewed. Therefore, the results of this part of the
research should be viewed in conjunction with the two other feld studies described
in Chapters 5 and 7. Together they will provide a more complete picture of how
offshore behavior of service frms infuenced their choice for type of offshoring.
The variable foreignmarketexperience was not included in the two questionnaires
designed for the sample surveys discussed in Chapters 5 and 7. The reason was that
asking for both the number of years in offshoring experience and foreign market
experience could have confused respondents. As stated in the questionnaire,
the theme was offshoring, i.e. relocation of activities to foreign locations. It only
included those activities as part of the business that were relocated to a foreign
location
448
. The question was therefore, integrated in the in-depth interviews,
where further explanation of the differences between the two variables could take
place. In order to research whether this variable infuenced the choice for a specifc
type of offshoring, the sample should have had more variation between service
frms with and those without previous offshoring experience.
Although realities derived from the interviews can vary, this research has taken
the combined interpretation of managers studied as a point of departure, while
leaving room for deviations. In order to evaluate rival explanations and
interpretations, the empirical results were compared to those fndings from the
feld study discussed in Chapter 5 and compared to literature. Combined they were
validated in Chapter 7.
448 Blinder, A.S. (2006). Offshoring:Thenextindustrialrevolution?Foreign Affairs, 85(2): 113-128.
003_080678_HFDST 06.indd 153 16-09-2008 15:11:07
003_080678_HFDST 06.indd 154 16-09-2008 15:11:07
chapter 7
Offshoring Behavior of Service Firms regarding their
Choice for Captive Offshoring or Offshore Outsourcing
7.1. introduction
This third feld study was conducted to provide an answer to the following research
question:
How do the determinants derived from the feld studies discussed in Chapters 5 and 6
interrelate?
The feld studies discussed in the previous two chapters were used to build theoretical
constructs and twelve propositions. Subsequently, this third feld research was
conducted to validate the propositions. Based on these fndings, this chapter presents
a decision-making model for the choice of service frms for type of offshoring.
Whereas the feld study discussed in Chapter 5 focused on behavior of service frms
regarding their overall offshoring strategy, the underlying feld study is - as the
feld study discussed in Chapter 6 - focused on offshoring projects. This means
that the answers regarding, for example, objectives, barriers, type of offshoring
and offshore locations were related to specifc relocated activities. The feld studies
discussed in Chapters 6 and 7 used offshoring projects as the unit of analysis versus
the frm level in the feld study discussed in Chapter 5.
A total sample of 8,750 Dutch and foreign service frms operating from the
Netherlands was drawn from a database per March 2007. The database included 1,3
million established frms representing both the manufacturing and the service sector
in the Netherlands. To increase the generalizability of the research results, the sample
in this third feld study included more categories representing the Dutch service
sector compared to the sample in Chapter 5, which included four service categories.
Service categories included were based on Statistics Netherlands standard (SBI93
449
).
The reason for applying the SBI93 code was to link the research results from this
feld study to relevant data from Statistics Netherlands
450
. The sample was linked to
their General Business Register (GBR). Individual identifcation of all service frms
was a prerequisite to do so. For this sample the linkage was performed by matching
name and address information to the GBR. A link was obtained if name and address
corresponded resulting in a unique identifcation number.
449 CBS, Statistics Netherlands. (2004). Standaard Bedrijfsindeling 1993. CBS. Voorburg and Heerlen.
450 The SBI93 standard is a systematic codifcation of economic activities. The SBI code consists of 2 to 6 digits, specifying the activity further with every
digit from (sub)sections (e.g. fnancial institutions code; 65) to (sub)classes (e.g. fnancial holdings code; 6523.4). The SBI93 is consistent (up to
4 digits) with the Eurostat standard, which is used by all European Member States. In this study the codifcation is based on (sub)sections (2 to 3
digits). The reason being that given the sample, at this level there was suffcient differentiating power to enable further analysis.
004_080678_HFDST 07.indd 155 16-09-2008 15:11:22
Subsequently, based on the frm specifc information provided by GBR-linking,
those frms not belonging to one of the service categories represented in the SBI93
standard, were not included in the sample. Although according to the SBI93 coding,
building and civil engineering is not a service category, it was included as such in this
sample. The reason for doing so was that this type of activities is part of international
services
451
and this study focused on relocation of service activities and jobs involved,
in relation to either cross-border trade or foreign direct investments of services.
The category other was added as a check for respondents representing a service frm
that, according to their perception, belonged to a service category not listed in the
applied SBI93 coding.
Further selection from the database took place on the basis of frm size. Firms with
a sole proprietor were excluded from the sample. In addition, of those service frms
with multiple establishments in the Netherlands (e.g. supermarkets) only the
headquarters were invited to participate in the research. Furthermore, the sample
could be divided into service frms with less than 100 FTE (SMEs) and those with
or exceeding 100 FTE
452
. From the feld study discussed in Chapter 5 it was derived
that both SMEs and large frms were relocating activities to foreign locations. The
variable frm size (large frms versus SMEs) was one of the independent variables
included in the analysis to determine if there was a difference in entry mode choice
between these two categories. Thus both categories were included in this study.
This resulted in a total sample of 8,148 service frms, divided into the following
service categories
453
:
Business services, e.g. ICT, consultancy, legal, research and development,
marketing and design.
Financial services, e.g. banking and insurance.
Transport, logistics and communications, e.g. telecommunications, transport
of passengers and products, mailing and courier services.
Health and welfare services.
Distribution of and trade in electricity, natural gas and water.
Renting and trading in real estate and movable property.
Building and civil engineering, e.g. road construction.
Trading and repairing of consumer goods, e.g. trade agency, wholesale trade.
Hospitality services.
Environmental services, culture and recreation.
Other services including agricultural services and educational services.
7.3. Questionnaire Design
Just as in the sample survey discussed in Chapter 5, for this feld study a questionnaire
and an invitation letter were designed using online survey tools and techniques
(See Appendix 7.1 Questionnaire, invitation letter and fow of the questionnaire).
451 IMF, International Monetary Fund. (1993, 5th edition). Balance of payments manual. IMF. Washington D.C.; United Nations. (2002). Manual on
statistics on international trade in services. Department of Economic and Social Affairs, Statistics Division, Statistical Papers, Series M. No. 86. United
Nations. New York and Geneva; OECD, Organisation for Economic Co-operation and Development. (2003). OECD Statistics on international trade in
services. OECD. Paris.
452 CBS, Statistics Netherlands. (2007). General Business Register, January 2007. CBS. Voorburg and Heerlen.
453 This list includes all service categories that according to Statistics Netherlands belong to the service sector.
004_080678_HFDST 07.indd 156 16-09-2008 15:11:22
The questionnaire included 27 questions and one selection question (S1) to ascertain
whether those invited to participate in the research had been or were currently
involved in relocating activities to foreign locations or in the decision-making
process. Furthermore, those who were involved in the decision to refrain from
offshoring were explicitly invited to participate in the research and were assigned a
specifc set of questions (Q1 to 5; Q7 to10). The questionnaires design was based on
the research fndings discussed in Chapters 5 and 6. It included the variables referred
to in the propositions formulated in these two chapters except for questions 10 and
22 to 27 that were added at the request of the Dutch Ministry of Economic Affairs.
These questions were not part of the analysis, because they were not added to the
questionnaire for answering the research question. They were related to the theme of
offshore behavior of service frms and therefore not confusing to the respondents.
A draft of the questionnaire and the invitation letter was sent to Statistics Netherlands
and the Dutch Ministry of Economic Affairs for feedback in order to be able to
include lessons learned from their experience with previous offshoring research
454
.
Their feedback was incorporated in the fnal version of the questionnaire. The fnal
questionnaire included four general questions about the main characteristics of
the specifc service frm, followed by a question whether or not the company had
experience in offshoring. The latter had three pre-selected answers: A) Yes; B) No, but
we plan to relocate activities within the next twelve months; and C) No and neither
do we plan to relocate activities within the next twelve months. Based on the answer
to this question, respondents were placed either in Tracks A, B or C respectively. Every
track consisted of a unique set of general and track-specifc questions that were
developed based on the empirical fndings in Chapter 5 and to some extent on the
literature fndings discussed in Chapters 2 and 3.
7.4. codifcation
The results of the codifcation development in Chapters 5 and 6 served as input for
the preliminary coding of the constructs discussed in this chapter. For an overview
of the codifcation process see Appendices 7.2 to 7.5.
A sample of 8,148 service frms received an invitation, in English and in Dutch,
to participate in the underlying research. It was guaranteed that all information
provided by respondents would be treated confdentially. Participants in the
research received a unique link to an online survey per e-mail, which could only
be used once. Research results from the frst research study showed that decision-
making on offshoring was decided upon and implemented with involvement of
the upper layers of management in frms.
454 Ministry of Economic Affairs. (2005). Visie op verplaatsing: Aard, omvang en effecten van verplaatsing van bedrijfsactiviteiten naar het buitenland. Ministry
of Economic Affairs. The Hague; Statistics Denmark in cooperation with Statistics Netherlands. (2008). International sourcing: Moving business
functions abroad. Statistics Denmark. Copenhagen.
004_080678_HFDST 07.indd 157 16-09-2008 15:11:22
Therefore, the invitation to participate in this research was sent to CEOs and
high-level management involved in the decision-making and implementation
processes. The respondents were asked to assign their answers to one or more
offshoring activities previously relocated or those planned to be relocated within
the next twelve months.
Participants in the research were asked to respond by completing the questionnaire
online. After two weeks those who had not responded yet received a reminder
per e-mail. Table 7.1 provides an overview of the data collection. Subsequently,
a follow-up per telephone was executed for frms that had not responded to the
reminder. They were provided with the option of completing the questionnaire by
being interviewed over the telephone. This resulted in 420 additional respondents.
Finally, after eleven days of tele-enquiry non-respondents received a last reminder
by email to participate in the 2007 research study resulting in a total number of
1,020 respondents. Subsequently, a number of 302 respondents were excluded
for further analysis since their responses included missing values. The response
rate (RR) equals 12.52% (RR=1,020/8,148*100% = 12.52 %). This response rate is
normal for feld studies using an online survey for collecting data and inviting
the upper echelon in the frms hierarchy to participate in the research study
455
.
The fact that higher management was invited to participate possibly explained the
lower response rate, when compared to the feld study discussed in Chapter 5.
table 7.1 Overview of the data collection in the third feld study 2007.
Overview of data collection second sample survey 2007
Start of data collection in the feld 12-04-07
Total sample 8,148
Total number of non-respondents 7,128
Total number of respondents 1,020
Response rate 12.52%
Non-completes 302
Total of completed questionnaires taken into account for further analysis 718
Completed questionnaires per telephone 420
Completed questionnaires online 298
Completed questionnaires in Track A referring to respondents that have offshored activities 150
Completed questionnaires in Track B referring to respondents planning to offshore activities for the frst time
within the next twelve months
32
Completed questionnaires in Track C referring to respondents that have no previous experience in offshoring
neither are they planning to do so within the next twelve months
536
Average duration of completing questionnaire 7 minutes and 48 seconds
Shortest time taken to complete questionnaire 1 minute and 48 seconds
Longest time taken to complete questionnaire 45 minutes and 12 seconds
Period of follow up phone calls 1-05-07 till 15-05-07
End of data collection in the feld 25-05-07
A more detailed overview of the data collection for respondents per track (A, B and
C) is shown in Table 7.2.
455 Saunders, M., Lewis, P. and Thornbill, A. (2003, 3rd edition). Research methods for business students. Prentice Hall. Harlow: 159 and 250; Blomstermo,
A., Deo Sharma, D. and Sallis, J. (2006). Choice of foreign market entry mode in service frms. International Marketing Review, 23(2): 218.
004_080678_HFDST 07.indd 158 16-09-2008 15:11:22

Table 7.2 Overview of the source used by respondents participating in this research per track: A) respondents with
previous experience in offshoring their activities; B) respondents planning to relocate activities within the next
twelve months; and C) respondents that have no previous experience in offshoring neither are they planning to
relocate activities within the next three years.

Source used by respondents to participate in
T
SOURCE USED BY RESPONDENTS TO PARTICIPATE IN THE
RESEARCH
TRACK A TRACK B TRACK C NON-COMPLETES TOTAL
Telephone 71 13 336 0 420
Online 79 19 200 302 600
Total 150 32 536 302 1,020
B Track C Non-completes Total

The respondent population was linked to the GBR enabling the description
of the characteristics of the respondents (Tables 7.3 and 7.4). Table 7.3
shows the sample divided by different service categories.

Table 7.3 Overview of service firms represented in the sample divided by service categories compared to those
represented in the sample and in the GBR.

Source used by respondents to participate in
T
SERVICE CATEGORIES
RESPONDENT
S
FREQUENCY
PERCENTAGE
S
SAMPLE
FREQUENCY
PERCENTAGE
GBR
FREQUENCY
PERCENTAGE
Business services 570 55.88 4,152 50.96 161,665 25.18
Financial services 64 6.27 261 3.20 16,033 2.50
Transport, logistics and communication 57 5.59 321 3.94 28,033 4.40
Health and welfare services 20 1.96 54 0.66 42,060 6.55
Distribution and trade in electricity, natural gas and
water
8 0.78 9 0.11 567 0.09
Renting and trading in real estate and movable
property
11 1.08 125 1.53 25,534 3.98
Building and civil engineering 123 12.06 1,423 17.46 85,945 13.39
Trading and repairing in/of consumer goods 134 13.14 1,430 17.55 16,0936 25.07
Hospitality services 18 1.76 132 1.62 35,653 5.55
Environmental services, culture and recreation 8 0.78 101 1.24 22,867 3.56
Other services 0 0.00 13 0.16 31,054 4.84
Agricultural services 7 0.69 102 1.25 13,926 2.17
Educational services 0 0.00 25 0.31 17,436 2.72
Total 1,020 100.00 8,148 100.00 64,1915 100.00
Service categories

Table 7.4 shows how the respondents in this research study were divided
between SMEs and large firms.

Table 7.4 Overview of service firms represented in the sample divided by firm size compared to those represented in
the sample and in the GBR.
Firm size
Percentage
FIRM SIZE
RESPONDENT
S
FREQUENCY
PERCENTAGE
S
SAMPLE
FREQUENCY
PERCENTAGE
GBR
FREQUENCY
PERCENTAGE
SMEs 775 75.98 7,129 87.49 636,399 99.14
Large firms 245 24.02 1,019 12.51 5,516 0.86
Total 1,020 100.00 8,148 100.00 64,1915 100.00
Service categories
Respondents
Frequency
Percentage
Sample
Frequency
Percentage
GBR
Frequency
Percentage
Furthermore, the respondents representing different service frms were
compared to the composition of the service sector in the Netherlands as a whole.
First, the service activities categorized in Paragraph 7.2. were analyzed for the
total sample, respondents, non-respondents and the Dutch service sector
456

as illustrated in Figure 7.1 A to D. The respondents classifcation determined
their service category. SBI-code was used to double-check this classifcation.
Due to a low number of observations several categories were clustered in the
category other. This group consisted of: health and welfare services, distribution
and trade in electricity, natural gas and water, renting and trading in real estate and
movable property, hospitality services, environmental services, culture and recreation,
agricultural services, educational services as well as the category other services.
figure 7.1 respondents, non-respondents and total sample divided by service categories compared to composition
service sector in the netherlands based on information derived from cBs
457
.
7.6. Data Analysis
Further analysis was done for 150 completed questionnaires of respondents in
Track A. These respondents relocated 241 activities to a foreign location, 30 of
these cases had to be excluded because they had missing values in at least one of
the selected variables included in the model. Beginning with 211 cases, 26 outliers
were subsequently excluded
458
. Excluding these outliers improved the ft of the
model. Therefore, the usable sample for the analysis was 185 activities.
456 Although frms with less than 10 FTE were not included in the selection of the sample, after analysis of the questionnaires and linking data to
the database of Statistics Netherlands 20% of the responding frms had less than 10 employees. This difference may be explained by the fact that
database information tends to change quickly and an update of the information takes place at the beginning of a calendar year. Although actual
company information is collected monthly and substantial changes will be incorporated including established new companies, not all fuctuations
in the number of employees will be captured for all companies. In other words, database information taken for the sample selection may differ
from the actual response of participants in the research when they refer to their number of employees at that moment. This had no infuence on
the analysis in this chapter, because frm size was divided in two categories SMEs (< 100 FTE) and large frms ( 100 FTE). There was no difference
between respondents classifcation and that of the CBS database when service frms were divided in these two categories. Based on: CBS, Statistics
Netherlands. (2007). General Business Register, January 2007. CBS. Voorburg and Heerlen; CBS, Statistics Netherlands. (2002). Demografe van
Bedrijven: Uitgebreide Toelichting. CBS. Voorburg and Heerlen.
457 CBS, Statistics Netherlands. (2007). General Business Register, January 2007. CBS. Voorburg and Heerlen.
458 Outliers refer to observations with substantial differences between the actual value for the dependent variable and the predicted value. These
inappropriate representations of the sample should be discounted or even eliminated from the analysis as unrepresentative in Hair, J.F., William,
C.B., Anderson, R.E. and Tatham, R.L. (2006, 6th edition). Multivariate Data Analysis. Pearson/Prentice Hall. Upper Saddle River, New Jersey: 73 and
173. The standardized residuals with a value less than -2.0 or greater than +2.0. are identifed as outliers. Standardized residuals of less than -2.0 or
grater than +2.0 are identifed as unusual observations in Anderson, D.R, Sweeney, D.J. and Williams, T.A. (2005, 9th edition), Statistics for business
and economics. South Western. Mason, Ohio: 608 and 669. The outliers in this study included service frms relocating hard activities who wanted to
relocate their activities by offshore outsourcing, but could not do so due to the fact that there was no suitable third-party available to do the job.
26
7
6
6
7
S6 S0
18
17
3
S
7
13
S0 12
17
17
4
S
2S
13
4
2
30
A.SeivicesecloiiuNI
u=641,91S
.1oluIsumpIe
u=8,148
C.Respoudeuls
u=1,020
D.NouRespoudeuls
u=7,128
usiuessseivices
1iudiuguudiepuiiiugiuloI
cousumeigoods
uiIdiuguudciviIeugiueeiiug
1iuuspoil,Iogislicsuud
commuuiculiou
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Olhei
004_080678_HFDST 07.indd 160 16-09-2008 15:11:22
The twelve propositions, formulated on the basis of the research fndings in Chapters
5 and 6, were tested either one or two-tailed. If the fndings in both chapters
allowed, the propositions were formulated one-tailed as this is appropriate for
testing direction. Due to the fact that the dependent variable, type of offshoring,
was binary the propositions were tested using binary logistic regression analysis
459
.
The independent variables were all categorical. The description and type of the
independent variables identifed on the basis of the fndings in Chapter 5 and 6
can be found in Table 7.5.
table 7.5 Description and type of independent variables identifed on the basis of fndings in chapters 5 and 6.
Independent variables Type Description
Income level at offshore location Ordinal variable Low (base), lower middle, upper middle and high income
Objectives Nominal variable Cost savings (base), market access, strategic assets, strategic resources
Barriers Nominal variable Management issues (base), other barriers, no barriers
Hard and soft service activities Binary variable Hard (base) and soft
Core and non-core activities Binary variable Core (base) and non-core
Firm size Binary variable SME (base) and large frms
Headquarters location Binary variable The Netherlands (base) and foreign location
Hard and soft service frms Binary variable Soft (base) and hard
Experience in offshoring Binary variable 5 years (base) and >5 years
Scale in number of FTE being relocated Binary variable 50 FTE (base) and >50 FTE
Skill level of relocated jobs Binary variable Low skilled (base) and medium & high skilled
Objectives achieved Binary variable 0 and 50% (base) and 75 and 100%
7.7. findings
In this paragraph, it is tested how the independent variables derived from the
fndings in the previous two feld studies interrelate by using descriptive statistics
and a binary regression analysis.
7.7.1. results Descriptive statistics
Table 7.6 contains descriptive statistics for all variables used in this feld research.
With respect to the independent variables, descriptive statistics indicated that the
dominant foreign entry mode is captive offshoring, i.e. 79.46% of the activities were
relocated by way of a foreign direct investment and 20.54% by way of a contractual
agreement with a third-party offshore provider. Table 7.6 provides an overview of
the results of descriptive statistics.
459 Hair, J.F., William, C.B., Anderson, R.E. and Tatham, R.L. (2006, 6th edition). Multivariate Data Analysis. Pearson/Prentice Hall. Upper Saddle River, New
Jersey.
004_080678_HFDST 07.indd 161 16-09-2008 15:11:22
table 7.6 Overview of results descriptive statistics for all variables used in this feld research.
Variable Group Captive offshoring (%)
Offshore
outsourcing (%)
Total (%)
Type of service frm
Soft 80.95 19.05 100.00
Hard 78.69 21.31 100.00
Hard or Soft service activity
Hard 68.38 31.62 100.00
Soft 98.53 1.47 100.00
Core or non-core activity
Core 78.38 21.62 100.00
Non-core 81.08 18.92 100.00
Firm size
SME < 100 FTE 71.91 28.09 100.00
Large frm 100FTE 86.46 13.54 100.00
Headquarters location
the Netherlands 77.24 22.76 100.00
Foreign 87.50 12.50 100.00
Barriers
Management issues 76.09 23.91 100.00
Other barriers 80.77 19.23 100.00
No barriers 93.33 6.67 100.00
Objectives
Cost advantages 62.00 38.00 100.00
Market access seeking 95.45 4.55 100.00
Strategic asset seeking 82.28 17.72 100.00
Strategic resource seeking 75.00 25.00 100.00
Experience (in number of years)
5 year(s) 67.06 32.94 100.00
> 5 years 90.00 10.00 100.00
Scale (in number of FTE)
50 FTE 77.62 22.38 100.00
> 51 FTE 85.71 14.29 100.00
Skill level of jobs involved in
relocating activities
Low skilled 77.27 22.73 100.00
Medium and high skilled 79.75 20.25 100.00
Objectives achieved
0-50% 83.61 16.39 100.00
75-100% 77.42 22.58 100.00
Income level in GNI
460
per capita
Higher (High US $ 10,066
or more; Upper middle
US $ 3,25610,065; Low
middle US $ 826 -3,255)
85.82 14.18 100.00
Lower (Low US $ 825 or less) 43.75 56.25 100.00
Combination 67.86 32.14 100.00
To identify whether multicollinearity between the independent variables in the
model existed, an examination of the correlation matrix took place. Table 7.7
shows correlations of all variables used in this feld study.
004_080678_HFDST 07.indd 162 16-09-2008 15:11:23
table 7.7 correlation table of the independent variables.
C o n s t a n t
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H S A ( 1 )
C N C ( 1 )
G k ( 1 )
H Q L ( 1 )
E X P ( 1 )
F T E ( 1 )
S k i l l ( 1 )
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a c h i e v e d
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B a r _ n o _
b a r r i e r s
O B J _ M A
O B J _ S A S
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2
9
7
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,
2
9
4
-
,
4
2
8
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,
3
1
8
-
,
2
9
7
-
,
1
5
6
-
,
2
7
2
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,
0
6
6

H
S
A
(
1
)
4
6
2
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1
9
4
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3
5
9
1
,
0
0
0
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3
7
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4
3
4
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5
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5
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8
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0
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1
0
6
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3
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0
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2
5
2

C
N
C
(
1
)
4
6
3
-
,
2
4
7
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3
7
8
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,
3
7
7
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,
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2
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2
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1
4
6
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2
6
2
-
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0
5
3
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4
0
2

G
k
(
1
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4
6
4
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2
2
8
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5
6
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4
3
4
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1
3
4
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3
7
4
-
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0
3
3

H
Q
L
(
1
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4
6
5
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4
1
0
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1
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2
2
5
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4
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4
1
3
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3
2
7
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4
9

E
X
P
(
1
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4
6
6
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5
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3
6
6
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5
5
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8
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3
6
7
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4
0
0
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5
2
5
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1
3
3

F
T
E
(
1
)
4
6
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2
2
1
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0
3
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1
9
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1
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7
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1
2
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4
5
,
0
5
6

S
k
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l
l
(
1
)
4
6
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3
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2
2
9
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2
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3
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0
3
3
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1
9
9

O
b
j
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c
t
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2
2
3
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0
1
1
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0
9
0
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0
8
2
,
3
1
0

B
A
R
_
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t
h
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r
4
7
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3
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1
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3

B
A
R
_
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o
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b
a
r
r
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4
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6
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8

O
B
J
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4
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7
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4
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1
6

O
B
J
_
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4
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3
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4
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0
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4
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O
B
J
_
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S
4
7
4
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4
7
3
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8
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2
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5
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4
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7
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1
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8
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2
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3
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4
4
0
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1
5
3

I
N
C
_
h
i
g
h
4
7
5
-
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6
0
6
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2
9
7
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1
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7
7
6
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4
4
6
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6
7
3

I
N
C
_
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P
M
4
7
6
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5
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1
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7
6
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1
3

I
N
C
_
L
W
M
4
7
7
-
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5
6
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3
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4
4
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1
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0
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2
3
0

I
N
C
_
C
O
M
4
7
8
-
,
4
9
3
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,
0
6
6
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,
2
5
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4
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3
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3
3
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6
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1
9
9
,
3
1
0
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1
6
3
,
3
6
8
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,
3
1
6
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2
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1
5
3
,
6
7
3
,
6
1
3
,
2
3
0
1
,
0
0
0
4
6
1

H
S
F
(
1
)

r
e
f
e
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s

t
o

t
h
e

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n
d
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p
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d
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v
a
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a
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d

a
n
d

s
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t

s
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v
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f
r
m
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4
6
2

H
S
A
(
1
)

r
e
f
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s

t
o

t
h
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n
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c
t
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v
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t
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4
6
3

C
N
C
(
1
)

r
e
f
e
r
s

t
o

t
h
e

i
n
d
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p
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4
6
4

G
k
(
1
)

r
e
f
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s

t
o

t
h
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n
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v
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r
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s
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4
6
5

H
Q
L
(
1
)

r
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f
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s

t
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t
h
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n
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s

l
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t
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4
6
6

E
X
P
(
1
)

r
e
f
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s

t
o

t
h
e

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n
d
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p
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d
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v
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w
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o
f
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g
4
6
7

F
T
E
(
1
)

r
e
f
e
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s

t
o

t
h
e

i
n
d
e
p
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n
d
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v
a
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a
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l
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a
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n
u
m
b
e
r

o
f

F
T
E
4
6
8

S
k
i
l
l
(
1
)

r
e
f
e
r
s

t
o

t
h
e

i
n
d
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p
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d
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v
a
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s
k
i
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l
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w
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t
h

r
e
l
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a
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a
c
t
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v
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s

4
6
9

O
b
j
e
c
t
i
v
e
s
_
a
c
h
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e
v
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d

r
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f
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b
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a
c
h
i
e
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d
4
7
0

B
A
R
_
o
t
h
e
r

r
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f
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s

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c
a
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v
a
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m
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f
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r
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n
g
4
7
1

B
A
R
_
n
o
_
b
a
r
r
i
e
r

r
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f
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s

t
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c
a
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y

n
o

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a
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o
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f
f
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r
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n
g

4
7
2

O
B
J
_
M
A

r
e
f
e
r
s

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o

t
h
e

c
a
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y

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a
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c
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h
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g
4
7
3

O
B
J
_
S
A
S

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4
7
4

O
B
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S

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004_080678_HFDST 07.indd 163 16-09-2008 15:11:23
The presence of high correlations (generally 0,90 and higher) could be a frst
indication of collinearity
479
. The highest correlation found was 0,799 which did
not immediately indicate multicollinearity. A lack of any high correlation values,
however, does not ensure an absence of collinearity. To assess multicollinearity, a
measure expressing the degree to which each independent variable is explained by
the set of other independent variables, was needed. The two most common measures
for assessing both pair-wise and multiple variable collinearity are tolerance and
its inverse, the variance infation factor (VIF)
480
. Values of VIF exceeding 10 are
often regarded as indicating multicollinearity, but in weaker models, which is
often the case in logistic regression, values above 2.5 may be a cause for concern
481
.
The highest VIF value found in the data is 1,497, which is an acceptable level and
means that standard errors are infated by just over 20% (1,497 = 1,224) of what
they would be with no multicollinearity. Therefore, the different examinations did
not suggest that multicollinearity was a problem for the independent variables
included in this model.
7.7.2. results Logistic regression Analysis
The regression analysis in Table 7.8 tested for how the independent variables
infuencing the choice for type of offshoring of service frms interrelate. Results
were only reported at the 0.05 and 0.01 signifcance-level. The variables included
in the model were based on the twelve propositions formulated in Chapters 5 and
6. The dependent variable, type of offshoring, was binary indicating which foreign
entry mode service frms used to relocate their activities (1 = captive offshoring;
0 = offshore outsourcing). A positive coeffcient for one of the independent
variables indicated an increasing probability that a service frm used captive
offshoring to relocate its activity. The dependent variable being binary, the
propositions were tested using binary logistic regression analysis
482
. The model
was statistically signifcant at a p<0.001-level with a chi square value of 135.128
and 18 degrees of freedom
483
. The Nagelkerke R
2
, refecting the degree of variation
accounted for by the logistic model, was high (0.813), indicating a good ft
484
. The
latter was supported by the Hosmer and Lemeshow test which showed a p-value of
0.965. Furthermore, the model correctly classifed 96.6% for captive offshoring and
86.8% for offshore outsourcing. The overall correctly classifed cases in the model
was 94.6% which exceeded the proportional chance criterion of 67.4%
485
, indicating
an acceptable prediction accuracy.
479 Hair, J.F., William, C.B., Anderson, R.E. and Tatham, R.L. (2006, 6th edition). Multivariate Data Analysis. Pearson/Prentice Hall. Upper Saddle River, New Jersey.
480 Ibidem
481 Allison, P.D. (1999). Logistic Regression Using the SAS System Theory and Application. SAS Institute, Inc., Cary, NC. Available at: http://www.uky.edu/
ComputingCenter/SSTARS/MulticollinearityinLogisticRegression.htm
482 Lawson, C. and Montgomery, D. (2006). Logistic regression analysis of customer satisfaction data. Quality and Reliability Engineering International, 22:
971-984.
483 18 degrees of freedom refers to the number of independent observations in a sample of data that are available to estimate a parameter of the
population from which that sample is drawn, i.e. the product of the number of rows times the number of columns, minus one: df = (r 1) x (c 1).
Jersey.
485 Ibidem
004_080678_HFDST 07.indd 164 16-09-2008 15:11:23
The model provided empirical support for Proposition 1 at the p<0.01-level:
P1: Service frms with fve or more years of offshoring experience are more likely to
choose captive offshoring for relocating their activities than frms with less than
fve years of experience.
Service frms with more than fve years of offshoring experience preferred captive
offshoring for relocating their activities whereas those with less than fve years
experience were more likely to relocate their activities by way of a contractual
agreement with a third party.
The model provided empirical support for Proposition 2:
P2: Service frms headquartered at a foreign location are more likely to choose captive
offshoring for relocating their activities than service frms headquartered in the
Netherlands.
A signifcant relationship was established between type of offshoring and the
headquarters location of service frms at the p<0.01-level. Service frms headquartered
at a foreign location were more likely to choose captive offshoring when relocating
their activities and those headquartered in the Netherlands offshore outsourcing.
No empirical support was found for Proposition 3:
P3: There is no relationship between hard and soft service frms and their choice for a
specifc type of offshoring.
A signifcant relationship was established between hard and soft-service frms and
their choice for type of offshoring at a p<0.05-level. Hard service frms were more
likely to choose offshore outsourcing and soft service frms captive offshoring.
There was no empirical support provided for Proposition 4:
P4: There is no relationship between frm size and type of offshoring.
The model established a signifcant relationship between frm size and type of
offshoring at the p<0.01-level. Large frms were more likely to relocate their
activities by way of a foreign direct investment compared to SMEs via a contractual
agreement with a third party.
Empirical support was provided for Proposition 5:
P5: Service frms seeking objectives predominantly related to market-access are more
likely to relocate their activities by way of captive offshoring than service frms
seeking objectives predominantly related to cost advantages.
A statistically signifcant relationship was established at the p<0.01-level between
type of offshoring and objectives. This showed that service frms predominantly
seeking cost advantages were more likely to relocate their activities by way of a
contractual agreement with a third-party offshore provider. Those frms seeking
objectives predominantly related to market access were more likely to relocate
their activities by way of a foreign direct investment. The latter was also the case for
service frms who referred to seeking strategic resources and assets as their most
important objectives for relocating their activities.
004_080678_HFDST 07.indd 165 16-09-2008 15:11:23
As shown in Table 7.8 no empirical support was provided for Proposition 6:
P6: There is no relationship between objectives achieved by service frms when relocating
their activities and their choice for a specifc type of offshoring.
The empirical fndings established a signifcant relationship between objectives
achieved and type of offshoring at the p<0.05-level. Firms achieving 75% to 100%
of their objectives were more often involved in offshore outsourcing versus those
achieving none to 50% of their goals in captive offshoring.
Empirical evidence partly supported Proposition 7 at the p<0.05-level:
P7: Service frms perceiving management issues as an important barrier for relocating
their activities are less likely to choose captive offshoring than service frms who
perceive other barriers or none at all.
Service frms perceiving management issues as an important barrier were more
likely to choose offshore outsourcing as an entry mode than frms perceiving no
barriers at all. No signifcant relationship (p>0.05) was established between service
frms perceiving management issues and those perceiving other barriers regarding
their choice of foreign entry mode.
There was no signifcant relationship between core and non-core activities relocated
by service frms and their choice for a type of offshoring (p>0.05). Therefore, the
model provided no empirical support for Proposition 8:
P8: Core activities are more likely to be relocated via captive offshoring than non-core
activities.
The analysis established a signifcant relationship between type of offshoring and
hard and soft-service activities at a p<0.01-level providing empirical support for
Proposition 9:
P9: Soft service activities are more likely to be relocated via captive offshoring than
hard service activities.
Service frms relocating hard service activities were more likely to do so via a
contractual agreement with a third-party offshore provider and those relocating
soft-service activities via a foreign direct investment.
The model provided empirical support for Proposition 10 at the p<0.01-level:
P10: Activities offshored to a location with a higher income level are more likely to
be relocated via captive offshoring than those relocated to a location with a low
income level.
Service frms relocating their activities via a third party were more likely to do so
to offshore locations with a low income level compared to those relocating their
activities via a foreign direct investment. The latter were more likely to do so to
offshore locations with a higher income level (refers in the model to high, upper
middle and lower middle income level; Table 7.8).
004_080678_HFDST 07.indd 166 16-09-2008 15:11:23
No empirical evidence was found (p>0.05) for Proposition 11:
P11: Activities involving high-labor skill jobs are more likely to be relocated via captive
offshoring than activities involving low-labor skill jobs.
The model does not show a signifcant relationship between different skill levels of
relocated jobs and type of offshoring.
The model did not provide empirical support for Proposition 12:
P12: Activities relocated on a larger scale are more likely to be relocated via captive
offshoring than activities relocated on a smaller scale.
There was no signifcant relationship established (p>0.05) between the scale of
relocated activities and the type of offshoring.
table 7.8 Overview results of binary logistic regression regarding determinants choice for type of offshoring.
Independent Variables B Wald Proposition confrmed
Constant -6,55 5,12*
Experience ( 5 year(s) as base) Yes (P1)
> 5 years 7,45 16,22** One-tailed
Headquarters location (the Netherlands as base) Yes (P2)
Foreign location 3,24 6,66** One-tailed
Hard and soft service frms (soft frms as base) No (P3)
Hard service frms -2,10 3,79* Two-tailed
Firm size (SMEs as base) No (P4)
Large frms 2,92 6,75** Two-tailed
Objectives (cost savings as base) 14,64** Yes (P5)
Market access seeking 8,96 12,69** One-tailed
Strategic asset seeking 6,14 12,84**
Strategic resource seeking 7,46 11,57**
Objectives achieved (0 to 50% as base) No (P6)
75 to 100% -1,69 3,00* Two-tailed
Barriers (management issues as base) 6,99* Yes (P7)
Other barriers 1,78 3,60 One-tailed
No barriers 7,08 5,73*
Core and non-core activities (core activities as
base)
No (P8)
Non-core activities -0,83 0,76 One-tailed
Hard and soft service activities (hard as base) Yes (P9)
Soft service activities 10,37 7,67** One-tailed
Income level (low income as base) 13,76** Yes (P10)
High income level 3,43 4,02* One-tailed
Upper middle income level 3,81 3,96*
Lower middle income level 9,04 5,89*
Combination of income levels -0,88 0,32
Skill level of relocated jobs (Low skilled as base) No (P11)
Medium and high skilled -2,55 3,25 One-tailed
Scale in number of FTE being relocated
( 50 FTE as base)
No (P12)
> 50 FTE 0,49 0,14 One-tailed
Chi2 (df) = 135.128 (18)
Nagelkerke R2 = 0.813
Hosmer and Lemeshow test = 0.965
Total number of cases = 185
Overall Correctly classifed = 94.6%
*p<0.05; **p<0.01
004_080678_HFDST 07.indd 167 16-09-2008 15:11:23

Consequently, the likelihood of the choice of service firms for a specific type of
offshoring was estimated by the following model in which the regression
coefficients estimate the impact of the independent variables on the probability
that the foreign entry will be through a foreign direct investment (captive
offshoring), with a positive sign for the coefficient meaning that the variable
increases that probability:

Adding the values referred to in Table 7.8 the model reads as follows:

7.8. Conclusions
The purpose of this chapter was to explore which determinants of offshoring
behavior of service firms affect their choice for captive offshoring or offshore
outsourcing. Twelve propositions were tested in a binary regression model for
relationships between type of offshoring and the following items: objectives,
barriers, type of offshoring activities and service firms, firm size, offshoring
experience, income level at offshore location, scale of the relocated activities,
labor skill involved in relocating activities and objectives achieved (Figure 7.2).

Figure 7.2 Model for decision making of service firms regarding their choice for type of offshoring.

With the exception of frm size, objectives achieved, skill level, scale of the activity
and core and non-core activities, signifcant variables had the predicted signs.
The following independent variables infuenced the choice of service frms for
the type of offshoring: frm size, offshoring experience, headquarters location,
objectives, barriers, achieved objectives, hard and soft offshoring activities and
income level at offshore location. Descriptive statistics showed that captive
offshoring was the dominant form used by service frms to relocate their activities.
This supports entry mode studies suggesting that service frms tend to rely for
their entry mode decisions on wholly owned subsidiaries
486
. With an increasing
level of offshoring experience, the likelihood increased that service frms would
relocate their activities in the form of a foreign direct investment compared to less
experienced frms.
Service frms headquartered at a foreign location were more likely to relocate their
activities in a captive way compared to those having their headquarters in the
Netherlands. This difference in offshoring behavior based on headquarters location
is in line with previous research confrming that the home base of multinational
enterprises affects their entry mode decision
487
. The lower the cultural or
psychological distance, the more likely multinational enterprises will be choosing
higher levels of ownership. The majority of the frms participating in this research
were located in Europe and Northern America for which offshore locations in
the Netherlands were likely to be seen as culturally closer and economically less
threatening than, for example, their Asian counterparts
488
.
Another frm-specifc advantage was size, which is confrmed to play an important
role in international trade in general
489
. Although SMEs are socially and economically
important for individual countries, as they represent, nearly 99% of all frms in the EU
and over 94.85% of all Dutch frms
490
, larger frms have been better able to participate
in global markets than smaller frms. However, in this study evidence was found
that SMEs (48.11%) were almost as active in offshoring as large frms were (51.89%).
Furthermore, frm size proved to be a determinant for the choice of type of offshoring
when service frms relocated their activities and jobs involved to foreign locations.
This was supported by previous research indicating that frm size infuenced mode
selection whereby larger frms tended to choose wholly owned modes
491
.
486 Erramilli, M.K. and Rao, C.P. (1993). Service frms international entry-mode choice: A modifed transaction-cost analysis approach. Journal of Marketing,
57(3): 19-38.
487 Hennart, J.F., Larimo, J. (1998). The impact of culture on the strategy of multinational enterprises: Does national origin affect ownership decisions.
Journal of International Business, 29(3): 515-538.
488 Ibidem
490 CBS, Statistics Netherlands. (2008). Bedrijven: Grootte, rechtsvorm en economische activiteit. CBS. Voorburg and Heerlen.
491 Brouthers, K.D. and Brouthers, L.E. (2003). Why service and manufacturing entry mode choices differ: The infuence of transaction cost factors, risk and
trust. Journal of Management Studies, 40(5): 1179-1204; Erramilli, M.K. and Rao, C.P. (1993). Service frms international entry-mode choice: A modifed
transaction-cost analysis approach. Journal of Marketing, 57(3): 19-38; Agarwal, S. and Ramswami, S.N. (1992). Choice of foreign market entry mode:
Impact of ownership, location and internalization factors. Journal of International Business Studies, 23(1): 1-27.
004_080678_HFDST 07.indd 169 16-09-2008 15:11:24
This was notwithstanding the fact that service frms compared to manufacturing
frms, entered foreign markets shortly after their establishment when their size was
still limited, which may explain the fact that overall for both SMEs and large frms
the chosen entry mode was captive offshoring
492
.
The results of this study showed the importance of choosing project/activity level
as the unit of analysis in addition to the distinction between hard/soft frm level
and of making a distinction between hard/soft activities
493
versus service frms
494
.
These fndings were supported by offshoring research
495
discussed in Chapter 2.
Overall objectives related to market access and strategic asset and resource
seeking were the more important drivers for offshoring by service frms than cost
advantages. Service frms having cost advantages as their most important motives
for offshoring were more likely to relocate their activities via a third party than in
a captive way. In contrast, service frms seeking other objectives related to market
access, strategic resources and assets, were more likely to relocate their activities
by way of a foreign direct investment. Based on conventional wisdom largely
derived from the entry mode behavior of manufacturing frms, most studies used
a transaction or internalization framework to look at foreign entry mode choice of
service frms
496
. These frameworks were cost driven, which were more applicable
to manufacturing frms but according to more recent research less applicable to
service frms
497
. Further to the literature fndings in Chapter 3, the empirical
fndings of this study suggested that a widening of the internalization-specifc
advantages beyond transaction cost perspective and simultaneously a focus on
other objectives such as market access, strategic resource, strategic asset seeking
was necessary
498
to explain entry mode decisions of service frms when offshoring
their activities. It is in line with research indicating that service frms might enter
even relatively low potential markets in a captive way, satisfying their need to
coordinate activities on a global basis. They might be more concerned with their
global strategic positioning than with transaction costs in a specifc market. Thus
they might gain competitive advantage by integrating their operations and explore
opportunities and perceive threats that move beyond individual operations
499
.
3(4): 57-83.
496 Brouthers, K.D. and Brouthers, L.E. (2003). Why service and manufacturing entry mode choices differ: The infuence of transaction cost factors, risk and
trust. Journal of Management Studies, 40(5): 1179-1204; Erramilli, M.K. and Rao, C.P. (1993). Service frms international entry-mode choice: A modifed
transaction-cost analysis approach. Journal of Marketing, 57(3): 19-38; Anderson, E. and Gatignon, H. (1986). Modes of foreign entry: A transaction cost
analysis and propositions. Journal of International Business Studies, 17(3): 1-25.
497 Bouquet, C., Hbert, L. and Delios, A. (2004). Foreign expansion in service industries: Separability and human capital intensity. Journal of Business
Research, 57(1): 35-46.
163-191; Dunning, J.H. (1998). Location and the multinational enterprise: A neglected factor? Journal of International Business Studies, 29(1): 45-66;
International Business Studies, 23(1): 7.
004_080678_HFDST 07.indd 170 16-09-2008 15:11:24
Management issues were a potential impediment for offshoring in a captive way.
This is in line with the literature suggesting that foreign investments, especially in
case of mergers and acquisitions, are associated with high costs for managing
500
.
Management issues, as codifed in this study, included more issues than those
related to costs for managing offshoring activities ranging from communication
in different languages and cultural differences regarding corporate culture and
national customs and traditions. Service frms perceiving management issues as an
important barrier for their offshoring activities were more likely to relocate their
activities by way of offshore outsourcing, leaving these issues for the third-party
offshore provider to deal with.
Objectives achieved as a measurement for the perceived success of the offshoring
operations of service frms had an effect on their choice for type of offshoring. These
fndings are consistent with recent research suggesting that frms should consider
the success rate of prior entrants on emerging markets
501
. Although this research
suggested this to be the case for emerging markets, the underlying study provided
evidence that the extent to which objectives were achieved was also a determinant
for foreign entry mode in other than emerging markets.
As referred to in the frst chapter, based on lessons learned in the manufacturing
industry, offshoring involved non-core and low-labor activities being relocated
to low-wage countries
502
. These lessons learned indicated that, if offshored at all,
core activities should be relocated in a captive manner and non-core activities
by a third party
503
. This study provided insights that the majority of relocated
activities of service frms were referred to as core (60%) versus the minority non-
core activities (40%). In addition, the research fndings showed that the distinction
between these two different types of activities did not play an important role in
the choice of service frms for foreign entry mode as was suggested in previous
research studies.
Income levels at offshore locations did infuence the choice for a specifc type of
offshoring. When service frms made an FDI for relocating their activities, they
were more likely to choose a high-level income location. Conversely, service frms
relocating their activities via a contractual agreement with a third-party offshore
provider were more likely to choose a lower income level offshore location.
500 Hennart, J.F. and Reddy, S. (1997). The choice between mergers/acquisitions and joint ventures: The case of Japanese investors in the United States. Strategic
503 Gilley, K.M., McGee, J.E. and Rasheed, A. (2004). Perceived environmental dynamism and managerial risk aversion as antecedents of manufacturing
outsourcing. Journal of Small Business Management, 42(2): 117-133; Murray, J.Y. and Kotabe, M. (1999). Sourcing strategies of U.S. service companies: A
modifed transaction-cost analysis. Strategic Management Journal, 20(9): 791-809.
004_080678_HFDST 07.indd 171 16-09-2008 15:11:24
In contrast with research focusing largely on low-wage countries as attractive
offshore locations, the underlying study supported more recent research showing
that a country was more likely to be a destination of services offshoring as the
average wage of a country was increasing, i.e. frms located offshoring facilities
to destinations with comparable wage levels to those of the home country and
destinations with higher educational levels
504
. Service frms considered new
location variables such as capacity of knowledge accumulation and related
innovation and technological standards
505
. The latter can be explained by the
fact that, in the majority of cases, offshoring activities by service frms involved
medium to high-skilled jobs with intangible resources such as knowledge. Though
the skill level of jobs involved in relocating activities and the choice for a specifc
type of offshoring showed no signifcant relationship. Finally, although scale, if
referred to as economies of scale, was indicated as important for determining a
frms entry mode choice
506
, this study provided no evidence for a signifcant
association between the scale of offshoring activities and the way service frms
relocated their activities.
7.9. Limitations
This feld study had several limitations that could beneft from further research.
First, respondents were asked to discuss the offshoring activities they have been
involved in without limiting them in going back into the history of the frms. This
may have caused some recall bias when respondents answered questions about
activities that were relocated several years prior to this sample survey.
Second, self-reported measures were used for measuring perceived success of
offshoring activities by asking the extent to which objectives were achieved. To
ascertain this by the sample survey method may lead to self-reporting bias
507
.
Therefore, other studies used a restrictive defnition of success such as market
share, which did not encapsulate degrees of success and failure
508
. To include the
degree of success, respondents were asked about the degree to which they had
achieved their objectives on a scale of 0%, 25%, 50%, 75% to 100%.
Third, 26 outliers were excluded from the model because it improved the ft of
the model. This meant that the model could be applied to the majority of service
frms decision-making regarding their foreign entry mode choice. However, there
were some exceptions, e.g. service frms that relocated hard activities intended to
use offshore outsourcing, but due to a lack of a suitable third party chose captive
offshoring. A further study of the outliers should be done to provide more in-
depth insights on the outliers and eventually to identify new constructs that could
refne the model provided in this study.
163-191; Dunning, J.H. (1998). Location and the multinational enterprise: A neglected factor?. Journal of International Business Studies, 29(1): 45-66;
506 Agarwal, S. and Ramswami, S.N. (1992). Choice of foreign market entry mode: Impact of ownership, location and internalization factors. Journal of
508 Ibidem
004_080678_HFDST 07.indd 172 16-09-2008 15:11:24
Fourth, it was argued that when dependent and independent variables all come
from the same source, there would be a risk of common methods variance bias
509
.
However, in this study it was not identifed as a problem for the following reasons.
The dependent variable, type of offshoring, was an objective measure rather than
perception by respondents. In addition, several of the independent variables were
also objective measures obtained from or checked with respectively secondary
sources: hard and soft-service frms and activities; frm size; headquarters location;
and income level at the offshore location.
Fifth, the sample included respondents from the frst sample survey in 2005. This
may have caused the effect of testing
510
in that respondents participating for a
second time in a sample survey may give different answers than those respondents
participating in the survey for the frst time. The reason being that in the frst feld
study they answered similar questions about offshoring as in the second feld
study, which may have shifted their answers. In total nine respondents participated
in both the frst and third feld research this equals 3.64%
511
of the respondents in
Tracks A and B.
Jersey.
510 Campbell, D.T. and Stanley, J.C. (1966). Experimental and quasi-experimental designs for research. Reprinted from Experimental and quasi-experimental
designs for research on teaching. Houghton Miffin Company. Boston, Massachusetts: 9.
511 Percentage of number of respondents participating in feldstudies in 2005 and 2007: 9/247*100% = 3.64%.
004_080678_HFDST 07.indd 173 16-09-2008 15:11:24
004_080678_HFDST 07.indd 174 16-09-2008 15:11:24
chapter 8
Conclusions, Implications and Recommendations
8.1. introduction
The purpose of this research was to address the central research question:
How does the offshoring behavior of service frms infuence their choice for captive
offshoring or offshore outsourcing?
Service frms were taken as the focus of this study for two reasons. Firstly, because at
the turn of the last century there was a perceived shift from the manufacturing to
the service sector with regard to offshoring activities. Compared to manufacturing,
academic literature on this theme was limited as discussed in Chapter 1. Secondly, the
literature fndings discussed in Chapters 2 and 3 underlined the unique features of the
service frms regarding their internationalization process in general and offshoring in
particular and their choice of foreign entry mode compared to manufacturing frms.
The literature review conducted in the desk research was mainly used to verify if and
in what way the empirical fndings of the three feld studies conducted in this study
corresponded with existing theories. The variables were measured as a function of the
perception of managers acknowledging the importance of managerial perceptions in
decision-making. Literature was also brought back for discussing the empirical results
in this chapter.
The fact that limited academic literature was available at the start of this research
512
, was
the reason for building this research according to the principles of a grounded theory
approach elaborated on in Chapter 4
513
. Rather than existing theory, empirical fndings
discussed in Chapters 5, 6 and 7 were taken as a point of departure to generate and
refne theory regarding the offshoring behavior of service frms and their choice for type
of offshoring as well as for considering the impact on theory, policy and the offshoring
practices of service frms. The underlying research study was inductive in nature and
empirical evidence was used to directly establish variables, concepts and relationships
for developing and refning theory. By answering the main research question, this study
aimed at building a decision-making model for service frms regarding their choice for
captive offshoring or offshore outsourcing when relocating their activities.
Therefore, the frst step in the feld research discussed in Chapter 5 was to create
a body of understanding on the offshoring behavior of service frms operating
from the Netherlands. The literature discussed in Chapters 2 and 3 was used to
identify variables for the questionnaire designed for the frst feld study. However,
determining the relationship between those variables was done on the basis of
513 Suddaby, R. (2006). From the editors: What grounded theory is not. Academy of Management Journal, 49(4): 633-642.
005_080678_HFDST 08.indd 175 16-09-2008 15:10:46
empirical fndings instead of existing theories, i.e. empirical fndings were taken as
a starting point for building an emergent theory and the aforementioned model.
In order to provide respondents with suffcient opportunities to add different
variables, they were allowed much freedom in their answers by including, where
appropriate, an answer option other for several questions in the questionnaire.
Furthermore, a second feld study discussed in Chapter 6 with open ended in-
depth interviews was executed allowing participants freedom to add new themes
and to share their in-depth knowledge on the offshoring behavior of service frms.
These two feld studies combined were used to build theoretical constructs and
propositions. Subsequently, a third feld research was conducted to validate these
propositions, which were discussed in Chapter 7.
8.2. conclusions
As referred to in the previous paragraph, in Chapter 5 a body of understanding
was created with rich primary data for answering the research question:
What is the offshoring behavior of service frms operating from the Netherlands?
A sample survey was conducted for service frms operating from the
Netherlands in which the following service categories were represented: fnancial,
tele communi cations, transport and business services. The reason for including
these specifc service categories in this frst feld study was that previous offshoring
studies estimated that they would be most actively involved in relocating activities
from the Netherlands to foreign locations. The unit of analysis in the frst feld study
was on frm level.
Early offshoring literature, predominantly focused on the manufacturing industry,
indicated that the offshoring phenomenon was perceived as a tool for cost savings
by relocating non-core activities via third parties to so-called low-wage countries.
The empirical results in this study indicated that although offshoring of service
frms may often be a result of pressure for cost reductions, they increasingly focus
on relocating their core activities including jobs involved by way of a foreign direct
investment and were motivated by strategic opportunities, such as following
customers and suppliers, entering new markets and availability of qualifed
employees. Based on descriptive statistics, the following variables were identifed
serving as potential determinants for the offshoring behavior of service frms in
Chapter 5: frm size, headquarters location, type of service frms (hard and soft),
degree of offshoring experience, objectives, type of offshoring activities both core
and non-core and hard and soft offshoring activities, objectives achieved and
income level at the offshore locations.
005_080678_HFDST 08.indd 176 16-09-2008 15:10:47
In contrast with lessons learned in the manufacturing industry
514
, descriptive
statistics in this frst feld study indicated that service frms referred to the majority
of their activities relocated as core activities. Furthermore, captive offshoring
was the dominant form by which service frms relocated their activities. This is in
support of entry mode studies suggesting that service frms tend to rely on wholly-
owned subsidiaries for their entry mode decisions
515
. Contrary to the incremental
theories discussed in Chapter 3, research results showed that service frms, whether
small or large, were active in offshoring to foreign locations distant from their
domestic market and switched between different entry modes for relocating their
activities. They relocated their activities not only to lower-income countries, but
also to offshore locations with higher income levels and entered a foreign market
in a non-linear and less organized way through foreign affliates compared to the
incremental way by which manufacturing frms generally internationalize
516
. This
may be explained by existing literature suggesting that service frms accumulated
more experiential knowledge abroad to exercise control over foreign operations
and, in case of offshoring, also by using their network existing among others of
third-party offshore providers
517
. This way they employed offshoring to exploit
both their own and, in case of offshore outsourcing, the competitive advantages
of their suppliers. It was therefore suggested and elaborated on in Chapter 3 to
combine the OLI-framework with the Network approach, referred to in this study
as the OLIN-framework, for future research covering the offshoring behavior of
service frms and their choice for captive offshoring or offshore outsourcing. This
network model allows to study the offshoring behavior and foreign entry mode
choice in a non-linear way while perceiving boundaries of service frms as dynamic
allowing them to switch between both types of offshoring and using a combination
of them. These fndings were supported by more recent offshoring literature
discussed in Chapter 2, which indicated that offshoring requires organizations to
adopt a dynamic rather than a static model of defning boundaries referring to a
trend in which the boundaries of the core organization blend in with embedded
third-party offshore providers
518
.
Furthermore, this study indicated that overall objectives related to market access,
strategic resources and assets seeking were more important drivers for offshoring
by service frms than cost savings were. This might explain the identifed trend
indicating that service frms relocated their activities increasingly so to offshore
locations that are close to their own income level. In addition, it provided further
support for the suggestion of taking the OLIN-framework as a point of departure
for future research studies.
515 Erramilli, M.K. and Rao, C.P. (1993). Service frms international entry-mode choice: A modifed transaction-cost analysis approach. Journal of Marketing,
57(3): 19-38.
of International Marketing, 11(4): 1-31; Murray, J.Y. and Kotabe, M. (1999). Sourcing strategies of U.S. service companies: A modifed transaction-cost
analysis. Strategic Management Journal, 20(9): 791-809.
518 Parmigiani, A. (2007). Why do frms both make and buy? An investigation of concurrent sourcing. Strategic Management Journal, 28(3): 285-311;
Westney, D.E. and Zaheer, S. (2001). The Multinational enterprise as an organization. Chapter 13: 349-379 in Rugman A.M. and Brewer, T.L. (2001).
Oxford handbook of international business. Oxford University Press. Oxford.
005_080678_HFDST 08.indd 177 16-09-2008 15:10:47
Chapter 5 also dealt with the (sub-)research questions: Does the offshore behavior
of service frms have an infuence on their choice for a type of offshoring? If so, which
determinants of the offshoring behavior of service frms have a relationship with their choice
for captive offshoring or offshore outsourcing? Therefore, subsequently, it was tested
which of the independent variables potentially determining the offshore behavior
of service frms showed a signifcant relationship with the dependent variable, type
of offshoring, in order to build an emergent model for the choice of service frms
for captive offshoring or offshore outsourcing. Descriptive statistics in the frst
feld study established a signifcant relationship between type of offshoring and
the following independent variables for captive offshoring: market access seeking,
soft activities, core activities, higher-income level at offshore locations and service
frms headquartered at a foreign location (outside the Netherlands). For offshore
outsourcing, a signifcant relationship was established with the independent
variables: cost advantages, hard activities, non-core activities, lower-income level at
offshore locations and service frms headquartered in the Netherlands. Among all
independent variables, a signifcant mutual relationship was established with the
exception of the relationship between core/non-core and hard/soft activities and
between headquarters location and all other independent variables.
The emergent model developed in Chapter 5 was refned in empirical observations
in Chapter 6 based on managers collective interpretation derived from in-depth
interviews with interviewees representing the higher echelon of service frms. This
second feld study was conducted to further explore the collective interpretations of
top management regarding the offshore behavior of service frms and its infuence
on their choice of service frms for captive offshoring or offshore outsourcing
while providing more in-depth insights and refning the emergent model built
in the previous chapter. In-depth interviews were held and the interviewees were
selected on the basis of their involvement in the decision-making and managing
of offshoring projects. Interviewees respresented different service categories: IT,
wholesale, fnancial, publishing, construction, agriculture, energy, transport and
logistics, healthcare and recreation services. They represented a larger variety of
service frms in order to explore whether the research fndings in the previous
feld study could be applied to other categories of service frms as well. As the
unit of analysis, the project level was chosen, because research results from the
previous feld study underlined the importance of taking the type of offshoring
activity into account regarding the choice of service frms for a foreign entry mode.
Furthermore, it was the higher echelon of the frm hierarchy that was invited to
participate in this and the subsequent feld research. The reason was that from
the research results discussed in Chapter 5, it became clear that this level of the
organization was involved in the different stages of offshoring projects.
005_080678_HFDST 08.indd 178 16-09-2008 15:10:47
The research fndings in Chapter 6 confrmed the relationship established in the
previous chapter between, on the one hand, captive offshoring and core activities as
well as objectives related to market access and, on the other hand, the relationship
between offshore outsourcing and non-core activities and cost advantages. In
addition, empirical fndings based on the interviews indicated a trend that core
activities were not only relocated by way of a foreign direct investment, but
increasingly also via a contractual agreement with a third party, as opposed to
most of the existing literature suggesting that core activities should preferably
be performed by the service frm itself regardless of the characteristics of the core
service
519

520
. Furthermore, new themes emerged related to the scale of projects and
the skill level involved in the relocated jobs.
The collective interpretations of managers indicated that captive offshoring was
associated with larger-scale projects versus offshore outsourcing also with smaller
scale projects. In addition, the fndings regarding barriers and offshoring experience
were refned while foreign market experience was added as a theme following
the literature fndings in Chapter 3. Although managers indicated there was an
association between foreign market experience and offshoring in the sense that,
based on the existing network, it became easier to decide on offshoring, they did not
perceive a strong association with their choice for type of offshoring. The collective
interpretations of managers did, however, show an association between previous
offshoring experience and type of offshoring, i.e. service frms with previous offshoring
experience more often relocated their activities by way of captive offshoring. Service
frms less experienced in or planning for offshoring were more inclined to relocate
their activities by a contractual agreement with a third party. Furthermore, barriers
related to management issues were more often associated with captive offshoring
than with offshore outsourcing.
It was usually a combination of objectives related to cost advantages, market access
seeking and strategic asset and resource seeking that drove offshoring decisions. An
important notion underlying both types of offshoring was that these objectives, as
barriers in many cases, changed (in priority) during the offshoring project. In the
case of this change (in priority) of objectives, it could result in a different choice of
type of offshoring or the need for changing a third-party offshore provider when
the existing one was unable to meet the new demand. In the course of the project,
objectives related to cost advantages in particular were replaced (in priority) by
objectives related to market access and strategic resource and asset seeking.
12(4): 218-231.
520 Murray, J.Y. and Kotabe, M. (1999). Sourcing strategies of U.S. service companies: A modifed transaction-cost analysis. Strategic Management Journal, 20(9): 791-809.
005_080678_HFDST 08.indd 179 16-09-2008 15:10:47
Based on the fndings in Chapters 5 and 6, twelve propositions were formulated and
tested in a binary regression model for relationships between types of offshoring
in Chapter 7 while answering the (sub-)research question: How do the determinants
regarding the offshoring behavior of service frms, derived from the feld studies discussed in
Chapters 5 and 6, interrelate? A sample survey was used to collect the data representing
a large variety of service categories
521
to increase the generalizability of the empirical
fndings. The following variables were identifed as potential determinants of the choice
of service frms for type of offshoring: frm size, headquarters location, offshoring
experience, objectives, achieved objectives, hard and soft offshoring activities and
income level at offshore locations. With the exception of frm size, objectives achieved,
skill level, scale of the activity and core and non-core activities, variables had the
predicted signs as formulated in the twelve propositions.
Derived from the emergent theory developed in this study, Chapter 7 presented a decision-
making model for the choice of service frms for type of offshoring while answering the
main research question: How does the offshoring behavior of service frms infuence their choice
for captive offshoring or offshore outsourcing? Based on the model presented, captive offshoring
was compared to relocation of activities via a third party more likely associated with:
Large service frms.
Soft service frms.
Relocation of soft service activities.
Most important objectives related to market access or strategic resource seeking for
offshoring activities.
Other barriers than management issues or no barriers at all perceived for offshoring
activities.
Relocation of activities to higher-income level countries.
Service frms headquartered at a foreign location.
Service frms with more than fve years of offshoring experience.
Service frms having achieved more than or 75% of their objectives.
In contrast, offshore outsourcing was more associated with:
SMEs.
Hard service frms.
Relocation of hard service activities.
Most important objectives related to seeking cost advantages for offshoring activities.
Management issues as most important barrier perceived for relocating activities.
Relocation of activities to low-level income countries.
Service frms headquartered in the Netherlands.
Service frms with less than fve years of offshoring experience.
Service frms having achieved less than or 50% of their objectives.
521 Business services, e.g. ICT, consultancy, legal, research and development, marketing and design; Financial services, e.g. banking and insurance;
Transport, logistics and communications, e.g. telecommunication, transport of passengers and products, mailing and courier services; Health and
welfare services; Distribution and trade in electricity, natural gas and water; Renting and trading in real estate and movable property; Building and
civil engineering, e.g. road construction; Trading and repairing of consumer goods, e.g. trade agency and wholesale trade frm; Hospitality services;
Environmental services, culture and recreation; and Other services including agricultural services and educational services.
005_080678_HFDST 08.indd 180 16-09-2008 15:10:47
8.3. implications
It is important to note that research results indicated that the type of offshoring
activities was an important determinant for the decision of service frms whether
they relocated their activities by way of a foreign direct investment or a contractual
agreement with a third party. Therefore, the results of this study implied the
importance of analyzing offshore behavior of service frms and their choice for a
foreign entry mode in future research studies on activity level in addition to frm
or industry level
522
. This is contrary to previous research focusing on the distinction
between hard and soft on frm or industry level for the choice of foreign entry mode
of service frms and not considering the type of activity that is being relocated.
The research fndings derived from the three feld studies were brought back
to fndings from the literature indicating that service frms need to respond to
the increased need of managing globally scattered operations requiring close
coordination of different activities across national boundaries. According to this
extensive body of literature, the entry mode decisions of service frms are considered
as infuential to the performance of frms and of strategic importance if they want
to enter international markets. The fndings in this study helped to sharpen the
understanding of the strategic logic of the choice between captive offshoring
and offshore outsourcing by presenting a decision-making model showing how
different determinants in offshoring behavior of service frms interrelate and
determined a foreign entry mode choice for relocating their activities.
Furthermore, fndings in this research were in line with the trend that service frms
split up various business processes and tasks to locate them around the world,
allowing them to exploit both their competitive advantages and comparative
advantages of various countries as discussed in the literature fndings. This implied
that they should increasingly move from effciently attending single offshoring
activities to reconfguring whole processes and value chains in order to realize
more value across the whole organization. In doing so, they need to learn to source,
locate and manage human capital and activities on a structural basis anywhere in
the world, which is perceived by many frms as a new managerial practice
523
. This
is demanding for both managers and structures and boundaries of service frms.
The model provided in Chapter 7 can serve as a guideline for future decision-
making process regarding their choice for a foreign entry mode when relocating
activities.
522 Kotabe, M. and Murray, J.Y. (2004). Global procurement of service activities by service frms. International Marketing Review, 21(6), 615-634.
Jagersma, P.K. and Van Gorp, D.M. (2002). International HRM: The Dutch experience. Journal of General Management, 28(2): 75-87.
005_080678_HFDST 08.indd 181 16-09-2008 15:10:47
The developments referred to in the previous paragraph are in contrast to some
of the early offshoring literature discussed in this thesis, where offshoring was
perceived as a cost-cutting procurement tool for relocating non-core activities via
third parties to so-called low-wage countries, i.e. a method of procurement in search
of lowest costs around the globe. The difference with purchasing decisions which
simply involve procurement is that offshoring may affect the entire organization
and not just the procurement department and often requires a strategic decision
as discussed in Chapter 2. Therefore, the fndings in this study implied that
service frms are required to take a long-term perspective regardless of which
type of offshoring they choose for relocating activities to foreign locations. The
reason is that service frms often engage in offshoring in long-term commitments
for making investments and long-term agreements with third-party offshore
providers. Furthermore, a long-term perspective is required for seamless alignment
with activities on the domestic market. This study also implied that service frms
should consider the lessons learned from those with prior offshoring experience
and especially the level at which they have achieved their objectives, because
this is one of the determinants regarding their choice for a foreign entry mode.
Further implications also concern national policies, which are complicated by
the fact that offshoring is as much a political as an economic item on the agenda
of governments. Notwithstanding the fact that there is no proven connection
between offshoring and high unemployment rates over a longer period of time,
governments must deal with the public concern primarily focused on the negative
labor market effects of threatening unemployment rather than on the benefts of,
for example, growing productivity as a result of gained experience and skills due to
the presence of offshoring activity in a country
524

525
. Media focus on negative effects
of offshoring can infuence the electoral cycle, enhancing the demand for political
measures to restrict offshoring initiatives, as was the case in both the United States
and the European Union
526
.
At the same time, governments must deal with the fact that they lack suffcient
information to monitor services offshoring
527
. It is apparent that although lagging
behind in internationalization compared to non-service activities, over the years cross-
border trade and FDIs in services have augmented and a shift from manufacturing
to services offshoring took place at the turn of the last century when service frms
started to source part of their service activities from abroad by confguring and
coordinating different sourcing activities around the world. Furthermore, this study
revealed that SMEs were nearly as active in offshoring as large frms were. This is
in contrast to studies only considering large frms as key players in offshoring
528
.
524 Amiti, M. and Wei, S.J. (2005). Fear of service outsourcing: Is it justifed? Economic Policy, 20(42): 308-347; Drezner, D.W. (2004). The outsourcing
bogeyman. Foreign Affairs, 83(3): 22-34.
525 Samuelson, P.A. (2004). Where Ricardo and Mill rebut and confrm arguments of mainstream economists supporting globalization. Journal of Economic
Perspectives, 18(3): 135-146.
526 Kshetri, N. (2007). Institutional factors affecting offshore business process and information technology outsourcing. Journal of International Management,
13(1): 38-56; Mankiw, G.N. and Swagel, P. (2006). The politics and economics of offshore outsourcing. Journal of Monetary Economics, 53(5): 1027-1056.
527 Eurostat. (2007). Europe in fgures: Eurostat Yearbook 2006 07. Eurostat. Luxembourg; OECD, Organisation for Economic Co-operation and
Development. (2007). Offshoring and employment: Trends and impacts. OECD. Paris.
528 E.g. Statistics Denmark in cooperation with Statistics Netherlands. (2008). International sourcing: Moving business functions abroad. Statistics
Denmark. Copenhagen.
005_080678_HFDST 08.indd 182 16-09-2008 15:10:47
The magnitude of these developments is diffcult to measure, because to date
statistics on services are limited and still hard to capture
529
. An adequate and relevant
information fow is required for monitoring developments regarding services
offshoring and starts with capturing statistics about (developments in) the service
sector. Given the growing weight of services in economies
530
as well as the increased
mobility of services and capital resulting in an increase of services being offshored,
it is recommended that governments increase efforts to become or continue to be an
attractive offshore location for those service frms who employ offshoring by exploiting
the comparative locational advantages of various countries as discussed in Chapter
2. Although differences in comparative locational advantages have always played a
role in the internationalization of frms, todays developments in the service sector
happen at a much more rapid pace than was the case in the manufacturing industry
531
.
Comparative locational advantages based on cost advantages are often short-lived
in this context, especially if they are built on low wages solely, which is relatively
quickly subject to change, because countries offering even lower costs develop at a
relatively rapid pace
532
. In addition, more recent research showed that a country is
more likely to be a destination of services offshoring as the average wage of a country
is increasing, i.e. frms locate offshoring facilities in destinations that are closer on
wages to the home country
533
. This research indicated that high educational levels
and cultural similarity, not to be confused with geographical proximity, are more
important comparative advantages than cost advantages are. Also issues regarding
the protection of intellectual property are important indicators for service frms
when relocating their activities to offshore locations and deciding on whether
to make an FDI in or relocate activities via a third party to a specifc country. Thus
in order to respond to any negative effects of offshoring, such as unemployment,
and exploit the possibilities regarding service offshoring, countries must create
sustainable comparative locational advantages for the longer term while constantly
adapting to a quickly changing environment.
529 Grossman, G.M. and Helpman, E. (2005). Outsourcing in a global economy. Review of Economic Studies, 72(1): 135-159; OECD, Organisation for
Economic Co-operation and Development. (2007). Offshoring and employment: Trends and impacts. OECD. Paris; Apte, U.N., Karmarkar, U.S. and
Hiranya K.N. (2008). Information services in the U.S. economy: Value, jobs, and management implications. California Management Review, 50(3): 12-30.
530 The World Bank. (2008). Services trade and growth. Development Research Group. The World Bank. Washington D.C.
532 Lewin, A.Y. and Peeters, C. (2006). Offshoring work: Business hype or the onset of fundamental transformation. Long Range Planning, 39(3): 221-239; Levy,
D.L. (2005). Offshoring in the new global political economy. Journal of Management Studies, 42(3): 685-693; Kotabe, M. and Murray, J.Y. (2004). Global
sourcing strategy and sustainable competitive advantage. Industrial Marketing Management, 33(1): 7-14.
005_080678_HFDST 08.indd 183 16-09-2008 15:10:47
As research results in this study indicated, offshoring is not just about costs and low
skilled labor, but increasingly about the availability of highly-skilled employees and
management implying that the competitiveness of countries takes place on the labor
market to a considerable extent; in terms of both numbers and skills. The Dutch
economy, for example, is largely dependent on the service sector, its labor work force,
legal and regulatory framework and productivity are under pressure due to offshoring
of services
534
. These developments require, apart from a better monitoring, special
attention for education policies responding to rapidly changing requirements for an
adequately skilled and trained labor force. Whereas many developing countries were
competing on cost and especially low wages, to date they compete on highly-skilled
labor as well. This has triggered several countries to initiate protective measures
535
.
However, instead of fearing a powerful economic force and requesting for protective
measures, it may be more advantageous to join forces and jointly explore opportunities
to create comparative advantages between countries.
8.4. recommendations for further research
This research contributed to developing new and refning existing theory regarding
offshoring by service frms and their choice for type of offshoring by answering the
research questions posed in this study. In addition, potentially fruitful areas for
further study were identifed.
First, the proposed model for the choice of service frms regarding type of offshoring
should be tested further for a representative sample of the service sector at large
representing different service categories and size (SMEs and large frms). Such a
study should also include frms who are planning to relocate activities in order
to determine whether there is a difference between the two categories of service
frms regarding their decision making for a foreign entry mode when relocating
their activities.
Secondly, the model should be tested for representative sample sizes for specifc
service categories in order to compare these and to derive more practical
implications for their choice for a foreign entry mode.
Thirdly, based on these fndings, further research should be conducted determining
the differences and common denominators between offshoring by service frms
and other forms of internationalization including the determinants identifed in
this study.
534 WEF, World Economic Forum. (2004). The global competitiveness report. WEF. Geneva.
535 Mankiw, G.N. and Swagel, P. (2006). The politics and economics of offshore outsourcing. Journal of Monetary Economics, 53(5): 1027-1056.
005_080678_HFDST 08.indd 184 16-09-2008 15:10:47
Now that a body of understanding was created with rich primary data on the
offshoring behavior of service frms, the identifed determinants for their behavior
and choice for type of offshoring could be tested by allowing less freedom in
answering the questions than was allowed in the present study. When further testing
the model, it should include more objective measures apart from the self-reported
measures used in the underlying study enabling a comparison between both
measures while allowing a more quantitative analysis as a next step in this research.
In addition, it is important that future research is executed on activity level, since this
study revealed that a service activity being hard or soft is an important determinant
for the foreign entry mode of service frms when relocating their activities.
Finally, future research could explore further how the change in objectives and
barriers during the offshoring process affects the choice of service frms for a
specifc type of offshoring and how the different stages in the decision-making
process can be incorporated in the decision-making model for type of offshoring
presented in this study.
005_080678_HFDST 08.indd 185 16-09-2008 15:10:47
005_080678_HFDST 08.indd 186 16-09-2008 15:10:47
chapter 9
Summary
This study was aimed at providing insight in the offshoring behavior of service frms. In
doing so, it provided a decision-making model for service frms regarding their choice
for captive offshoring or offshore outsourcing when relocating their activities.
Service frms were taken as the focus of this study because of a perceived shift from
manufacturing to services offshoring while academic literature on this theme
was limited at the start of this research. The unique features of the service frms
regarding their internationalization process in general and offshoring in particular
compared to manufacturing frms further justifed this focus. A literature review
was conducted to identify potential determinants of the offshoring behavior of
service frms that were considered in designing the questionnaire for the frst feld
study and to verify if and in what way the empirical fndings corresponded with
existing theories. The three feld studies were conducted to answer the central
research question: How does the offshoring behavior of service frms infuence their
choice for captive offshoring or offshore outsourcing? They were taken as a point of
departure for developing new and refning existing theory. The variables
included in this study were measured as a function of the perception of managers
acknowledging the importance of managerial perceptions in decision-making.
In a frst feld study conducted, a body of understanding was created on the
offshoring behavior of service frms answering the research question: What
is the offshoring behavior of service frms operating from the Netherlands? In early
offshoring literature, offshoring was perceived as a cost-cutting procurement tool
for relocating non-core activities via third parties to so-called low-wage countries.
The empirical results of this study indicated that although offshoring of service
frms may often be a result of pressure for cost reductions, they focused on relocating
their core activities including jobs involved by way of a foreign direct investment
and were motivated by strategic opportunities such as following customers and
suppliers, entering new markets and availability of qualifed employees. It was
usually a combination of objectives related to cost advantages, market access
seeking and strategic asset and resource seeking driving offshoring decisions.
A notion underlying both types of offshoring was the fact that these objectives,
just as barriers, in many cases changed (in priority) during the offshoring project.
If this change (in priority) of objectives occurred, it could also result in a different
choice for type of offshoring or the need for changing a third-party offshore
provider when the current one is unable to meet the new demand. In the course of the
project, especially objectives related to cost advantages were replaced (in priority) by
objectives related to market access and strategic resource and asset seeking.
006_080678_HFDST 09 Summary.indd 187 16-09-2008 15:10:57
Furthermore, the empirical results indicated that the majority of service frms
involved in this research relocated core-activities and used, regardless of their
size, captive offshoring to do so while choosing foreign locations distant from
their domestic market and switching between different foreign entry modes. They
relocated their activities not only to lower income countries, but also to offshore
locations with higher income levels. In contrast to earlier foreign entry mode
theory, they entered a foreign market in a non-linear way, in the case of offshoring
outsourcing in cooperation with foreign affliates. This provided them with the
opportunity of accumulating experiential knowledge abroad to exercise control
over foreign operations by using, for example, their network of existing third-party
offshore providers resulting in reduced effects of psychological distance. They
employed offshoring to exploit both their own and, in case of offshore outsourcing,
the competitive advantages of their suppliers. These developments in offshoring
of service frms require organizations to adopt a dynamic model of defning
boundaries of the core organization, whereby they blend in with embedded third-
party offshore providers. The reason being that it is of increasing importance for
service frms to share knowledge resources surpassing organizational boundaries
and including sourcing partners. This is supported by a trend identifed in this study
that core activities were not only relocated by way of a foreign direct investment,
but increasingly also via a contractual agreement with a third party.
Based on these empirical fndings, it is suggested in this study that explaining
and exploring the offshoring behavior of service frms should be done with the
OLIN-framework, which is a combination of the OLI-framework and the Network
model. The OLIN-framework invites to study the behavior of service frms and
their choice for a foreign entry mode in a non-linear way. It allows a widening of
the internalization-specifc advantages beyond transaction cost perspective and
to simultaneously focus on other objectives, such as market access and strategic
asset seeking as suggested in the literature fndings of this study. According to
this model, the boundaries of service frms are dynamic, allowing them to switch
between captive offshoring and offshore outsourcing and using combinations of
both types of offshoring.
The offshoring of services expanded rapidly at the turn of the last century when
service frms started to source part of their service activities from abroad on a
large scale. This was done by confguring and coordinating different sourcing
activities around the world while exploiting comparative locational advantages
of various countries. Service frms increasingly so needed to manage globally
scattered operations requiring close coordination of different activities across
national boundaries. This development underlines the importance of entry mode
decisions of service frms, which according to an extensive body of literature,
are considered to be infuential on the performance of service frms and to be of
strategic importance if they want to enter international markets.
The empirical fndings in this study confrmed that the offshore behavior of
service frms infuenced their choice for a type of offshoring when relocating their
activities answering the research question posed in this study: Does the offshoring
behavior of service frms have an infuence on their choice for a type of offshoring? In
the frst feld study, it was identifed that the following variables determining the
offshoring behavior of service frms had a signifcant relationship with their choice
for captive offshoring or offshore outsourcing: objectives, type of offshoring
activities (hard/soft and core/non-core), income level at offshore locations and
headquarters location. Between all independent variables, a signifcant mutual
relationship was established with the exception of the relationship between core/
non-core and hard/soft activities and between headquarters location and all other
In the second feld study conducted to obtain more in-depth insights in the
collective interpretations of top management regarding the offshore behavior of
service frms and its infuence on their choice of service frms for captive offshoring
or offshore outsourcing, these fndings were refned. The scale of projects, the
skill level of the jobs involved in the relocated activities, offshoring experience
and barriers were identifed as additional potential determinants of the offshore
behavior of service frms infuencing their choice for a type of offshoring. Based on
the empirical fndings derived from the frst two feld studies, twelve propositions
were formulated.
A third feld study tested these propositions to answer the research question: How
do these determinants derived from the frst two feld studies interrelate? This resulted
in a decision-making model for service frms regarding their choice for a foreign
entry mode. Based on the model presented, compared to relocation of activities
via a third party, captive offshoring was more likely associated with: large service
frms; soft service frms; the relocation of soft service activities; most important
objectives related to market access or strategic resources seeking for offshoring
activities; the relocation of activities to higher-income level countries; service frms
headquartered at a foreign location; service frms with more than fve years of
offshoring experience; other barriers than management issues or no barriers at all
perceived for offshoring activities; and service frms having achieved more than or
75% of their objectives. In contrast, according to the model, offshore outsourcing
was more likely associated with: SMEs; hard service frms; service frms having less
than fve years of offshoring experience; the relocation of hard activities; most
important objectives related to seeking cost advantages for offshoring activities;
management issues as most important barrier perceived for relocating activities;
the relocation of activities to lower-level income countries; service frms having
achieved less than or 50% of their objectives; and service frms being headquartered
in the Netherlands.
The model provided in this study can serve as a guideline for the decision-
making process of service frms regarding the choice for a foreign entry mode
when relocating their activities. The fndings in this study helped to sharpen the
understanding of the strategic logic of the choice between captive offshoring
and offshore outsourcing when service frms split up various business processes
and tasks belonging to value chains and locate them around the world to exploit
both their competitive advantages and the comparative locational advantages of
various countries. The difference with purchasing decisions which simply involve
procurement is that offshoring may affect the entire organization and not just the
procurement department and often requires a strategic decision. This implies that
service frms should increasingly move from effciently attending single offshoring
activities to reconfguring whole processes in order to realize more value across the
whole organization. These developments require service frms to learn sourcing,
locating and managing human capital and activities anywhere in the world on a
structural basis, which is perceived as a challenging managerial practice by many
frms. This is demanding for both managers and the structures and boundaries of
service frms.
Based on the empirical fndings in this study, it is recommended that service frms
take a long-term perspective regardless of which type of offshoring they choose
for relocating activities to foreign locations. This can prevent them from a lock-in
situation due to long-term commitments for making investments and having long-
term agreements with third-party offshore providers. It is also recommended that
service frms consider the lessons learned by those with prior offshoring experience
and especially the level at which they have achieved their objectives, because this is
one of the determinants regarding their choice for a foreign entry mode.
The consequences of the developments regarding offshoring as discussed in this
study are not felt by service frms only; they have implications for governments
and their national policies as well. Although differences in comparative locational
advantages have always played a role in the internationalization of frms, todays
developments in the service sector happen at a much more rapid pace than was
the case in the manufacturing industry. Governments must continuously deal
with the public concern, primarily focused on the negative labor market effects
of threatening unemployment, while to date lacking suffcient information to
monitor services offshoring. This hinders their ability to respond to the increased
mobility of services and capital resulting in an increase of services offshoring.
In this quickly changing environment, an adequate and relevant information fow
and policy for dealing with these developments is required and justifed given the
growing weight of services in economies.
It is recommended in this study that governments should increase their efforts to
become or continue to be an attractive offshore location for service frms employing
offshoring. Comparative locational advantages based on cost advantages are
often short-lived in this context, especially if they are built on low wages solely.
Countries offering even lower costs develop at a relatively rapid pace. Rather than
geographical proximity, other locational advantages such as cultural similarity,
protection of intellectual property and high educational levels, become more
important than cost advantages. The latter also implies that the competitiveness
of countries takes place on the labor market to a considerable extent; in terms of
both numbers and skills.
This research contributed to developing new and refning existing theory regarding
offshoring by service frms and their choice for type of offshoring by answering the
research questions posed in this study. In addition, potentially fruitful areas for
further study were identifed. The proposed model regarding type of offshoring of
service frms should be further tested:
for a representative sample of the service sector at large representing different
service categories and size (SMEs and large frms);
for a representative sample size of specifc service categories, e.g. fnancial
services, business services, transport, logistics and communications, in order
to compare them and to derive more practical implications for their choice for
a foreign entry mode;
by including more objective measures apart from the self-reported measures
used in the underlying study enabling a comparison between both measures;
by giving less freedom in the answers of respondents while allowing a more
quantitative analysis as a next step in this research;
on activity level, since this study revealed that a service activity being hard or
soft is an important determinant for the foreign entry mode of service frms
when relocating their activities;
to deepen insights on the differences and common denominators between
offshoring by service frms and other forms of internationalization, including
the determinants identifed in this study; and
to explore how the change in objectives and barriers during the offshoring
process affects the choice of service frms for a specifc type of offshoring and
how the different stages in the decision-making process can be incorporated in
the decision-making model for the types of offshoring presented in this study.
samenvatting
Dit onderzoek heeft als onderwerp het verplaatsen van activiteiten door dienst
verleners, inclusief de daarbij behorende banen, naar het buitenland; ook wel
offshoring genoemd. Het is een onderwerp dat zowel in de academische wereld als
in de media een vlucht heeft genomen omdat er een verschuiving is opgetreden
van offshoring door productiebedrijven naar dienstverleners. De reden hiervoor
was dat als gevolg van technologische ontwikkelingen en de liberalisering van
de internationale diensten markt, een versnelling plaats vond in het verplaatsen
van diensten. Dienstverleners verplaatsten tegen het eind van de vorige eeuw in
toenemende mate hun diensten, daarbij gebruik makend van de comparatieve
locatievoordelen in verschillende met elkaar concurrerende landen. Cordinatie
van activiteiten die verspreid waren over de hele wereld, werd meer en meer van
belang voor dienstverleners en benvloedde daardoor ook hun keuze voor een type
van offshoring.
In de media was de aandacht voornamelijk gericht op de vermeende negatieve
effecten van offshoring, namelijk het verlies van banen. In tegenstelling tot
productie bedrijven waar het om laaggeschoolde arbeid ging, overheerste bij
het verplaatsen van diensten in het publieke debat de angst voor het verlies
van banen onder midden tot hoogopgeleide werknemers. Feit is dat er te weinig
bekend is over de ontwikkeling van de diensten sector en over de gevolgen
voor de arbeidsmarkt van het verplaatsen van activiteiten naar het buitenland.
Uit de literatuur blijkt dat er verschillen zijn in de wijze waarop dienstverleners
buitenlandse markten betreden in vergelijk met productiebedrijven en dat dit
van invloed is op hun prestaties. Het is echter onvoldoende duidelijk wat de
status van offshoring onder dienstverleners is en of, en zo ja welke, factoren van
hun offshoring gedrag verband houden met de wijze waarop zij hun diensten
naar het buitenland verplaatsen.
Deze studie had enerzijds tot doel om inzicht te geven in het offshoring
gedrag van dienstverleners. Anderzijds was het doel te onderzoeken welke
factoren van dit gedrag verband houden met de keuze van dienstverleners voor
captive offshoring (verplaatsen via directe buitenlandse investeringen DBI)
of offshore outsourcing (verplaatsen via een contract met een externe offshore
leverancier een derde partij) bij het verplaatsen van hun diensten. Er is een
beslissingsmodel ontwikkeld voor dienstverleners met betrekking tot deze
keuze voor type van offshoring.
De eerste literatuur over offshoring door dienstverleners bouwde veelal
voort op bestaande paradigmas die gebaseerd waren op het offshoring
gedrag van productie bedrijven. Er was reden om aan te nemen dat deze
paradigmas niet nopn van toepassing zouden zijn op dienstverleners.
007_080678_HFDST 09 Samenvatting.indd 193 16-09-2008 15:10:53
In deze studie is daarom gekozen voor een methodologie waarbij de empirie
centraal staat. De bevindingen van het literatuur onderzoek zijn weliswaar gebruikt
om de vragenlijst voor het eerste veldonderzoek op te stellen, maar niet om het
onderlinge verband tussen factoren, die van invloed zijn op het offshoring gedrag
te bepalen.
Op basis van de eerste twee veldonderzoeken zijn twaalf proposities geformuleerd
met betrekking tot de keuze van dienstverleners voor de manier waarop zij hun
activiteiten verplaatsen. Deze werden vervolgens getest in een derde veldonder
zoek. Gezamenlijk hebben de drie uitgevoerde veldonderzoeken antwoord gegeven
op de centrale onder zoeks vraag hoe het offshoring gedrag van dienst verleners van
invloed is op hun keuze voor captive offshoring of offshore outsourcing. Er is daarbij
onder zocht of factoren behorend bij het offshoring gedrag van dienstverleners
zoals doelstellingen, barrires en keuze om bepaalde activiteiten te verplaatsen naar
specifeke buitenlandse locaties, van invloed waren op hun keuze voor captive
offshoring of offshore outsourcing. Deze empirische bevindingen zijn vervolgens
vergeleken met die van het literatuuronderzoek.
In antwoord op de subonderzoeksvraag wat het offshoring gedrag van dienst
verleners opererend vanuit Nederland is, is in een eerste veldonderzoek een
gedetailleerd beeld gegeven van dit gedrag. In het verleden werd offshoring in
de literatuur beschouwd als een inkoopinstrument om in kosten te snijden door
het verplaatsen van nietkernactiviteiten naar zogenaamde lagelonenlanden via
een contract met een derde partij. Deze inzichten waren vooral gebaseerd op het
offshoring gedrag van productiebedrijven. De resultaten uit dit veldonderzoek
wezen erop dat, hoewel offshoring bij dienstverleners vaak het resultaat was van
de druk om kosten te besparen, zij veelal gericht waren op het verplaatsen van
kernactiviteiten met strategische doelen, zoals het volgen van toeleveranciers
en klanten om zo nieuwe buitenlandse markten te betreden, vergroting van
hun fexibiliteit en om toegang te krijgen tot een adequaat en hoog opgeleid
arbeidspotentieel. Tevens bleek uit dit onderzoek dat dienstverleners, in
tegenstelling tot productiebedrijven, in de meeste gevallen ervoor kozen het
verplaatsen van activiteiten door middel van DBIs te doen.
Het was vaak een combinatie van doelstellingen die dienstverleners deed besluiten
om tot het verplaatsen van activiteiten over te gaan. De resultaten van het tweede
veldonderzoek hebben eveneens aangetoond dat de doelstellingen en barrires
vaak gedurende het proces veranderd zijn (in prioriteit). Deze verandering kon
leiden tot een andere keuze van type offshoring of het wisselen van een derde partij,
omdat de bestaande partner niet kon voldoen aan de nieuwe wensen en vereisten.
Voornamelijk de doelstellingen gerelateerd aan kostenbesparingen werden tijdens
het proces vervangen (in prioriteit) door doelstellingen gerelateerd aan,
bijvoorbeeld toegang tot een buitenlandse markt of het fexibeler maken van de
organisatie. Dit betekent dat het voor bedrijven mogelijk zou moeten zijn om
relatief snel te switchen tussen de beide typen van offshoring en tussen verschillende
derde partijen.
Waar in eerder onderzoek naar offshoring ervan werd uitgegaan dat het
verplaatsen van activiteiten vooral door grote bedrijven werd gedaan, bleek uit deze
studie dat middel grote en kleine bedrijven vrijwel net zo actief waren op dit terrein.
De resultaten van het eerste veldonderzoek lieten verder zien dat ongeacht hun
omvang, dienstverleners kozen voor captive offshoring. Tevens kozen zij voor
locaties die geografsch ver afgelegen waren van de thuismarkt. De gekozen locaties
waren niet alleen landen met een laag inkomensniveau, maar juist ook die met
een hoog inkomensniveau. In tegenstelling tot wat in eerdere offshoring literatuur
werd beschreven, betraden de dienstverleners deze buitenlandse markten niet
stapsgewijs, zoals vaak wordt aangenomen voor productiebedrijven. Dienstverleners,
die het verplaatsen van activiteiten via een derde partij deden, konden gebruik
maken van de door deze partij opgebouwde ervaring en van een bestaand netwerk.
Op deze wijze werd de psychologische afstand gereduceerd en waren dienstverleners
in staat controle over de buitenlandse operaties te bewerkstelligen. Met offshore
outsourcing werden de concurrentievoordelen van de derde partij gebruikt voor de
eigen projecten, hetgeen met name van belang was voor kleinere bedrijven.
De ontwikkelingen in offshoring van dienstverleners vereisen dat er fexibiliteit bestaat
bij het vaststellen van de externe en interne grenzen van bedrijven, zodat switchen
tussen verschillende vormen van offshoring mogelijk is. Tevens is dit van belang om
de activiteiten die door een derde partij uitgevoerd worden, binnen de eigen grenzen
van dienstverleners te kunnen absorberen. Het is in toenemende mate van belang om
kennis te delen met derde partijen. Het verplaatsen van kernactiviteiten vindt niet
alleen in de vorm van DBIs plaats, maar in toenemende mate ook via derde partijen.
Op basis van de bevindingen uit het eerste veldonderzoek, werd de suggestie gedaan
om het offshoring gedrag van dienstverleners in de toekomst te verklaren en verder
te onderzoeken met behulp van het OLINraamwerk. Het OLINraamwerk is een
combinatie van het OLIraamwerk van Dunning
1
en het Netwerk model van
Johanson and Mattson
2
. De toegevoegde waarde van het OLINraamwerk is dat het
onder andere de mogelijk heid biedt, voor toekomstig onderzoek gericht op het
offshoring gedrag van dienstverleners, om:
1) de manier waarop dienstverleners een buitenlandse markt betreden niet als een
stapsgewijs proces te zien;
2) de grenzen van dienstverleners als dynamisch te beschouwen en daarmee verder
te onderzoeken hoe zij tussen captive offshoring en offshore outsourcing switchen
of gebruik maken van een combinatie van beide en eveneens derde partijen bij de
waardeketen dan wel bedrijfsprocessen van dienstverleners te kunnen betrekken; en
1 Dunning, J.H. (1995). Reappraising the eclectic paradigm in an age of alliance capitalism. Journal of International Business, 26(3): 461491.
2 Johanson, J. and Matsson, L.G. (1987). Interorganizational relations in industrial systems: A network approach compared with the transaction-cost approach.
International Studies of Management & Organization, 17(1): 3448; Malhotra, N.K., Ulgado, F.M. and Agarwal, J. (2003). Internationalization and entry
modes: A multitheoretical framework and research proposition. Journal of International Marketing, 11(4): 131.
3) naast transactiekosten andere voordelen van internalisering van activiteiten mee te
nemen en deze zwaarder te laten wegen in de keuze voor een type van offshoring,
zoals markttoegang, grotere organisatiefexibiliteit en focus op kernactiviteiten.
Tevens werd op basis van de uitkomsten van de eerste veldonderzoek de subonderzoeks
vraag of het offshoring gedrag van dienstverleners hun keuze voor een type van offshoring
voor het verplaatsen van hun activiteiten benvloedt, bevestigend beantwoord. Vervolgens
werd antwoord gegeven op de vraag welke factoren van het offshoring gedrag mogelijk
verband houden met deze keuze. De volgende factoren zijn uit het eerste veldonderzoek
naar voren gekomen: doelstellingen, type offshoring activiteiten (hard en zacht refererend
aan of de productie en consumptie van de dienst al (zacht) dan niet (hard) op eenzelfde
locatie dient te geschieden en kern en nietkern), inkomensniveau van de offshore
locatie en de locatie van het hoofdkantoor. Daanaast werd onderzocht of er een
onderlinge relatie bestond tussen deze factoren, hetgeen het geval was met uitzondering
van die tussen kern en nietkern en harde en zachte activiteiten en tussen locatie van het
hoofdkantoor en alle andere genoemde factoren.
Een tweede veldonderzoek werd uitgevoerd om meer inzicht te krijgen in de
heersende opvattingen van het top management van dienstverleners over het
offshoring gedrag en de invloed daarvan op hun keuze voor captive offshoring of
offshore outsourcing. In aanvulling op de bevindingen uit het eerste veldonderzoek
werden de volgende factoren van het offshoring gedrag gedentifceerd, die van
invloed zijn op de keuze voor een bepaald type offshoring: 1) de schaal van het
project; 2) het niveau van deskundigheid behorend bij de banen die verplaatst
werden met de activiteiten; 3) ervaring met offshoring; en 4) barrires. Op basis
van de uitkomsten van deze twee veldonderzoeken werden twaalf proposities
geformuleerd.
In een derde veldonderzoek werden deze proposities getest om een antwoord te
kunnen geven op de subonderzoeksvraag wat de onderlinge verhouding is tussen
de factoren van het offshoring gedrag die mogelijk van invloed zijn op de keuze
van dienstverleners voor een bepaald type van offshoring. Dit heeft geresulteerd in
een beslissingsmodel voor dienstverleners met betrekking tot de wijze waarop zij
de buitenlandse markt betreden bij het verplaatsen van hun activiteiten. Op basis
van dit model bleek dat captive offshoring meer verbonden is met:
grotere dienstverleners;
zachte dienstverleners (waarvan de productie van diensten moeilijk of niet losge
koppeld kan worden van de consumptie);
het verplaatsen van zachte activiteiten (waarvan de productie moeilijk of niet losge
koppeld kan worden van de consumptie);
de belangrijkste doelstellingen voor offshoring gerelateerd aan markttoetreding
en toegang krijgen tot zaken als kennis en goed opgeleide werknemers;
de belangrijkste barrires voor offshoring, anders dan management issues of in
het geheel geen barrires;
het verplaatsen van activiteiten naar offshore locaties met een hoog inkomens
niveau;
dienstverleners met het hoofdkantoor in het buitenland;
dienstverleners die 75% of meer van hun doelstellingen hebben bereikt; en
dienstverleners met meer dan vijf jaar ervaring in offshoring.
Offshore outsourcing was in het bijzonder verbonden met:
middelgrote en kleine dienstverleners;
harde dienstverleners (waarvan de productie van diensten losgekoppeld kan
worden van de consumptie);
het verplaatsen van harde activiteiten (waarvan de productie losgekoppeld kan
worden van de consumptie);
de belangrijkste doelstellingen voor offshoring gericht op het behalen van
kosten voordelen;
de belangrijkste barrires voor offshoring gerelateerd aan management issues;
het verplaatsen van activiteiten naar landen met een laag inkomensniveau;
dienstverleners waarvan het hoofdkantoor in Nederland is gevestigd;
dienstverleners die 50% of minder van hun doelstellingen hebben bereikt; en
dienstverleners met minder dan vijf jaar ervaring in offshoring.
Hiermee is antwoord gegeven op de centrale onderzoeksvraag hoe het offshoring
gedrag van dienstverleners hun keuze voor captive offshoring of offshore
outsourcing benvloedt. Het beslissingsmodel kan als richtlijn dienen in het
beslissingsproces van dienstverleners met betrekking tot hun keuze voor de
manier waarop zij een buitenlandse markt betreden wanneer zij hun activiteiten
verplaatsen. Tevens kunnen deze resultaten het strategische inzicht voor de
keuze tussen captive offshoring en offshore outsourcing aanscherpen, wanneer
dienstverleners verschillende zakelijke processen en taken uit de waardeketen
opknippen en over de wereld verspreiden om zo gebruik te maken van concurrentie
en comparatieve locatie voordelen in verschillende landen.
Offshoring gaat gepaard met langetermijninvesteringen (in geval van captive
offshoring) en contractuele afspraken met een derde partij (in geval van offshore
outsourcing). Op basis van de resultaten van dit onderzoek, wordt dienstverleners
daarom aanbevolen om, onafhankelijk van de keuze voor een specifek type
van offshoring, een langetermijnperspectief te kiezen voor het verplaatsen van
hun activiteiten naar het buitenland. Dit voorkomt dat dienstverleners DBIs of
contracten met derden aangaan op basis van kortetermijnbeslissingen, waardoor
langetermijndoelstellingen niet of ten dele gehaald worden.
Bovendien is het aan te bevelen dat dienstverleners leren van het offshoring
gedrag van bedrijven die ervaring hebben met het verplaatsen van activiteiten
naar het buitenland. De mate waarin deze laatste categorie ondernemingen hun
doelstellingen bereikt is namelijk n van de factoren die verband houdt met een
bepaald type van offshoring.
De in deze studie besproken ontwikkelingen rond offshoring door dienstverleners
hebben niet alleen gevolgen voor het bedrijfsleven. Zij hebben eveneens gevolgen
voor overheden bij het bepalen van hun nationale beleid. Verschillen in comparatieve
locatievoordelen tussen landen hebben altijd al een majeure rol gespeeld in het
internationaliseringsproces van bedrijven. De ontwikkelingen van offshoring in de
dienstensector vinden echter in een veel sneller tempo plaats dan het geval is voor de
productie industrie. Overheden zien zich dienaangaande vaker en op grotere schaal
genoodzaakt antwoord te geven op de groeiende bezorgdheid onder burgers over
de negatieve effecten van offshoring op de arbeidsmarkt. Het is van overheidswege
van belang om goed te reageren c.q. te anticiperen op de toenemende mobiliteit van
diensten, werknemers en kapitaal. Deze ontwikkelingen hebben namelijk tot gevolg
dat steeds meer diensten verplaatst worden.

Tot slot werd een aantal onderwerpen voor verdere studie gedentifceerd.
Het beslissings model, gericht op de keuze voor een gegeven type van offshoring
door dienst verleners, zou nader getest moeten worden:
op basis van een representatieve steekproef van de dienstensector met daarin zowel
het midden en klein als het grootbedrijf;
op basis van een representatieve steekproef binnen bepaalde dienstencategorien
om ze onderling te kunnen vergelijken en daarmee meer praktische informatie
te krijgen over de keuze voor een bepaald type van offshoring;
gebaseerd op objectievere bronnen in aanvulling op de waarnemingen van manag
ers die deel hebben genomen aan deze studie;
waarbij minder vrijheid aan respondenten wordt gelaten in het beantwoorden van
de vragen, wat een meer kwantitatieve analyse in de toekomst mogelijk maakt;
op activiteitenniveau, omdat deze studie heeft aangetoond dat het type activiteit
(hard of zacht) mede bepalend is voor de keuze voor een bepaald type offshoring
door dienstverleners die activiteiten verplaatsen;
om meer inzicht te krijgen in de overeenkomsten en verschillen tussen
dienstverleners die aan offshoring doen versus zij die andere manieren van
internationaliseren toepassen; en
om verder te kunnen onderzoeken hoe de verschuiving in doelstellingen en
barrires, hetgeen vaak tijdens het offshoring proces plaatsvindt, de keuze voor een
bepaald type offshoring benvloedt en hoe de verschillende fasen in het beslissings
proces inzake deze keuze in het model opgenomen kunnen worden.
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Appendix 1.1
Overview Import and Export Services
Period 1980-2006 for the Netherlands
The Netherlands fow of import and export of commercial services (excl. government services)
in US Dollars at 2007 prices in millions
1
Year Exports Imports
1980 16.686 17.772
1981 14.888 15.715
1982 14.872 15.255
1983 13.133 13.824
1984 13.039 13.640
1985 13.410 14.614
1986 16.559 17.901
1987 19.985 21.510
1988 21.443 24.005
1989 24.058 24.885
1990 28.478 28.995
1991 32.042 33.201
1992 37.436 37.799
1993 37.054 37.241
1994 40.486 40.316
1995 44.646 43.618
1996 46.219 44.127
1997 47.727 44.314
1998 48.570 46.252
1999 50.835 48.121
2000 48.361 49.941
2001 50.121 52.166
2002 54.700 56.492
2003 61.317 62.954
2004 71.784 68.564
2005 78.183 72.414
2006 82.462 78.109
1 WTO,WorldTradeOrganization.(2007).World Trade Report.WTO.Geneva.
Appendix 1.2
Overview Worldwide Import and Export Services Period 1980-2006
World wide fow of import and export of commercial services (excl. government services)
in US Dollars at 2007 prices in millions
1
Years Exports Imports
1980 365.000 402.400
1981 374.000 417.800
1982 364.600 402.800
1983 354.300 382.900
1984 365.600 396.300
1985 381.600 401.100
1986 447.800 458.000
1987 531.400 543.900
1988 600.300 625.700
1989 656.600 685.500
1990 780.500 820.500
1991 824.700 850.900
1992 924.300 947.100
1993 942.000 959.600
1994 1.033.900 1.043.300
1995 1.183.800 1.200.800
1996 1.270.600 1.266.600
1997 1.319.900 1.302.300
1998 1.351.500 1.331.500
1999 1.406.400 1.387.500
2000 1.493.600 1.477.700
2001 1.498.900 1.496.100
2002 1.608.400 1.583.300
2003 1.842.900 1.805.600
2004 2.212.900 2.145.900
2005 2.458.800 2.379.800
2006 2.755.900 2.648.400
1 WTO,WorldTradeOrganization.(2007).World Trade Report.WTO.Geneva.
Appendix 1.3.1 to 1.3.5
FDI
1
Stock In and Out
2
for Different Regions in the World
3
1.3.1Africa
1.3.2Americas
1.3.3Asia
1.3.4Europe
1.3.5Oceania
1 Data based on the UNCTAD database of the World Investment Directory online retrieved from: http://www.unctad.org/Templates/Page.
asp?intItemID=3198&lang=1
Limitationsofdata:theUNCTADdataisbasedonvarioussourcese.g.theWorldBank,IMF,OECDandnationalbanks,whichmaycausedifferences
in composition of FDI data. For example, information of national banks of individual countries is used as an important source for FDI statistics.
However,FDIdefnitionscandifferbetweennations.Furthermore,sometimesdataonacountrysstockinwardisbasedoninformationprovidedby
anothercountysstockoutward.Thesenumbersshouldberegardedasestimationsratherthanasexactnumber.
2 AllfguresinUSmillionsofdollars.
3 Based on Composition of macro geographical (continental) regions, geographical sub-regions, and selected economic and other groupings
retrieved from: UNCTAD, United Conference on Trade and Development. (2008). Composition of macro geographical (continental) regions,
geographicalsub-regions,andselectedeconomicandothergroupings.Availableat:http://unstats.un.org/unsd/methods/m49/m49regin.htm
Appendix 1.3.1
A. Africa
1
FDI Stock In
Country 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Algeria - - - - - - - - - - - - -
Angola - - - - - - - - - - - - -
Benin - - - - - - - - - - - - -
Botswana - - - - 914 875 1471 1691 1749 1979 2138 - -
Burkina Faso - - - - - - - - - - - - -
Burundi - - - - - - - - - - - - -
Cameroon - - - - - - - - - - - - -
Cape Verde - - - - - - - 2 - - - - -
Central African Republic - - - - - - - - - - - - -
Chad - - - - - - - - - - - - -
Comoros - - - - - - - - - - - - -
Congo - - - - - - - - - - - - -
Cote dIvore - - - - - - - - - - - - -
Djibouti - - - - - - - - - - - - -
Egypt - - 6479 - - - - - - - - - -
Equatorial Guinea - - - - - - - - - - - - -
Eritrea - - - - - - - - - - - - -
Ethiopia - - - - - - - - - - - - -
Gabon - - - - - - - - - - - - -
Gambia - - - - - - - - - - - - -
Ghana - - - - - - - - - - - - -
Guinea - - - - - - - - - - - - -
Guinea Bissau - - - - - - - - - - - - -
Kenya - - - - - - - - - - - - -
Lesotho - - - - - - - - - - - - -
Liberia - - - - - - - - - - - - -
Libyan Arab Jamahiriya - - - - - - - - - - - - -
Madagascar - - - - - - - - - 468 620 773 -
Malawi - - - - - - - - - - - - -
Mali - - - - - - - - - - - - -
Mauritania - - - - - - - - - - - - -
Mauritius - - - - - - - - - - - - -
Morocco - - - - - - - - - 9631 10009 11085 -
Mozambique - - - - - - - - - - 75.4 74.4 94.9
Namibia - - - - - - - - - - - - -
Niger - - - - - - - - - - - - -
Nigeria - 2 671.5 3 979.0 3 962.6 - - - - - - - - -
Republic of Tanzania - - - - - 1 123.1 945.3 919.6 1 201.7 - - - -
Rwanda - - - - - - - - - - - - -
Sao Tome and Principe - - - - - - - - - - - - -
Senegal - - - - - - - - - - - - -
Seychelles - - - - - - - - - - - - -
Sierra Leone - - - - - - - - - - - - -
Somalia - - - - - - - - - - - - -
South Africa - 2687 - 4278 7284 6236 17755 21379 22299 107317 17723 18715 -
Swaziland 123 - - - - - - - - - - - -
Togo - - - - - - - - - - - - -
Tunisia - - - - - - - - - - - - -
Uganda - - - - - - 221.1 295.8 - - - - -
Zambia - - - - - - - - 442 560 - - -
Zimbabwe - - - - - - - - - - - - -
1 CountriesincludedintheUNgeographicalregionandcomposition(http://unstats.un.org/unsd/methods/m49/m49regin.htm)butnotmentionedin
UNCTADdatabase:Mayotte,Runion,Sudan,WesternSahara,SaintHelena.
Africa FDI Stock Out
Country 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Algeria - - - - - - - - - - - - -
Angola - - - - - - - - - - - - -
Benin - - - - - - - - - - - - -
Botswana - - - - - - - - - - - - -
Burkina Faso - - - - - - - - - - - - -
Burundi - - - - - - - - - - - - -
Cameroon - - - - - - - - - - - - -
Cape Verde - - - - - - - - - - - - -
Central African Republic - - - - - - - - - - - - -
Chad - - - - - - - - - - - - -
Comoros - - - - - - - - - - - - -
Congo - - - - - - - - - - - - -
Cote dIvore - - - - - - - - - - - - -
Djibouti - - - - - - - - - - - - -
Egypt - - - - - - - - - - - - -
Equatorial Guinea - - - - - - - - - - - - -
Eritrea - - - - - - - - - - - - -
Ethiopia - - - - - - - - - - - - -
Gabon - - - - - - - - - - - - -
Gambia - - - - - - - - - - - - -
Ghana - - - - - - - - - - - - -
Guinea - - - - - - - - - - - - -
Guinea Bissau - - - - - - - - - - - - -
Kenya - - - - - - - - - - - - -
Lesotho - - - - - - - - - - - - -
Liberia - - - - - - - - - - - - -
Libyan Arab Jamahiriya - - - - - - - - - - - - -
Madagascar - - - - - - - - - - - - -
Malawi - - - - - - - - - - - - -
Mali - - - - - - - - - - - - -
Mauritania - - - - - - - - - - - - -
Mauritius - - - - - - - - - - - - -
Morocco - - - - - - - - - 4981 5349 6344 -
Mozambique - - - - - - - - - - - - -
Namibia - - - - - - - - - - - - -
Niger - - - - - - - - - - - - -
Nigeria - - - - - - - - - - - - -
Republic of Tanzania - - - - - - - - - - - - -
Rwanda - - - - - - - - - - - - -
Sao Tome and Principe - - - - - - - - - - - - -
Senegal - - - - - - - - - - - - -
Seychelles - - - - - - - - - - - - -
Sierra Leone - - - - - - - - - - - - -
Somalia - - - - - - - - - - - - -
South Africa - - - - - - - - - - - - -
Swaziland 15.7 - - - - - - - - - - - -
Togo - - - - - - - - - - - - -
Tunisia - - - - - - - - - - - - -
Uganda - - - - - - - - - - - - -
Zambia - - - - - - - - - - - - -
Zimbabwe - - - - - - - - - - - - -
Appendix 1.3.2
Americas
1
FDI Stock In
Country 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Carribean
Anguilla - - - - - - - - - - - - - - -
Aruba - - - - - - - - - - - - - - -
Bahamas - - - - - - - - - - - - - - -
Barbados - - - - - - - - - - - - - - -
British Virgin Islands - - - - - - - - - - - - - - -
Cayman Islands - - - - - - - - - - - - - - -
Dominican Republic - - - - - - - - - - - - - - -
Haiti - - - - - - - - - - - - - - -
Jamaica - 20 863 21 090 21 807 28 311 29 244 30 370 34 224 44 146 52 711 60 954 67 238 67 483 66 562 73 643
Montserrat - - - - - - - - - - - - - - -
Netherlands Antilles - - - - - - - - - - - - - - -
Saint Kitts and Nevis - - - - - - - - - - - - - - -
Saint Lucia - - - - - - - - - - - - - - -
Trinidad and Tobago - - - - - - - - - - - - - - -
Central America
Belize - - - - - - - - - - - - - - -
Costa Rica - - - - - - - - - - - - - - -
El Salvador - - - - - - - - - - - 1 628.4 1 771.0 - -
Guatamala - - - - - - - - - - - - - - -
Honduras - - - - - - - - - - - - - - -
Mexico - - - - - 4 344.2 3 385.9 2 882.0 4 702.7 2 955.8 3 897.8 6 350.0 20 497.9 5 508.0 -
Nicaragua - - - - - - - - - - - - - - -
Panama - - - - - - - - - - - - - - -
South America
Argentina - - - 6 166 7 577 9 015 11 451 13 337 17 011 19 049 22 908 22 989 24 524 8 095 -
Bolivia - 124 - - - - - - - - - - - - -
Brazil - 9 322 10 153 12 038 17 279 25 320 12 864 24 254 37 072 57 434 65 888 - - - -
Chile - - - - - - - - - - - - - - -
Colombia - - - - - - - 3 626 8 480 7 331 6 666 6 435 8 417 8 925 -
Colombia (tabel 2) - 405 416 554 727 1 120 1 712 2 866 4 842 8 329 10 755 10 722 - - -
Ecuador - - - - - - - - - - - - - - -
Guyana - - - - - - - - - - - - - - -
Paraguay - - - - - - 400.4 479.6 613.8 814.8 798.8 862.7 714.6 - -
Peru - 368.9 378.0 415.2 493.2 2 939.7 3 232.9 3 948.1 4 696.5 5 200.4 6 172.4 7 527.7 8 056.5 8 590.9 -
Uruguay - - - - - - - - - - - - - - -
Venezuela - 630.2 641.1 2 166.2 2 251.6 2 251.6 2 251.6 2 345.6 3 638.6 4 139.6 4 251.6 4 853.6 4 971.6 5 348.6 -
Northern America
Bermuda - - - - - - - - - - - - - -
Canada 32 078 43 108 45 001 45 908 44 802 50 388 57 110 64 454 67 299 75 696 91 688 94 539 111 361 110 257 113 814
United States of America - 196 113 222 578 225 373 262 933 254 510 281 007 308 949 367 435 395 120 508 274 734 255 834944 834687 853134
1 CountriesincludedintheUNgeographicalregionandcomposition(http://unstats.un.org/unsd/methods/m49/m49regin.htm)butnotmentioned
in UNCTAD database: Antigua and Barbuda, Cuba, Dominica, Grenada, Guadeloupe, Martinique, Puerto Rico, Saint-Barthlemy, Turks and Caicos
Islands,UnitedStatesVirginIslands,FalklandsIslands,FrenchGuiana,Suriname,Greenland,SaintPierreandMiquelon.
Americas FDI Stock Out
Country 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Carribean
Anguilla - - - - - - - - - - - - - - -
Aruba - - - - - - - - - - - - - - -
Bahamas - - - - - - - - - - - - - - -
Barbados - - - - - - - - - - - - - - -
British Virgin Islands - - - - - - - - - - - - - - -
Cayman Islands - - - - - - - - - - - - - - -
Dominican Republic - - - - - - - - - - - - - - -
Haiti - - - - - - - - - - - - - - -
Jamaica - 21 632 24 860 32 887 45 443 43 868 51 491 54 621 72 136 88 626 99 370 102 395 103 729 93 338 93 839
Montserrat - - - - - - - - - - - - - - -
Netherlands Antilles - - - - - - - - - - - - - - -
Saint Kitts and Nevis - - - - - - - - - - - - - - -
Saint Lucia - - - - - - - - - - - - - - -
Trinidad and Tobago - - - - - - - - - - - - - - -
Central America
Belize - - - - - - - - - - - - - - -
Costa Rica - - - - - - - - - - - - - - -
El Salvador - - - - - - - - - - - - - - -
Guatamala - - - - - - - - - - - - - - -
Honduras - - - - - - - - - - - - - - -
Mexico - - - - - - - - - - - - - - -
Nicaragua - - - - - - - - - - - - - - -
South America
Argentina - - - - - - - - - - - - - - -
Bolivia - - - - - - - - - - - - - - -
Brazil - - - - - - - - - - - - 38742 41545 -
Chile - - - - - - - - - - - - - - -
Colombia - - - - - - - - - - - - - - -
Ecuador - - - - - - - - - - - - - - -
Guyana - - - - - - - - - - - - - - -
Paraguay - - - - - - - - - - - - - - -
Peru - - - - - - - - - - - - - - -
Uruguay - - - - - - - - - - - - - - -
Venezuela - - - - - - - - - - - - - - -
Northern America
Bermuda - - - - - - - - - - - - - - -
Canada 33 953 51 109 57 759 56 309 62 959 76 359 86 939 98 858 117 952 141 016 163 934 193 505 237 310 261 873 233 378
United States of America - 212 283 236 193 262 078 312 706 348 652 392 540 454 159 518 032 627 147 821 104 905 388 1 057 236 1 180 328 1 316 749
Appendix 1.3.3
Asia
1
FDI Stock In
Country 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Central Asia
Kazachstan - - - 6.8 46.8 95.6 337.4 676.4 921.6 - - 2 887.8 3 758.8 - -
Kyrzygstan - - - - - - - - - - - - - - -
Uzbekistan - - - - - - - - - - - - - - -
Eastern Asia
China - - - - - - - - - - - 242334 259689 - -
Macau, China - - - - - - - - - - - 20053 - - -
Republic of Korea (a) 1961 - - - - 3847 - - - - 14879 16447 18350 - -
Japan - - - - - - - - - - - - - - -
Mongolia (b) 1 - - - - 39 - - - - 141 179 281 - -
Hong Kong - - - - - 65093 - - - - 418998 387631 312580 - -
Southern Asia
Afghanistan - - - - - - - - - - - - - - -
Bangladesh (a) - - - - - 19 - - - - 674 728 - - -
India - - - - - - - - - - - - - - -
Sri Lanka (a) - - - - - 901 - - - - 1017 959 2643 - -
South-Eastern Asia
Brunei - - - - - - - - - - - - - - -
Cambodia - - - - - - - - 546.6 666.1 627.0 658.5 648.2 - -
Cambodia (b) - - - - 424.9 2 225.9 2 424.0 2 565.6 2 903.7 2 964.0 3 098.1 3 163.5 3 249.7 - -
Indonesia (a) - - - - - 6415 - - - - - - - - -
Myanmar 167.9 167.9 171.9 483.4 570.8 1 032.4 2 017.1 2 520.5 2 522.0 2 537.5 2 599.1 2 599.1 2 599.1 - -
Philippines ( c) 768 - - - - 1701 - - - - 5791 6309 6624 - -
Singapore (a) 17824 - - - - 40515 71393 - - - - - - - -
Thailand (a) 3923 - - - - 10235 - - - - 18725 19308 19941 - -
Vietnam 369 (b) - - - -
8456
(b)
- - - - - - - - -
Western Asia
Armenia - - - - - - - - 176.7 254.3 359.9 425.1 519.0 - -
Azerbaijan - - - - - - - - - - - - - - -
Israel - - - - - - - - - - - - - - -
Kuwait - - - - - - - - - - - - - - -
Oman - - - - - - - - - - - - - - -
Turkey (a) - - - - - - - - - - - 8870 - - -
in UNCTAD database: Bahrain, Bhutan, Cyprus, Georgia, Iran, Iraq, Jordan, Lebanon, Loa, Malaysia, Maldives, Nepal, Pakistan, Qatar, Saudi Arab
Republic,Tajikistan,Timor-Leste,Turkmenistan,UnitedArabEmirates,Yemen.
Asia FDI Stock Out
Country 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Central Asia
Kazachstan - - - - - 0.3 0.3 1.7 9.9 - - 37.9 35.6 - -
Kyrzygstan - - - - - - - - - - - - - - -
Uzbekistan - - - - - - - - - - - - - - -
Eastern Asia
China - - - - - - - - - - - - - - -
Macao, China - - - - - - - - - - - 855 - - -
Hong Kong - - - - - - - - - - 333483 303838 25554514 - -
Republic of Korea (a) 37,8 - - - - 35,2 - - - - 34,9 34,7 42 - -
Japan - - - - - - - - - - - - - - -
Mongolia - - - - - - - - - - - - - - -
Southern Asia
Afghanistan - - - - - - - - - - - - - - -
Bangladesh - - - - - - - - - - - - - - -
India - - - - - - - - - - - - - - -
Sri Lanka (a) - - - - - - - - - - - - - - -
South-Eastern Asia
Brunei - - - - - - - - - - - - - - -
Cambodia - - - - - - - - - - - - - - -
Cambodia (b) - - - - - - - - - - - - - - -
Indonesia - - - - - - - - - - - - - - -
Myanmar - - - - - - - - - - - - - - -
Philippines - - - - - - - - - - - - - - -
Singapore (a) 6275 - - - - 25881 - - - - 38396 - - - -
Thailand (a) 246 - - - - 1474 - - - - 1615 1645 1702 - -
Vietnam - - - - - - - - - - - - - - -
Western Asia
Armenia - - - - - - - - - - - - - - -
Azerbaijan - - - - - - - - - - - - - - -
Israel - - - - - - - - - - - - - - -
Kuwait - - - - - - - - - - - - - - -
Oman - - - - - - - - - - - - - - -
Turkey (a) - - - - - - - - - - - - - - -
Appendix 1.3.4
Europe FDI
1
stock in
Country 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Eastern Europe
Belarus - - - - - - - - - - - - - - -
Bulgaria - - - - - - - - - 987.9 3062 - - - -
Czech Republic - - - - - - - 4 020.9 7 646.6
10
656.2
12
952.4
- - - -
Hungary - - - - - - - - - - 12952 16402 24375 - -
Moldava - - - - - - - - - - - - - - -
Poland - - - - - - - 3 459.0 4 418.8 7 220.6
14
707.1
20
720.4
- - -
Romania - - - - - - - - - - - - - - -
Russian Federation - - - - - - - - 5 251 5 281 7 457 - - - -
Slovakia - - - - - - 696.9 906.0 1 057.7 1 116.2 1 710.0 - - - -
Ukraine - - - - - - - - - - - - - - -
Northern Europe
Denmark - 65 900 - - 73 619 89 600 161 586 269 086 476 787 493 466 432 228 414 128 -
Estonia - - - - 15 788.8 28 923.2 33 895.1 43 701.9 - - -
Finland - 1 623 1 551 1 832 2 011 2 415 2 666 3 296 6 373 8 621 13 968 15 450 19 390 -
Iceland - 2 553 2 630 2 741 2 369 3 025 3 393 4 688 10 106 11 272 14 090 33 725 28 670 49 147 67 985
Ireland - - - - - - - - - - - - - - -
Latvia - - - - - - 1 026.9 1 154.6 - - -
Lithuania - - 1 579.3 2 504.3 4 271.9 5 506.3 6 506.2 - - - -
Norway 24 700 40 800 42 700 47 400 42 300 47 100 48 300 58 400 62 300 88 500 128 500 140 700 134 100 - -
Sweden - - 51 000 56 000 79 000 67 000 85 000 140 000 168 000 225 000 268 000 297 000 381 000 402 000 -
United Kingdom 86025 92688 90334 103204 101659 119010 133614 172209 231024 298277 392072 422013 444193 - -
Southern Europe
Albania - - - - - - - - - - -
Bosnia and Herzegovina - - - - - - - - - - -
Croatia (a) - 1019 - - - - 1598 1356 2258 - -
Greece - - - - - - - - - - - - - - -
Italy 20 863 21 090 21 807 28 311 29 244 30 370 34 224 44 146 52 711 60 954 67 238 67 483 66 562 73 643 -
Portugal - - - - - 8 369.2 9 889.9 11 920.3 10 188.6 10 535.5 14 391.8 23 215.2 24 784.6 - -
Serbia - - - - - - - - - - -
Slovenia 724.8 1 019.0 1 167.4 1 271. 1 337.2 1 386.6 1 598.0 - - - -
Spain - - - - - - - - - - - - - - -
Western Europe
Austria - - - - 7 136 8 967 10 017 12 315 14 131 16 012 23 484 28 775 29 928 - -
Belgium - - - - - - - - - - - - - - -
France - 69 414 79 455 89 344 96 436 109 277 125 334 152 944 182 334 213 735 271 625 296 948 331 780 -
Germany - 47 341 50 953 54 456 60 437 67 462 74 691 83 257 107 437 150 283 197 518 204 965 173 741 190 439 -
Luxembourg - - - - - 10 831 11 500 12 199 12 303 14 174 16 724 18 975 - - -
Netherlands 26 985 29 137 31 521 34 819 37 843 45 012 54 363 62 331 83 350 116 450 168 078 203 645 215 330 215 330 222 566
Switzerland - - - 51 207 55 371 56 247 62 440 71 229 80 196 103 948 116 938 123 537 148 155 167 164 -
1 CountriesincludedintheUNgeographicalregionandcomposition(http://unstats.un.org/unsd/methods/m49/m49regin.htm)butnotmentionedin
UNCTADdatabase:AlandIslands,Andorra,ChannelIslands,FaeroeIslands,Gibraltar,Guernsey,IsleofMan,Jersey,Malta,Montenegro,SanMarino,
Monaco,SvalbardandJanMayenIslands.
FDI stock out Europe
Country 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Eastern Europe
Belarus - - - - - - - - - - - - - - -
Bulgaria - - - - - - - - - - 36 - - - -
Czech Republic - - - - - - - 464.7 717.5 558.0 636.8 - - - -
Hungary - - - - - - - - - - 993 1227 1525 - -
Moldava - - - - - - - - - - - - - - -
Poland - - - - - - - 698.0 611.0 779.0 906.1 877.7 - - -
Romania - - - - - - - - - - - - - - -
Russian Federation - - - - - - - - 105 726 381 - - - -
Slovakia - - - - - - 96.0 144.2 229.8 186.3 195.0 - - - -
Ukraine - - - - - - - - - - - - - - -
Northern Europe
Denmark - - 63 800 - 73 972 - 115 600 - 162 544 245 285 419 638 459 714 395 425 374 992 -
Estonia - - - - - - - - 2 434.1 3 809.3 3 626.5 6 408.3 - - -
Finland - 1 081 936 1 182 1 410 1 068 1 137 1 068 3 559 4 787 14 879 16 001 13 348 - -
Iceland - 1 363 1 810 2 515 3 506 4 151 7 585 8 374 11 069 16 320 34 471 51 634 66 002 81 029 189 317
Ireland - - - - - - - - - - - - - - -
Latvia - - - - - - - - - - - - - - -
Lithuania - - - - - - - - - - - - - - -
Norway 20 100 24 900 30 400 34 100 41 500 50 500 56 200 74 100 59 868 137 125 166 271 184 800 - - -
Sweden - - 118 000 153 000 154 000 154 000 135 000 160 000 189 000 256 000 442 000 514 000 583 000 582 000 -
United Kingdom 98643,6 110101,86 130010,76 149228,64 150097,86 156061,62 163724,22 201748,14 272345,04 435853,44 760890,24 677259 707362,92 - -
Southern Europe
Albania - - - - - - - - - - - - - - -
Bosnia and Herzegovina - - - - - - - - - - - - - - -
Croatia (a) - - - - - - - - - - 150 - - - -
Greece - - - - - - - - - - - - - - -
Italy 21 632 24 860 32 887 45 443 43 868 51 491 54 621 72 136 88 626 99 370 102 395 103 729 93 338 93 839 -
Serbia - - - - - - - - - - - - - - -
Slovenia (a) - - - - - - - - - - 7457 8501 9452 - -
Portugal - - - - - - 2 590.7 4 252.4 6 745.8 8 373.7
11
707.7
19
428.5
20
388.4
- -
Spain - - - - - - - - - - - - - - -
Western Europe
Austria 2 434 3 028 3 548 4 781 5 334 6 036 7 644 9 518 10 912 13 946 20 082 23 782 32 124 - -
Belgium - - - - - - - - - - - - - - -
France - - 98 908 107 714 115 548 122 201 117 962 135 021 159 640 215 020 358 085 469 186 454 508 466 404 -
Germany - 61 748 70 715 83 062 93 300 110 810 133 361 157 670 182 385 251 112 358 791 480 225 452 337 464 564 -
Luxembourg - - - - - 996 1 178 1 254 1 803 2 418 3 026 3 622 - - -
Netherlands 36 880 41 901 46 664 49 276 55 888 61 840 75 377 89 170 101 848 139 248 183 797 212 273 206 120 260 211 -
Switzerland 35 073 43 318 46 077 68 886 76 800 81 835 103 372 141 038 146 738 204 280 256 518 296 212 271 140 280 879 -
Appendix 1.3.5
Oceania
1
FDI Stock In
Country 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Australia 50 365 54 219 57 142 65 861 77 320 82 010 83 378 82 200 101 050 110 706 131 324 133 126
New Zealand - - - - - - - - - - - -
E. Oceania FDI Stock Out
Country 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Australia 16 411 21 633 22 792 25 208 31 004 40 333 48 349 40 823 52 484 61 760 63 674 58 289
New Zealand - - - - - - - - - - - -
inUNCTADdatabase:AmericanSamoa,CookIslands,FederatedstatesofMicronesia,Fiji,FrenchPolynesia,Guam,Kiribati,MarshallIslands,Nauru,
NewCaledonia,Niue,NorfolkIsland,NorthernMarianaIslands,Palau,PapuaNewGuinea,Pitcairn,Samoa,SolomonIslands,Tokelau,Tonga,Tuvalu,
Vanuatu,WallisandFutunaIslands.
Appendix 5.1
Questionnaire
Research Study Nyenrode Business Universiteit
Dear Sir/Madam,
Nyenrode Institute for Competition (NIC) is conducting a research study on offshoring (relocation of
business activities outside the Netherlands) in the service sector. It is part of a more extensive research on
different kind of international growth strategies of service frms.
We very much appreciate your participation in our research and guarantee that your information will
be treated anonymously. If you are interested in the results of our research, we are more than happy to
provide you with our future publications on offshoring. The last question of the questionnaire will provide
you with the opportunity to express your interest in receiving these publications.
If you are not involved in your companys offshoring decisions and activities, we would appreciate if you
forward this e-mail to the person within your organisation who is involved in this.
We thank you in advance for your kind cooperation.
Completing the questionnaire will take approximately 8 minutes of your time.
You can access the survey by clicking on the following link:
....
Thank you for your interest in our research on offshoring in the service sector.
Outsourcing and offshoring are sometimes referred to as the same. It is in our view important to make a
distinction between them. Therefore, we provide you with our defnition of offshoring.
Offshoring is the relocation of business activities outside the Netherlands under direct control of the
frm (captive offshoring) or via a third foreign party (offshore outsourcing). Both types of offshoring are
marked bold in the following fgure:
Ownership
Location
Internal
Direct control
External
010_080678_APP 05.indd 221 16-09-2008 15:11:49
Q1. Did your company implement offshoring activities or is it planning to do so within the next three
years?
1. Yes, our company has offshored activities before.
2. Yes, our company is planning to offshore activities within the next three years.
3. No, our company did not offshore business activities and is not planning to do so within the next
three years.
4. Other, namely.
Q2. What is the core activity of your company?
Q3. In which country are your companys (main) headquarters located?
Q4a. What are your companys motivations for offshoring activities?
You can mark several motives.
1. Save costs
2. Increase/maintain competitiveness
3. Advantages of legislation and regulations (e.g. privacy rules) in offshore location
4. Follow customers/suppliers
5. High labor costs in the Netherlands
6. Availability qualifed employees in offshore location
7. Enter new markets
8. Increase quality/service
9. Focus on core activities
10. Follow competitors
11. Increase fexibility
12. Quick access to technology
13. Other, namely
Q4b. What are your companys motivations for future offshoring activities?
You can mark several motives
1. Save costs
3. Advantages of legislation and regulations (e.g. privacy rules) in offshore location
5. High labor costs in the Netherlands
6. Availability qualifed employees in offshore location
13. Other, namely
010_080678_APP 05.indd 222 16-09-2008 15:11:49
Q5a. Which of the motivations you marked in the previous question, is the
most important motivation for your companys offshoring activities?
You can mark the most important motive.
Q5b. Which of the motivations you marked in the previous question, is the
most important motivation for your companys future offshoring activities?
You can mark the most important motive.
Q6a. Does your company offshore activities under direct control (captive offshoring), via a third
foreign party (offshore outsourcing) or a combination of both types of offshoring?
1. Direct control (captive offshoring).
2. Via third party in foreign location (offshore outsourcing).
3. Combination of captive offshoring and offshore outsourcing.
Q6b. Does your company plan to offshore activities under direct control (captive offshoring), via a
third foreign party (offshore outsourcing) or a combination of both types of offshoring?
1. Direct control (captive offshoring).
2. Via third party in foreign location (offshore outsourcing).
3. Combination of captive offshoring and offshore outsourcing.
Q7a. Which activities did your company offshore under direct control (captive offshoring) and which
via a third party in a foreign location (offshore outsourcing)?
Q7b. Which activities does your company plan to offshore under direct control
(captive offshoring) and which via a third party in a foreign location (offshore outsourcing)?
Q8a. Which way did your company offshore its business activities in the case
of captive offshoring?
1. Greenfeld
2. Acquisition
3. Joint Venture
4. Merger
010_080678_APP 05.indd 223 16-09-2008 15:11:49
Q8b. Which way does your company plan to offshore its business activities in the case of captive
offshoring?
1. Greenfeld
2. Acquisition
3. Joint Venture
4. Merger
Q9a. Which activities has your company offshored?
You can mark several options.
1. Inbound logistics
2. Operations
3. Outbound logistics
4. Marketing
5. Service
6. IT-infrastructure
7. Human resource management
8. Technology/Application development
9. Procurement
10. Sales
11. Other, namely
Q9b. Which activities is your company planning to offshore?
2. Operations
4. Marketing
5. Service
9. Procurement
10. Sales
11. Other, namely
Q10. Are these (future) offshoring activities core or non-core business activities
for your company?
1. Core activities
2. Non-core activities
3. Both core as well as non-core activities
Q11a. To which country/countries did your company offshore activities?
010_080678_APP 05.indd 224 16-09-2008 15:11:50
Q11b. To which country/countries does your company plan to offshore activities?
Q12a. Which barriers for offshoring activities has your company experienced?
1. Political situation
2. Legislation and regulations (e.g. privacy rules)
3. Lack of qualifed employees in offshore location
5. Quality of work
6. Diffcult to manage
7. Cultural differences
8. Other, namely
Q12b. Which barriers for offshoring does your company expect to experience?
1. Political situation
2. Legislation and regulations (e.g. privacy rules)
3. Lack of qualifed employees in offshore location
5. Quality of work
7. Cultural differences
8. Other, namely
Q13a. Which of the barriers you marked in the previous question, is the most
important barrier for your companys offshoring activities?
You can mark one option.
Q13b. Which of the barriers you marked in the previous question, is the most
important barrier for your companys future offshoring activities?
You can mark one option.
Q14. At which level of the organization are offshore decisions taken?
1. Board of Directors
2. CEO/President/Managing Director
3. CFO/Director fnance/Treasurer/Controller
4. Senior vice-president/Vice-president
5. Chief information offcer/Director technology
6. Head of business unit
7. Head of department
8. Manager
9. Other, namely
010_080678_APP 05.indd 225 16-09-2008 15:11:50
Q15. Which department(s) is/are involved in offshoring (future) business activities?
1. International business development
2. International affairs
3. Finance
4. Human Resources
5. Strategy
6. Other, namely
Q16. Who is/are responsible within your organization for managing (future)
offshoring activities?
1. CEO/Director/President/Managing Director
2. Chief Information Offcer/Director technology
3. Head of business unit
4. Head of department
5. Manager
6. Other, namely
Q17. Which goal(s) did your company achieve by offshoring?
1. Save costs
3. Capture advantages of favorable legislation and regulations (e.g. tax legislation) in offshore location
5 . Avoid high labor costs in the Netherlands
6. Recruit qualifed employees
Q18. Which goals did your company not achieve by offshoring?
1. Save costs
5. Avoid high labor costs in the Netherlands
010_080678_APP 05.indd 226 16-09-2008 15:11:50
Q19. Why did your company not achieve these goals?
Q20. Is your company planning to offshore more activities in the future?
1. Yes
2. No
Q21. Why is your company planning to offshore activities in the future?
1. Save costs
5. Avoid high labor costs in the Netherlands
13. Other, namely
Q22. Why is your company not planning to offshore more activities in the future?
1. It is diffcult to manage
2. Low fnancial performance of offshored activities
3. Reduction of costs not feasible in this way
4. Increase/maintain competitiveness is not necessary in this way
5. Unfavorable legislation and regulations (e.g. tax legislation) in offshore location
6. Not necessary to follow customers/suppliers
7. No identifed disadvantages (e.g. high labor costs) in the Netherlands
8. Suffcient qualifed employees in the Netherlands
9. No interest in entering new markets
10. Increasing quality/ service not possible in this way
11. Instable political situation in offshore location
12. Not necessary to follow competitors
13. Insuffcient access to technology
14. Other, namely
010_080678_APP 05.indd 227 16-09-2008 15:11:50
Q23. Did your company withdraw offshored activities to the Netherlands or is it
planning to do so in the future?
1. Yes, all activities
2. Yes, some activities
3. No
Q24. Why did your company withdraw offshoring activities to the Netherlands
or is it planning to do so?
2. Low fnancial performance
3. High costs involved in offshoring
4. Focus on other foreign markets
5. Increase of labor costs in offshore location
6. Unfavorable legislation and regulations (e.g. tax legislation) in offshore location
7. Follow customers/suppliers is not necessary
8. Suffcient qualifed employees in the Netherlands
12. Incompliance of local and company culture
13. Change of international growth strategy
14. Political instability in offshored location
15. Insuffcient access to technology
16. Other, namely
Q25. Which activities did/will your company withdraw to the Netherlands ?
2. Operations
4. Marketing
5. Service
9. Procurement
10. Sales
11. Other, namely
010_080678_APP 05.indd 228 16-09-2008 15:11:50
Q26. Are these withdrawn activities core or non-core business activities?
1. Core activities
2. Non-core activities
3. Both core and non-core activities
Q27. Why did your company decide to continue offshoring activities?
1. Good fnancial performance of offshored activities
2. Offshoring important for companys strategy
3. Other, namely
Q28. In which department are you currently working?
Q29. What position do you hold?
Q30. Do you want to be informed about the results of this survey?
Q31. To which e-mail address can this information be sent?
Thank you for your time and kind contribution to our research. We highly appreciate the fact that you
shared your expertise and experience on offshoring business activities with us. Please do not hesitate to
contact us for any further information or questions you may have.
Yours sincerely,
Dsire van Gorp
Pieter Klaas Jagersma
Nyenrode Institute for Competition
E: d.vgorp@nyenrode.nl
W: http://www.nyenrode.nl/nic
010_080678_APP 05.indd 229 16-09-2008 15:11:50
1. Did your company implement offshoring activities or is it planning to do so within the next
three years?
Yes Planning to do so No Other
2. What is the core activity of your company?
3. In which country are your companys (main) headquarters located?
4a. What are your companys
motivations for offshoring
activities?
1 answer >1 answer
4b. What are your companys
motivations for future
1 answer >1 answer
5a. Which of the motivations
you marked in the previous
question, is the most important
motivation for your companys
5b. Which of the motivations
question, is the most
important motivation for your
companys future offshoring
activities?
6a. Does your company
offshore activities under direct
control (captive offshoring) or
via a third party (offshore
outsourcing) or a combination
of both types of offshoring?
6b. Does your company plan
to offshore activities under
direct control (captive
offshoring) or via a third party
(offshore outsourcing) or a
combination of both types of
offshoring?
7a. Which activities did your
company offshore under direct
control (captive offshoring) and
which via a third party in a
foreign location (offshore
outsourcing)?
7b. Which activities does your
company plan to offshore
under direct control (captive
offshoring) and which via a
third party in a foreign
location (offshore
outsourcing)?
12a. Which barriers for
offshoring activities has your
company experienced?
1 answer >1 answer
12b. Which barriers for
offshoring does your
company expect to
experience?
1 answer >1 answer
8a. Which way did your
company offshore its business
activities in the case of captive
offshoring?
8b. Which way does your
company plan to offshore its
business activities in the case
of captive offshoring?
10. Are these (future) offshoring activities core or non-core business
activities for your company?
11a. To which
country/countries did your
company offshore activities?
11b. To which
country/countries does your
company plan to offshore
activities?
13a. Which of the barriers you
marked in the previous
question, is the most important
barrier for your companys
13b. Which of the barriers
question, is the most
important barrier for your
companys future offshoring
activities?
9a. Which activities has your
company offshored?
9b. Which activities is your
company planning to
offshore?
14. At which level of the organization are offshoring decisions taken?
15. Which department(s) is/are involved in offshoring (future) business
activities?
16. Who is/are responsible within your organization for managing
(future) offshoring activities?
17. Which goal(s) did your company achieve
by offshoring?
18. Which goal(s) did your company not
achieve by offshoring?
19. Why did your company not achieve these
goals?
23. Did your company withdraw offshored activities
to the Netherlands or is it planning to do so in the
future?

Yes, all activities Yes, some activities No
24. Why did your company
withdraw offshoring activities
to the Netherlands or is it
planning to do so?
20. Is your company planning to offshore more
activities in the future?
Yes No
21. Why is your company
planning to offshore more
22. Why is your
company not planning
to offshore more
25. Which activities did/will
your company withdraw to the
Netherlands?
27. Why did your company
decide to continue offshoring
activities?
28. In which department are you currently working?
29. What position do you hold?
30. Do you want to be informed about the results of this survey?
31.To which email address can this information be sent?
End of survey
26. Are these withdrawn
activities core or non-core
business activities?
flow of the Questionnaire
010_080678_APP 05.indd 230 16-09-2008 15:11:50
Appendix 5.2
Codifcation Development Respondents in Tracks A and B divided
in Hard and Soft Service Firms
Respondents in Tracks A
1
and B
2
representing hard service frms
SBI code Frequencies Track A Percentages Track A Frequencies Track B Percentages Track B
Architectural and engineering activities and related
technical consultancy
18 15.00 4 33.33
Software development, producing and publishing,
software consultancy
21 17.50 4 33.33
Forwarding agencies 13 10.83 1 8.33
Wholesale of machinery and accessories 11 9.17 0 0.00
Road transport 6 5.00 0 0.00
Other specialized wholesale and wholesale of a
general assortment
4 3.33 0 0.00
Research and experimental development on natural
sciences
4 3.33 0 0.00
Telecommunications 4 3.33 0 0.00
Testing and analysis 4 3.33 1 8.33
Building of complete constructions or parts
thereof, civil engineering
3 2.50 0 0.00
Network management, computer security,
automation services
3 2.50 0 0.00
Wholesale of other consumer goods 2 1.67 0 0.00
Computer centers and data-entry, webhosting 2 1.67 0 0.00
Manufacture of instruments and appliances for
measuring
2 1.67 0 0.00
Air transport 1 0.83 0 0.00
Education 2 1.67 0 0.00
Manufacture of bodies (coachwork) for motor
vehicles; manufacture of trailers and semi-trailers
1 0.83 0 0.00
Manufacture of furniture 1 0.83 0 0.00
Manufacture of man-made fbers 1 0.83 0 0.00
Manufacture of other chemical products 1 0.83 0 0.00
Manufacture of other general purpose machinery 1 0.83 0 0.00
Manufacture of other products of wood,
manufacture of articles of cork
1 0.83 0 0.00
Manufacture of tubes and pipes of cast iron and
steel
1 0.83 0 0.00
Manufacture of parts and accessories for motor
vehicles and their engines
1 0.83 0 0.00
Hardware consultancy 1 0.83 0 0.00
Other supporting transport activities 2 1.67 0 0.00
Post and courier activities 1 0.83 0 0.00
Processing of nuclear fuel 1 0.83 0 0.00
Renting of passenger cars 1 0.83 0 0.00
Sale of motor vehicles 1 0.83 0 0.00
Sea and coastal water transport 1 0.83 0 0.00
Wholesale of agricultural raw materials and live
animals
1 0.83 0 0.00
Wholesale of non-agricultural intermediate
products
1 0.83 0 0.00
Cargo handling and storage 0 0.00 1 8.33
Renting of other movable property 0 0.00 1 8.33
Total 118 100.00 12 100.00
specifc size class (N=213-2).
2 Three service frms in Track B completed the questionnaire anonymously meaning that there was no information available for assigning them to a
specifc size class (N=34 3).
010_080678_APP 05.indd 231 16-09-2008 15:11:50
Respondents in Tracks A
3
and B
4
representing soft service frms
SBI code Frequencies Track A Percentages Track A Frequencies Track B Percentages Track B
Legal activities, accounting, market research
and public polling activities, economic research,
consultancy
37 39.78 10 52.63
Mortgage banks, building funds, fnance- and
participation companies, investment companies,
fnancial holdings
15 16.13 2 10.53
Labor recruitment and provision of personnel 7 7.53 0 0.00
Insurance and pension funding 5 5.38 0 0.00
Activities auxiliary to fnancial intermediation 3 3.23 2 10.53
Activities auxiliary to insurance and pension
funding
3 3.23 0 0.00
Advertising 3 3.23 1 5.26
Monetary intermediation 2 2.15 2 10.53
Health care 1 1.08 0 0.00
Leisure and opinion clubs 1 1.08 0 0.00
Real estate activities on a fee or contract basis 1 1.08 0 0.00
Real estate development and buying and selling 1 1.08 0 0.00
Wholesale on a fee or contract basis 1 1.08 0 0.00
Miscellaneous business activities
5
135 13.98 2 10.53
Total 93 100.00 19 100.00
specifc size class (N=213-2).
4 Three service frms in Track B completed the questionnaire anonymously meaning that there was no information available for assigning them to a
specifc size class (N=34 3).
5 SBI categories: 7486, 74871, 74871, 74876; Call-centres, Credit information offces and debt collecting agencies, Organization of fairs, exhibitions
and trade shows and Other business services respectively.
010_080678_APP 05.indd 232 16-09-2008 15:11:50
1 Category added in fnal coding.
Appendix 5.3
Codifcation Development for Type of Captive Offshoring
Type of captive offshoring implemented or planned for by respondents in TrackS A + B
Greenfeld
Brownfeld
1
Acquisition
Joint Venture
Merger
Other
Meaningless
2
Codifcation of answers to Q8A Which way did your company offshore your
business activities in the case of captive offshoring? and Q8B Which way does your
company plan to offshore its business activities in the case of captive offshoring?
Main Category: Acquisition
Acquisition
Companies all have the same name throughout the world, possibly
through takeover
Main Category: Brownfeld
Branch offce Using existing local subsidiaries in low income countries
Auxiliary branch Use existing offshore locations
Service added to already existing offce Create new department within overseas offce
Subsidiary From own headquarters
Subsidiary, the Netherlands offce We already have overseas offces
Own local subsidiary/division in relevant region
Main Category: Greenfeld
Eventually a greenfeld Someone on payroll of head offce
Greenfeld in London shortly form now Set up a shared service center in EMEA
Main Category: Joint venture
Cooperation Working together with a local company
Main Category: Other
Do it at clients location Regular performance based contracts per project
Own management Expansion (8X)
Experience Transfer of activities
Not opening offce Different throughout the world
In-sourcing
Main Category: Meaningless
None (15X) Dont know (3X)
No idea They are not sure yet
Occasionally happens, therefore none of the above
010_080678_APP 05.indd 233 16-09-2008 15:11:50
Appendix 5.4
Codifcation Development Motives for Offshoring Activities for
Respondents in Tracks A and B
Main category
1
Sub-category
Cost advantages Save costs
Enter new markets
Follow competitors
Increase fexibility
Quick access to technology2
Advantages of legislation and regulations (e.g. privacy rules) in offshore location
Strategic resource seeking Availability qualifed employees in offshore location
Other Other, namely
Meaningless Meaningless3
Codifcation of answers in the sub-category Other, namely to Q4A What are
your companys motivations for offshoring activities? and Q4B What are your
companys motivations for future offshoring activities?
Main category: Cost advantages
Sub-category: Cost savings
Pricing was better here Good way for earning margins
Main category: Market access seeking
Sub-category: Enter new markets
Acquisition Increase market share
Enlarge market Increase market
Foreign customers Ability to participate in special foreign projects
Commercial possibilities The Netherlands is too small, our products are European by nature
Increase target market, access international market The Netherlands is too small
Expansion Sales support
Export Takeover
Extension, growth Expanding your market
Globalization Expansion (2X)
Globalizing in production and sales Expansion (reached ceiling as far as the Netherlands was concerned)
The Netherlands offered too few sales options Expanding current scope
International expansion Expanding market
Internationalization Expand market share
Investment opportunities Expanding sales area
Local presence, quickly respond to local market Sales
Increase market share Representing company
1 All main categories were added in the fnal coding.
2 For clarifcation quick access to technology is classifed as strategic access seeking, because the strategic resource technology may be readily available
at both the domestic and offshore location. In stead the differentiating factor is having quick access to technology. So whereas an answer related
to insuffcient access to technology in Q25 for example is classifed as strategic resource seeking, quick access to technology is classifed as strategic asset
seeking.
3 Sub-category added in the fnal coding.
010_080678_APP 05.indd 234 16-09-2008 15:11:50
Market increase Market, growth
Sub-category: Follow customers/suppliers
Able to better respond to customer, if he is active abroad Customer demand
Main category: Strategic asset seeking
Sub-category: Increase quality/ service
Communication with customer, availability of products Professionalization
Quality Expand services
Sub-category: Increase/maintain competitiveness
More turnover Turnover, appliance used in medical research, therefore international
Turnover (4X) Proft
Sub-category: Advantages of legislation and regulations in offshore location
Commitments made for international treaty Fiscal climate is better
Fiscal advantages Company taxes
Sub-category: Other strategic assets
Share knowledge Ability to control cocoa storage
Good climate, peace, inspiration Ability to make better use of time differences
Increase size, spread risks Time to market
Spread risks (3X) Ability to control cocoa storage
Main category: Strategic resource seeking
Sub-category: Availability qualifed employees in offshore location
More local knowledge Increase opportunities for recruitment
Access to new knowledge
Main category: Other motives for offshoring
Sub-category: Other, namely
Contribute to development of country Ability to carry out projects locally
Company owner is based there Coincidence as a result of takeover
Not strategic (coincidence)
Main category: Meaningless
Sub-category: Meaningless
Not clear Dont know (2X)
Dont know, too long ago
010_080678_APP 05.indd 235 16-09-2008 15:11:50
Appendix 5.5
Codifcation Development for Motives for Offshoring Activities in
the Future for Respondents in Track A
Main category
1
Sub-category
Cost advantages Save costs
Enter new markets
Increase fexibility
Strategic resource seeking Recruit qualifed employees
Government policy Capture advantages of favorable legislation and regulations (e.g. tax legislation) in offshore location
Other Other, namely
Meaningless Meaningless
2
Codifcation of answers in the sub-category Other, namely to Q21: Why is your
company planning to offshore activities in the future?
Move activities to growth markets For further growth
Sustainable growth Sales support
Overseas customers request it Takeover of company in a different country and extend scope
Globalization Expand existing markets
Growth Expand, more activities
Opportunities for growth abroad Expansion
Growth within Europe Increase market share (2X)
Establish offce in each country where company does business To get new customers abroad
Growth of market Increased knowledge of certain markets
Increase market
Be close to customers
Independent growth To be able to compete internationally
Sustainability, continuity of company
Cooperation with other countries is required in order to be able to carry
out research
Continued growth Maintain turnover
Company better represented Increase turnover (3X)
The only way to make good money Turnover (4X)
Earn money Proft (2X)
Improving proftability Increase proftability
Continue market leadership
Sub-category: Focus on core activities
Core activity
Maintain central production Increase time to market
Time to market Advantages of scaling up
010_080678_APP 05.indd 236 16-09-2008 15:11:51
Sub-category: Recruit qualifed employees
There is a still a skills shortage in the care sector Recruitment of yet more personnel
Sub-category: Other strategic resources
Capacity
Main category: Other reasons to plan offshoring activities
Important for the product More development
Great experiences Up till now successful
Depends on company in each country Successful experiences
No answer Dont know
010_080678_APP 05.indd 237 16-09-2008 15:11:51
Appendix 5.6
Codifcation Development for Goals Achieved by Offshoring
Activities for Respondents in Track A
Main category
1
Sub-category
Cost advantages Cost savings
Enter new markets
Follow competitors
Increase fexibility
Capture advantages of favorable legislation and regulations (e.g. tax legislation) in offshore location
Other Other, namely
2
No goals were achieved No goals were achieved
Codifcation of answers in the sub-category Other, namely to Q20: Which goal(s)
did your company achieve by offshoring?
Cost, price, production Work with acceptable margins
Reduction labor cost Better procurement
Sustainable growth Satisfed customers
Presence throughout Europe Get new customers (2X)
Expansion Expand development options
Expansion, growth Increase client base
Extension Increase market (2X)
Growth (2X) Increase market share
Grow in a new market Increase international participation
Local presence Increase market position
Market growth Obtain new customers
Ability to take on more orders Strengthening market position
Structural expansion Keep customers
Expand client base
Service large international customers
010_080678_APP 05.indd 238 16-09-2008 15:11:51
Rationale of existence Turnover goals
Continuity Turnover growth (2X)
Guarantee continuity Increase profts
Increase proftability Profts (3X)
Locally proftable and execute strategy in the Netherlands locally Turnover and proft growth (2X)
More income Turnover has increased
More net result Increase turnover (8X)
Turnover (14X)
Sub-category: Capture advantages of favorable legislation and regulations in offshore location
Optimization tax advantages
All under one roof: one stop shopping Production effciency
Centralise production Increase production
Coordinate activities at a distance Spread risks (2X)
Flexibility when it comes to executing the work Scaling up
Greater product recognition Scaling up, larger selection of products and services
More control Advantages of scaling up
Product recognition Value added to supply chain
Sub-category: Increase quality/service
Better able to service clients Be good business partners for clients
Good end product and good value
Sub-category: Recruit qualifed employees
Good management of projects Recruitment of personnel
Sub-category: Other strategic resources
Knowledge extension Increase knowledge
Gather knowledge Better local knowledge
Main category: Other goals achieved
Develop activities Is being developed
Having fun and earning a living Up to this point modest results, people are interested
Personal ambitions
No answer (2X) Dont know (6X)
010_080678_APP 05.indd 239 16-09-2008 15:11:51
Appendix 5.7
Codifcation Development for Goals not achieved by Offshoring for
Respondents in Track A
Main category
1
Sub category
Enter new markets
Follow competitors
Increase fexibility
Capture advantages of favorable legislation and regulations (e.g. tax legislation) in offshore location
Other
Takes longer than expected to achieve goals
2
Other, namely
All goals achieved All goals were achieved
3
Codifcation of answers in the sub-category Other, namely to Q18: Which goals
did your company not achieve by offshoring?
Sub category: Enter new markets
No new customers Substantial market share increase
Greater expansion Expansion
Expect more export, more customers Increase market share
Customers less satisfed
Sub category: Increase/maintain competitiveness
Exist as German subsidiary Turnover goals
Good profts Proft
Large turnover abroad Lack of growth in turnover
Turnover (2X)
Sub category: Capture advantages of favorable legislation and regulations in offshore location
Centralise production of certifcates and tests
Sub category: Other strategic assets
Consolidation of administrative matters, accounting uniformity Quick implementation of activities
Timely delivery of product Lack of growth in turnover
Cooperation between various subsidiaries Time to Market
Speed of delivery Completely integrated in market
2 Takes longer than expected to achieve goals is a new sub-category added in the fnal coding on the basis of respondents answers under the sub-catgeory
other, namely.
010_080678_APP 05.indd 240 16-09-2008 15:11:51
Main category: Other
Sub category: Other
Culture/language barrier employment agency (if client is Dutch) Telemarketing
Luck Few advantages
Not clear yet (2X)
Sub category: All objectives were achieved
None Break-even
Sub category: Takes longer than expected to achieve goals
Goals achieved, but it took longer than expected Speed of expansion
Did not go well frst time around Lower speed than expected
Sub category: Meaningless
No answer
The above were not goals of the offshoring projects so the question is
irrelevant
No idea (3X) Dont know (10X)
Not applicable
010_080678_APP 05.indd 241 16-09-2008 15:11:51
Appendix 5.8
Codifcation Development for Motives for continuing Previous
Offshored Activities for Respondents in Track A
Motives for continuing offshoring activities
Good (fnancial) performance of offshored activities
Offshoring is important for companys strategy
Other reasons for continuing offshoring activities
Meaningless
1
Codifcation of answers in the sub-category Other, namely to Q27: Why did your
company decide to continue offshoring activities?
Main Category: Good (fnancial) performance of offshored activities
Occasionally advantageous It works, saves money and time
Success achieved, depends of growth markets Costs
Proven results Low costs
Making a living Because it is going well
Business is good Because it is successful
Cost saving Because we are successful
Goals are achieved Turnover
No reason to stop Stability, optimise current concept
Positive experience and effcient Successful
Good results Satisfed about everything
Things are going well Meets goals
It works great! Proft
Main Category: Offshoring is important for companys strategy
Important for continuity Service customers
Capacity Knowledge development
Keep production central More fun, interesting, wider range of knowledge
Maintain competitive position Survival
Continuity
Spread risk, more innovation opportunities through international
cooperation
Continuity, continuous link with abroad Specifc market
Flexibility Time to market
Globalisation Because of client demand
Maintain growth Increase knowledge
Growth Advantage of local delivery by using time differences
It is handy to have local offces Respond to customer demand
It leads to a competitive edge They need to be close to the customers, there is no other option
International recognition Keeping control over turnover by having lawyers in the Netherlands
Main Category: Other reasons for continuing offshoring activities
Several parties involved in this process Not done deliberately. They get a client and take it from there
Great challenge, extra dimension In the Netherlands national management is hindered by regulations
Growth phase, gradual process Customers moved to the Netherlands
Favorable tax regime Country operations
Port cities do not change, staying put Because it only just started
No answer What a ridiculous question
No idea Dont know (4X)
1 Category added in the fnal coding.
010_080678_APP 05.indd 242 16-09-2008 15:11:51
Appendix 5.9
Codifcation Development for Reasons to withdraw Offshoring
Main category
1
Sub-category
2
Change of international growth strategy Focus on other foreign markets
Management issues
Diffcult to manage
Incompliance of local and company culture
Offshoring does not provide added value
Lack of quality/service
Increase of labor costs in offshore location
Suffcient qualifed employees in the Netherlands
Other
Other, namely
3
company withdraw offshoring activities to The Netherlands or is it planning to do
so?
Main category: Management issues
Takes too much time Keep people working
Things did not work out, culturally speaking
Cooperation did not work well, customers of company in question could
be serviced from head offce
Things took too long at this end Wrong assessment of consequences for market
Main category: Change of international growth strategy
Not enough activity (small offce, closed again) HRSC back to the Netherlands, cannot judge other activities
No further acquisition required NL as delivery centre in Europe
No further activities required
Main category: Offshoring does not provide added value
Did not work with regard to quality and price Problems with quality
Due to technical developments there was no longer a need Disappointing results
Knowledge present Flexibility and changing regulations
If we can obtain a license for that in the Netherlands
Dont know
2 The preliminary coding included the subcategories follow customers/suppliers is not necessary; follow competitors; political instability in offshored location;
insuffcient access to technology; low fnancial performance; high costs involved in offshoring; and unfavorable legislation and regulations (e.g. tax legislation)
in offshore location that were not once chosen by the respondents and therefore not taken into account in the fnal coding.
010_080678_APP 05.indd 243 16-09-2008 15:11:51
Appendix 5.10
Codifcation Development for Reasons for not Offshoring Activities
in the Future for Respondents in Track A
Man category
1
Sub-category
Lack of need/interest to access markets Market situation not favorable at this moment
Lack of need for strategic asset seeking Increase/maintain competitiveness is not necessary in this way
Management issues It is diffcult to manage
Too early to decide on offshoring new activities Too early to decide on offshoring new activities
Lack of added value by offshoring Lack of added value by offshoring
Other reasons for not offshoring in the future Other, namely
2
Codifcation of answers in the sub-category Other, namely to Q25: Why is your
company not planning to offshore (more) activities in the future?
Main category: Lack of need/interest to access markets
Sub-category: Market situation not favorable at this moment
Because the economy attracts insuffciently Less work
Not enough demand at the moment Not core business, depends on economy
Market does not demand it at the moment Market conditions: no opportunities in the market at the moment
Main category: Diffcult to manage
Sub-category: It is diffcult to manage
Things will spin out of control
Main category: Lack of added value by offshoring
Sub-category: Lack of added value by offshoring
Acquisition is not required any more Not opportune
No need Not needed
No need for customers Not needed, every man to his trade
No advantages A time for consolidation
Minor We are focusing on the national market
Is not required We are represented everywhere, continuity is important
Main category: Too early to decide on offshoring new activities
Sub-category: Too early to decide on offshoring new activities
Wait and see We frst want to focus on our current activities
Busy time at the moment, no set plans Reviewed annually
Not expedient at the moment No specifc plans, it just happens sometimes
Enough offces for now They frst need to further work this out
We frst concentrate on the current Offshoring activities They are not ready yet
Business is not suitable for offshoring HR activities back to the Netherlands, cannot judge other activities
Keeping activities centrally No more expansion of activities
Has to do with willingness of Dutch employees to work abroad
Decision to be made in London No reason
Decision to be made in the US Not applicable
2 S ub-category added in the fnal coding.
010_080678_APP 05.indd 244 16-09-2008 15:11:51
Appendix 5.11
Codifcation Development for Barriers to Offshoring for
Main category
1
Sub-category
Unfavorable government policy
Political situation
Legislation and regulations (e.g. privacy rules)
Management issues
Diffcult to manage
Communication
2
Financial and administrative
3
Unavailability of strategic resources Lack of qualifed employees in offshore location
Unavailability of strategic assets Quality of work
Other Other, namely
No barriers None
4
Codifcation of answers in the sub-category Other, namely to Q12A Which barriers
for offshoring activities has your company experienced? and Q12B Which barriers
for offshoring does your company expect to experience? into main categories.
Sub category: Communication
Communication, in other words: language Communication
Communication during project Language (9X)
Communication with clients Language barrier
Communication with third party Differences in language
Problems with communication
Sub category: Cultural differences
Culture of company Different manner of working/mentality
Differences in culture between the Netherlands and Belgium by having
one head offce

Sub category: Diffcult to manage
Distance Sense of having less control over production process
Distance, time Not being close to customer
Guidance local personnel Complexity
Control Diffcult to match own and local employees
Distance Promises not kept
Tremendous growth spurts Unable to fnd suitable partners
Possible lack of control if it is no longer done inhouse Physical distance
Sub category: Financial and administrative
Accounting Costs
Handling of expense claims Costs outweigh profts
Financing Price
Well-operating bank to work with Price level
International competition with regard to pricing Tariffs - structure
Sub category: Other management issues
Being accepted by customer Differences in market conditions
Market conditions Little experience in market
Loss of jobs within company
2 Communication is a new sub-category added in the fnal coding on the basis of respondents answers under other, namely.
3 Financial and administrative is a new sub-category added in the fnal coding on the basis of respondents answers under other, namely.
010_080678_APP 05.indd 245 16-09-2008 15:11:51
Main category: Unavailability of strategic assets
Sub category: Quality of work
Quality control
Sub category: Other strategic assets
Weather conditions
Main category: Unavailability of strategic resources
Sub category: Lack of qualifed employees in offshore location
Recruiting local management Good local management
Sub category: Other
Offce accommodation Technological problem
Technical aspects
Main category: Unfavorable government policy
Sub category: Legislation and regulations
Certifcation Knowledge of laws and regulations and social security
Contractual activities Tax issues
Fiscal barriers Problems with supervisors
Sub category: Other barriers related to government policy
Bureaucracy (4X)
No idea Was not involved
Not my area of expertise, no idea what to answer Dont know (12X)
Unknown Dont know, nothing big
010_080678_APP 05.indd 246 16-09-2008 15:11:51
Appendix 5.12
Codifcation Development for Barriers to achieve Goals by
Offshoring for Respondents in Track A
Main category
1
Sub-category
2
Unfavorable government policy Legislation and regulations
Management issues
Diffcult to manage
Communication
Takes longer than expected to reach goals
Unavailability of strategic resources Lack of qualifed employees in offshore location
Diffcult to access or grow on foreign
market
Diffcult to access or grow on foreign market
Other Other, namely
company not achieve these
3
goals?
Main category: Diffcult to access or grow on foreign market
Sub-category: Diffcult to access or grow on foreign market
Barriers as a result of pricing Market was not assessed correctly
Dissimilar markets are diffcult to conquer Trouble, attention, market circumstances
In the end little is exported from Europe to Japan Disappointing markets and customers leaving
For Europeans it is a closed market Decreasing market
Application in market was not possible Worsening of local market
In some areas, things were going worse than expected as far as the
economy was concerned
They were unable to convince their clients, that they would get the
desired end product, event with a group of people who did not speak
Dutch well
Market turned out to be different than research showed
Sub-category: Communication
Communication Language/culture/distance
Language Diffculties with language
Bad communication We were not well prepared on the language front in East Asia
It was decided not to duplicate the effort there, because of language
Sub-category: Cultural differences
Culture of own company Cultural differences
Germans are not that fexible
Due to differences in attitude by the Germans, we were unable to get
German mechanics to come to the Netherlands
Due to differences in culture we were unable to achieve the expected
profts
By employing more and more Germans, the Dutch culture and attitude
to work was lost
Culture They look at everything in an Anglo-Saxon way
Sub-category: Diffcult to manage
Problems with distance, diffcult to estimate procedures for each
project.
Problems with local management
Data input not achieved, insuffcient feedback Too far away
Diffcult to have them decisively execute orders Effciency is not possible when managing at a distance
Management of activities was complex - took extra time (transfer,
checks)
Internal politics
Average costs in Romania half of ours and had to spend more time
checking everything
Requires relatively much time and effort and overhead on part of people
in the Netherlands, is gradually decreasing
It is better to keep it centralized Time
Hidden costs (variable)
2 All sub-categories were added in the fnal coding.
3 These goals refers to respondents goals not achieved mentioned in Q18 that reappear in Q19 asking respondents why they are not achieved.
010_080678_APP 05.indd 247 16-09-2008 15:11:51
Sub-category: Takes longer than expected to reach goals
Purchasing decisions took longer than expected
Increasing has not direct advantage as far as technology and quality are
concerned (this is a long term goal)
Achieved goals later than expected
Takes time to build up competence on the new location. Will be same or
better quality over time
It takes time before the so-called global offshoring centers reach a
quality of their output that is comparable to western standards
Goals were unrealistic/too high in too short a time frame
Long procedures, building a local network takes time
They were unable to quickly achieve turnover or increase their client
base
Offshoring is recent, cost savings not apparent yet Took longer than expected
Sub-category: Lack of qualifed employees in offshore location
Lack of qualifed personnel Understaffed
Knowledge not present Not the right people (lack of knowledge of Dutch rules and regulations)
Not the right account managers available We have not always been able to fnd the right people
Money Systems were old-fashioned
Lack of scope
Employee qualifcations in offshore locations are good, but experience
in working processes is often lacking
Bad communication and quick acceptance by suppliers resulted in
projects of poor quality, taking a lot of time
Goal of fexibility does not stroke with offshoring Time to market is very short
Sub-category: Legislation and regulations
Investment climate Certifcation differences between countries is diffcult
Differences in fscal regimes for each country We did not obtain authority to land
Dutch employee less prepared to work overseas
Offshore location Cuba is a complicated society with a complicated
political system
And then there was Minister Pronk We did not obtain landing rights
Bureaucracy
Main category: Other reasons for not achieving goals
Promises were not kept Because we were unaware of all that was involved
An acquisition at the offshore location took away the roots of the
company
Some offces are too small due to their location
There is no ceiling, things can always improve Increasing extra capacity
Luck comes in small pieces We were not well prepared on the technology front in East Asia
Not a priority Doesnt work with Dutch customers
Because of unwillingness of customer to change They have just started
- (10X) It was not the objective
Since this was not the original goals Not known
Because these are not the goals we had made Not applicable
The goals were not relevant and were not achieved
We might have achieved these goals but they have nothing to do with
the offshoring project. By the way, we didnt follow competitors, but we
are showing competitors the way. The question does not seem to make
sense in our context
No answer Dont know
No idea (2X)
010_080678_APP 05.indd 248 16-09-2008 15:11:52
Appendix 5.13
Codifcation Development Activities relocated by Respondents in
Tracks A and B
Operations
Marketing
Service
IT and related services
Human resource management
Procurement
Sales
Financial and administrative services
1
Legal and other advisory services
2
Management tasks
3
Research and Design
4

Transport and logistic services
5
Other, namely
Meaningless
6
Codifcation of answers in the sub-category Other, namely to Q9A Which activities
has your company offshored? and Q9B Which activities is your company planning
to offshore?
Main Category: Transport and logistic services
Container transport Driver services
Transport (2X) Delivery
Logistics Outbound and inbound
Distribution
Main Category: Operations
Production (4X) Aviation repairs
Production activities (2X) Component production
Printing Production/assembly
Oil and gas production
Main Category: Marketing
Communication consultancy Communication
Main Category: Service
After sales (2X) Assistance and claims settlement
Main Category: IT and related services
ICT Computer refurbishment
Validation Software development (3X)
Software development, implementation IT
Visualisation software
Main Category: Human resource management
Employment services for mechanics Employment services for consultants
Recruitment, selection, training Shared service centre for HR
Training (3X) Recruitment (same as head offce)
Employment Services Employment services operations personnel
Human Resources Recruitment and selection
Main Category: Procurement
Purchasing
Main Category: Sales
Sales offces Commerce
Trade in childrens television programs Acquisition of companies, practioners and media for trade fairs
5 Categories inbound logistics and outbound logistics were in the fnal coding combined in the category transport and logistic services.
010_080678_APP 05.indd 249 16-09-2008 15:11:52
Main Category: Financial and administrative services
Investment Foreign currency exchange
Reservations Intermediary re-insurance
Finance Business documentation
Actuarial Benefts and payroll administration
Administration (2X) Financing activities
Brokerage Investment banking
Account handling Wealth management
Financial Insurance
Private banking
Main Category: Legal and other advisory services
Consultancy (12X) Legal services
Legal Subsidy consultancy
Strategic advisory services Organisation consultancy
Certifcation We help other companies to outsource
Market research
Main Category: Management tasks
Complete management of company (4X) Executing subsidized projects
Part of management activities Interim and project management
Main Category: Research and Development
Drawing Architecture and design
Carry out resarch Detailed design
Development CADD design
Ontwerpactiviteiten Research and Development
Product development Design
Develop and support new products and services Research
Main Category: Other activities
Sorting of garbage Just about everything, except production and purchasing
Airport Engineering (4X)
All activities, each subsidiary operates independently All services
All activities (2X) Construction services
All activities, just as in the Netherlands Deliver turnkey projects
All services (2X) Amend product for local market (language, etc.)
All, focussing on the Dutch market New company
All, except fnance All manner of support
Everything we do here Development (construction)
Everything, smaller version of headquarters Organisation of event for clients
Construction (assembly in the Netherlands, assembly abroad) Relocations
Call center Separate operations in each country
Contact-offce Representative
Core activities Same as our offce
The complete company, company in the Netherlands has ceased to
operate
Same as head offce (4X)
Services
Dont know Not a clue
010_080678_APP 05.indd 250 16-09-2008 15:11:52
Appendix 5.14
Codifcation Development for (to be) withdrawn Offshoring
Offshoring activties (to be) withdrawn
Operations
Other
Meaningless
1
Codifcation of pre-selected answer options and Other, namely to Q25 Which
activities did/will your company withdraw to The Netherlands?
Main Category: Operations
Assembly and realization Production
Main Category: Other,
Acquisition Same as headquarters
Scanning refuse HR and administration
All core activities All services
Communication Core activities
Design (detailed) Car registration
Programming, initiating and realizing a project as a pilotmodel
None No idea (2X)
010_080678_APP 05.indd 251 16-09-2008 15:11:52
Appendix 5.15
Codifcation Development Activities relocated by Respondents in
Tracks A and B divided in Hard and Soft Offshoring Activities
Hard and Soft Offsoring Activities
Operations
Marketing
Service
Human resource management
Procurement
Sales
Financial and administrative services
1
Legal and other advisory services
2
Management tasks
3
Research and Design
4
Transport and logistic services
5
Other, namely
Meaningless
6
Codifcation of answer option Other, namely to Q9A Which activities has your
company offshored? and Q9B Which activities is your company planning to
offshore?
Main category: Hard Service Activities
Sub-category: IT and related services
Software development (3X) Validating
Software development and implementation Visualization of software
ICT Computer refurbishment
IT
Sub-category: Operations
Production (4X) Excavation services and exploiting oil
Production activities (2X) Producing components
Aviation repairs Production, assembly
Printing
Sub-category: Transport and logistic service
Transport of containers Transport
Shipping Delivery
Logistics Distribution
Driver services Outbound and inbound logistics
Sub-category: Research and Design
Design (5X) Architecture and design
Research (2X) Cadd design
Product development Research and development
Support and development of new products and services
Sub-category: Other
Waste treatment Construction (2X)
Development (construction) Engineering (4X)
5 Categories inbound logistics and outbound logistics were in the fnal coding combined in the category transport and logistic services.
010_080678_APP 05.indd 252 16-09-2008 15:11:52
Main category: Soft Service Activities
Sub-category: Financial and administrative services
Investment and private banking, asset management Financial funding
Reservations and fnance Account handling
Insurance intermediary Investment banking
Actuary Finance
Administrative documentation Incentives and payroll administration
Brokerage Administration (2X)
Insurance Financial
Commercial banking
Sub-category: HRM
Selection and recruitment Interim assistance of consultants
Shared service centre for HR Recruitment
Training (2X) Employment services mechanics
Interim assistance of operational manpower Selection, recruitment and training
Human resource management (2X) Interim assistance
Sub-category: Legal and other advisory services
Consultancy (15X) We help other companies to outsource
Management consultancy Legal (3X)
Sub-category: Management tasks
All management tasks (4X) Management tasks related to specifc projects
Part of management tasks Interim and project management
Sub-category: Marketing and communication
Communications (2X)
Sub-category: Procurement
Procurement
Sub-category: Sales
Sales Commercial activities
Sales of television programs for children Sales activities for trade fairs regarding different participants
Sub-category: Service
After-sales (2X) First aid and damage claim services
Sub-category: Other
Representative Contact-offce
Organization of events for clients Airport services
Main category: Answers that could not be assigned to one of the two categories
Subcategory: Other, namely
All (5X) Services tailor-made for specifc location
Everything expect for fnancial services Delivery of turnkey projects
All services activities for clients (4X) New company
Same as headquarters but on a smaller scale Supporting activities
Call center Separate operations in each country
Relocations
By now the company in the Netherlands is liquidated as all activities
are relocated
All activities except for production and procurement Same activities as headquarters (5X)
010_080678_APP 05.indd 253 16-09-2008 15:11:52
Appendix 5.16
Countries divided in geographical regions
Overview countries divided in macro geographical (continental) regions,
geographical sub-regions by United Nation Statistics Division (UNSTAT)
1
.
Africa
Eastern Africa
Burundi Mozambique
Comoros Runion
Djibouti Rwanda
Eritrea Seychelles
Ethiopia Somalia
Kenya Uganda
Madagascar United Republic of Tanzania
Malawi Zambia
Mauritius Zimbabwe
Mayotte
Middle Africa
Angola Democratic Republic of the Congo
Cameroon Equatorial Guinea
Central African Republic Gabon
Chad Sao Tome and Principe
Congo
Northern Africa
Algeria Sudan
Egypt Tunisia
Libyan Arab Jamahiriya Western Sahara
Morocco
Southern Africa
Botswana South Africa
Lesotho Swaziland
Namibia
Western Africa
Benin Mali
Burkina Faso Mauritania
Cape Verde Niger
Cote dIvoire Nigeria
Gambia Saint Helena
Ghana Senegal
Guinea Sierra Leone
Guinea-Bissau Togo
Liberia
Americas
Latin America and the Caribbean
Anguilla Jamaica
Antigua and Barbuda Martinique
Aruba Montserrat
Bahamas Netherlands Antilles
Barbados Puerto Rico
British Virgin Islands Saint-Barthlemy
Cayman Islands Saint Kitts and Nevis
Cuba Saint Lucia
Dominica Saint Martin (French part)
Dominican Republic Saint Vincent and the Grenadines
Grenada Trinidad and Tobago
Guadeloupe Turks and Caicos Islands
Haiti United States Virgin Islands
1 Retrieved from: http://unstats.un.org/unsd/methods/m49/m49regin.htm
010_080678_APP 05.indd 254 16-09-2008 15:11:52
Central America
Belize Honduras
Costa Rica Mexico
El Salvador Nicaragua
Guatemala Panama
South America
Argentina French Guiana
Bolivia Guyana
Brazil Paraguay
Chile Peru
Colombia Suriname
Ecuador Uruguay
Falkland Islands (Malvinas) Venezuela
Northern America
Bermuda Saint Pierre and Miquelon
Canada United States of America
Greenland
Asia
Central Asia
Kazakhstan Turkmenistan
Kyrgyzstan Uzbekistan
Tajikistan
Eastern Asia
China Japan
Hong Kong Special Administrative Region of China Mongolia
Macao Special Administrative Region of China Republic of Korea
Democratic Peoples Republic of Korea
Southern Asia
Afghanistan Maldives
Bangladesh Nepal
Bhutan Pakistan
India Sri Lanka
Iran
South-Eastern Asia
Brunei Darussalam Philippines
Cambodia Singapore
Indonesia Thailand
Lao Peoples Democratic Republic Timor-Leste
Malaysia Viet Nam
Myanmar
Western Asia
Armenia Lebanon
Azerbaijan Occupied Palestinian Territory
Bahrain Oman
Cyprus Qatar
Georgia Saudi Arabia
Iraq Syrian Arab Republic
Israel Turkey
Jordan United Arab Emirates
Kuwait Yemen
010_080678_APP 05.indd 255 16-09-2008 15:11:52
Europe
Eastern Europe
Belarus Poland
Bulgaria Romania
Czech Republic Russian Federation
Hungary Slovakia
Moldova Ukraine
Northern Europe
land Islands Isle of Man
Channel Islands Jersey
Denmark Latvia
Estonia Lithuania
Faeroe Islands Norway
Finland Svalbard and Jan Mayen Islands
Guernsey Sweden
Iceland United Kingdom of Great Britain and Northern Ireland
Ireland
Southern Europe
Albania Malta
Andorra Montenegro
Bosnia and Herzegovina Portugal
Croatia San Marino
Gibraltar Serbia
Greece Slovenia
Holy See Spain
Italy The former Yugoslav Republic of Macedonia
Western Europe
Austria Luxembourg
Belgium Monaco
France Netherlands
Germany Switzerland
Liechtenstein
Oceania
Australia and New Zealand
Australia Norfolk Island
New Zealand
Melanesia
Fiji Solomon Islands
New Caledonia Vanuatu
Papua New Guinea
Micronesia
Guam Nauru
Kiribati Northern Mariana Islands
Marshall Islands Palau
Micronesia
Polynesia
American Samoa Samoa
Cook Islands Tokelau
French Polynesia Tonga
Niue Tuvalu
Pitcairn Wallis and Futuna Islands
010_080678_APP 05.indd 256 16-09-2008 15:11:52
Appendix 5.17
Overview of Countries that serve as Offshore Locations for
Track A:
Country
Frequencies
Track A
1
Percentages
Track A
Country
Frequencies
Track A
Percentages
Track A
Germany 54 8.91 New Zealand 4 0.66
United Kingdom 42 6.93 Slovakia 4 0.66
Belgium 38 6.27 Argentina 3 0.50
China 36 5.94 Croatia 3 0.50
France 35 5.78 Morocco 3 0.50
India 35 5.78 Serbia 3 0.50
United States 28 4.62 Slovenia 3 0.50
Spain 27 4.46 Ukraine 3 0.50
Poland 23 3.80 Costa Rica 2 0.33
Australia 18 2.97 Israel 2 0.33
Netherlands
2
18 2.97 Kazakhstan 2 0.33
Italy 16 2.64 Taiwan 2 0.33
Czech Republic 13 2.15 United Arab Emirates 2 0.33
Hungary 11 1.82 Viet Nam 2 0.33
Romania 11 1.82 Aruba 1 0.17
Switzerland 11 1.82 Belarus 1 0.17
Brazil 9 1.49 Cayman Islands 1 0.17
Canada 8 1.32 Chile 1 0.17
Portugal 8 1.32 Colombia 1 0.17
Russian Federation 8 1.32 Cuba 1 0.17
South Africa 8 1.32 Cyprus 1 0.17
Sweden 8 1.32 Estonia 1 0.17
Indonesia 7 1.16 Finland 1 0.17
Luxembourg 7 1.16 Hong Kong, China 1 0.17
Malaysia 7 1.16 Korea, Rep 1 0.17
Philippines 7 1.16 Kosovo 1 0.17
Austria 6 0.99 Latvia 1 0.17
Denmark 6 0.99 Libya 1 0.17
Ireland 6 0.99 Lithuania 1 0.17
Japan 6 0.99 Macedonia, FYR
3
1 0.17
Scandinavia 6 0.99 Mauritius 1 0.17
Singapore 6 0.99 Mexico 1 0.17
Thailand 6 0.99 Scotland 1 0.17
Norway 5 0.83 Turkey 1 0.17
Bulgaria 4 0.66 Total 606 100.00
Netherlands Antilles 4 0.66
1 These frequencies are based on respondents (185) that named countries as their offshore location opposed to respondents that named regions or
other descriptions of offshore locations.
2 The Netherlands was mentioned by respondents headquartered at a foreign location; for them the Netherlands is an offshore location.
3 Also referred to as the former Yugoslav Republic of Macedonia.
010_080678_APP 05.indd 257 16-09-2008 15:11:53
Track B:
Country
Frequencies
Track B
4
Percentages
Track B
India 9 18.00
China 8 16.00
United Kingdom 3 6.00
Belgium 2 4.00
Czech Republic 2 4.00
Germany 2 4.00
Hungary 2 4.00
Indonesia 2 4.00
Poland 2 4.00
Romania 2 4.00
South Africa 2 4.00
Spain 2 4.00
Argentina 1 2.00
Australia 1 2.00
Canada 1 2.00
Colombia 1 2.00
Croatia 1 2.00
France 1 2.00
Ireland 1 2.00
Malaysia 1 2.00
Mexico 1 2.00
Turkey 1 2.00
United States 1 2.00
Viet Nam 1 2.00
Total 50 100.00
4 These frequencies are based on respondents (27) that named countries as their offshore location opposed to respondents that named regions or
other descriptions of offshore locations.
010_080678_APP 05.indd 258 16-09-2008 15:11:53
Appendix 5.18
Codifcation Development for Offshore Locations by Geography
1

Major area Region
Europe
Northern Europe
Western Europe
Southern Europe
Eastern Europe
Asia
Western Asia
South-eastern Asia
Southern Asia
Central Asia
Eastern Asia
North America Northern America
South-, and Central America and the
Caribbean
South America
Central America
Caribbean
Australia/New Zealand Australia/New Zealand
Africa
Southern Africa
Northern Africa
Eastern Africa
Other Other, namely
Codifcation of countries according to their geography in major areas and regions
based on answers to Q11A To which country/countries did your company offshore
activities? and Q11B To which country/countries does your company plan to
offshore activities?
Major area: Europe
Region: Northern Europe
Baltic States (3X) Lithuania
Denmark (6X) Norway (5X)
Estonia Scandinavia (6X)
Finland Scotland
Ireland (7X) Sweden (8X)
Latvia United Kingdom (45X)
Region: Western Europe
Austria (6X) Luxembourg (7X)
Belgium (40X) The Netherlands
2
(18X)
France (36X) Switzerland (11X)
Germany (56X) Western Europe
Region: Southern Europe
Croatia (4X) Portugal (8X)
Italy (16X) Serbia and Montenegro
3
(3X)
Kosovo Slovenia (3X)
Macedonia Spain (29X)
Region: Eastern Europe
Belarus Poland (25X)
Bulgaria (4X) Romania (13X)
Czech Republic (15X) Russian Federation (8X)
Eastern Europe (6X) Slovakia (4X)
Hungary (13X) Ukraine (3X)
1 See countries divided in geographic regions by UNSTAT in this Appendix for complete overview countries divided into geographic regions on the
basis of the defnition of major areas and regions by UNSTAT retrieved from http://unstats.un.org/unsd/methods/m49/m49regin.htm
2 Answers given by frms headquartered outside the Netherlands. This country is considered by them as an offshore location.
3 At the time of this feld research (2005), Serbia and Montenegro was still one country.
010_080678_APP 05.indd 259 16-09-2008 15:11:53
Other answers related to Europe
Europe (24X) Total European Union (2X)
Over 10 countries within Europe Whole Europe
Europe (excl. Switzerland and Austria)
Dont know yet, somewhere in Europe where tax regulations are
favorable
Major area: Asia
Region: Western Asia
Cyprus Turkey (2X)
Israel (2X) United Arab Emirates (2X)
Middle East (6X)
Region: South-eastern Asia
Indonesia (9X) South-East Asia (2X)
Malaysia (8X) Thailand (6X)
Philippines (7X) Viet Nam (3X)
Singapore (6X)
Region: Southern Asia
India (44X)
Region: Central Asia
Kazakhstan (2X)
Region: Eastern Asia
China (44X) Korea
Hong Kong, China Korea, Rep.
Japan (6X) Taiwan (2X)
Other answers related to Asia
Asia (17X) Far East (2X)
Asian Pacifc
Major area: North America
Region: Northern America
America (9X) Northern America (2X)
Canada (9X) United States (29X)
Major area: South, and Central America and the Caribbean
Region: South America
Argentina (4X) Colombia (2X)
Brazil (9X) Southern America (4X)
Chile
Region: Central America
Central America (2X) Mexico (2X)
Costa Rica (2X)
Region: Caribbean
Aruba Cuba
Cayman Islands Netherlands Antilles (4X)
Major area: Australia / New Zealand
Region: Australia / New Zealand
Australia (19X) New Zealand (4X)
Major area: Africa
Region: Southern Africa
South Africa (10X)
Region: Northern Africa
Libya Morocco (3X)
Region: Eastern Africa
Mauritius
Other answers related to Africa
Africa (10X) Most important African countries
Africa (continental)
Other answers
150 countries worldwide Over 10 countries (5X)
16 countries in total Over 10 countries worldwide (2X)
200 countries worldwide Over 10 worldwide
206 countries Worldwide
25 countries in total Is not yet decided upon
49 offces in over 10 countries worldwide Dont know yet
50 countries The entire world
Almost all countries Everywhere
Worldwide, in Europe only the Netherlands Worldwide, almost all regions of all countries
010_080678_APP 05.indd 260 16-09-2008 15:11:53
1 Also referred to as the former Yugoslav Republic of Macedonia.
2 At the time of this feld research (2005), Serbia and Montenegro was still one country.
Appendix 5.19
Codifcation Development for Offshore Locations by Income Level
Income level at Offshore Locations
High income
Upper middle income
Lower middle income
Low income
Other
Codifcation of countries according to their income level based on answers to Q11A
To which country/countries did your company offshore activities? and Q11B To
which country/countries does your company plan to offshore activities?
Main category: High income
Aruba Korea, Rep.
Australia (18X) Luxembourg (7X)
Austria (6X) Netherlands (18X)
Belgium (40X) Netherlands Antilles (4X)
Canada (9X) New Zealand (4X)
Cayman Islands Norway (5X)
Cyprus Portugal (8X)
Denmark (6X) Singapore (6X)
Finland Slovenia (3X)
France (36X) Spain (29X)
Germany (56X) Sweden (8X)
Hong Kong, China Switzerland (11X)
Ireland (7X) United Arab Emirates (2X)
Israel (2X) United Kingdom (45X)
Italy (16X) United States of America (29X)
Japan (6X) Scotland
Western Europe Scandinavia (6X)
Northern America (2X)
Main category: Upper middle income
Argentina (4X) Lithuania
Chile Malaysia (8X)
Costa Rica (2X) Mauritius
Croatia (4X) Mexico (2X)
Czech Republic (15X) Poland (25X)
Estonia Russian Federation (8X)
Hungary (13X) Slovak Republic (4X)
Latvia South Africa (10X)
Libya Turkey (2X)
Central America (2X) Baltic States (3X)
Main category: Lower middle income
Belarus Kosovo
Brazil (9X) Macedonia, FYR
1

Bulgaria (4X) Morocco (3X)
China (44X) Philippines (6X)
Colombia (2X) Romania (13X)
Cuba Taiwan (2X)
Philippines Thailand (6X)
Indonesia (9X) Ukraine (3X)
Kazakhstan (2X) Serbia and Montenegro
2
(3X)
Main category: Low income
India (44X) Viet Nam (3X)
010_080678_APP 05.indd 261 16-09-2008 15:11:53
150 countries worldwide
Dont know yet, somewhere in Europe where tax regulations are
favorable.
16 countries in total Everywhere
200 countries worldwide Far East (2X)
206 countries Korea
25 countries in total Middle East (6X)
49 offces in over 10 countries worldwide Most important African countries
50 countries Over 10 countries (5X)
Africa (10X) Over 10 countries within Europe
Africa (continental) Over 10 countries worldwide (2X)
Almost all countries Over 10 worldwide
America (9X) South East Asia (2X)
Asia (17X) Southern America (4X)
Asian Pacifc Total European Union (2X)
The whole world Whole Europe
Europe (excl. Switzerland and Austria) Worldwide
Is not yet decided upon Dont know yet
Worldwide, in Europe only the Netherlands Eastern Europe (6X)
Worldwide, almost all regions of all countries Europe (24X)
010_080678_APP 05.indd 262 16-09-2008 15:11:53
2 The variable Board of Management was added to the sub-category Board of Directors in the fnal coding.
3 Head of business unit and head of department were two separate sub-categories in the preliminary coding that were combined in the fnal coding.
Appendix 5.20
Codifcation Development for Level within Organizations at which
Offshore Decisions are taken
Main category
1
Sub-category
2
CFO/Financial director/Treasurer/Controller
Senior vice-president/ Vice-president
Middle management
Head of business unit/Head of department
3
Manager
Other internal and external stakeholders Other, namely
Codifcation of answers in the sub-category Other, namely to Q14 At which level
of the organization are offshore decisions taken?
Main category: Executive/Top management level
Sub category: Board of Director/Board of Management
General Management Local management
Board of Directors Partnership
Board of Management Management team
Management (36X) Partner-level
Management level (10X) Member Board of Management
The top Executives in Norway
Worldwide management
Sub category: CEO/Director/President/Managing Director
General manager (2X) Owners
Chief offcer We are a small company with two owners, who will decide
Owner of company Independent entrepreneur
Owner
Main category: Middle management
Sub category: Manager
Personnel Manager Team leader of project team
Project Manager Technical management
Project leader
Main category: Other internal and external stakeholders
Sub category: Other, namely
Shareholders (2X) Whole company
Shareholders/associates Import department
Combination In Germany
Engineers Market group level
Group Level
010_080678_APP 05.indd 263 16-09-2008 15:11:53
Appendix 5.21
Codifcation Development for Responsibility managing Offshoring
Activities
Main category
1
Sub category
Executive and top management
CEO/Director/President/Managing Director/CFO/CCO
2
3
Middle management
Head business unit/Head of department
4
Manager
5
Codifcation of answers in the sub-category Other, namely to Q16 Who is/
are responsible within your organization for managing (future) offshoring
activities?
Main category: Executive and top management level
Sub category: Board of Directors/Board of Management
Area directors Local management
Area managers Executive committee
Partners Management
Management (11X) Management team
Board of Directors and partners Partners in partnership
Level of Board of Directors (2X) Board of Directors
Management of other party Local and regional management
Sub category: CEO/Director/President/Managing Director/CFO/CCO
General director (4X) General managers
CEO, CFO, CCO Local director
Manager Director of subsidiary
Manager of subsidiary (2X) Vice-president
Owner (2X) We are a small company with two owners, who decide
General manager (3X)
Sub category: Head business unit/Head of department
Controller, professional services director Head of Development department
Director of division Head of Purchasing department
Division directors International business director
Head product development Sales director
Head software development Probably head of software development, not sure
Sub category: Manager
Account manager Project manager
Account managers Project managers
Local manager (2X) Regional managers
Manager operations Technical manager, Sales manager
Middle management Traffc manager
Project management Project leaders (2X)
2 The variables CFO/CCO were added to the sub-category CEO/Director/President/Managing Director in the fnal coding.
3 The variable Board of Management was added to the sub-category Board of Directors in the fnal coding.
4 Head of business unit and head of department were two separate sub-categories in the preliminary coding that were combined in the fnal coding.
010_080678_APP 05.indd 264 16-09-2008 15:11:53
Sub category: Other, namely
No one available Project development
Whole organisation Representative (2X)
Engineers Research development
Responsibilities in client agreement Shareholders
Credit board Software development
Project department Special offshoring unit
Probably others involved in execution
Not applicable
010_080678_APP 05.indd 265 16-09-2008 15:11:53
2 The variable Directors was added to the sub-category CEO/President/Managing Director in the fnal coding.
3 Middle management is a new sub-category added in the fnal coding on the basis of respondents answers under other, namely.
4 The variable administration was added to the sub-category fnance in the fnal coding.
5 ICT is a new sub-category added in the fnal coding on the basis of respondents answers under other, namely.
6 Operations is a new sub-category added in the fnal coding on the basis of respondents answers under other, namely.
7 Legal is a new sub-category added in the fnal coding on the basis of respondents answers under other, namely.
8 Marketing, sales and after-sales is a new sub-category added in the fnal coding on the basis of respondents answers under other, namely.
9 Whole organization is a new sub-category added in the fnal coding on the basis of respondents answers under other, namely.
Appendix 5.22
Codifcation Development for Departments involved in Offshoring
Activities
Main category
1
Sub category
ExecutiveTop management level
Board of Directors /Board of Management
CEO/Director
2
/President/Managing Director
Middle management Middle management
3
Individual departments
International business development
International affairs
Finance and administration
4
HRM
Strategy
ICT
5
Operations
6
Legal
7
Marketing, sales and after-sales
8
Whole organization Whole organization
9
10
Codifcation of answers in the sub-category Other, namely to Q15 Which
department(s) is/are involved in offshoring (future) business activities?
Main category: Executive/Top management level
Sub-category: Board of Directors/Board of Management
Board (24X) Market group
Board level (4X) Partners level
Holding level Board of Directors
Head offce in the Netherlands Area directors
Partnership Management team (2X)
Management (6X) Management in various parts of the world
Sub-category: CEO/Director/President/Managing Director
CEO-level Japanese Managing Director
Managing Director (5X) Managing Director
Owner We are a small company, with two owners who will decide
General manager, Managing Director
Sub-category: Middle management
Account managers Managers business units
Business unit Development (2X)
Management business unit Operational manager
010_080678_APP 05.indd 266 16-09-2008 15:11:53
Divisions Operational management
European division Projectleader (2X)
Head of department Projectleaders
Area managers geographic region Projectleaders, middle management
Traffc manager Projectleader department
Main category: Individual departments
Sub-category: Finance and administration
Account management Finance
Administration (2X) Financial department
Accounting department Tax department
Credit, funding, exchange offce
Sub-category: HRM
HR
Sub-category: ICT
ICT Group IT department
ICT, depends on the topic IT (2X)
ICT (2X) Software development (2X)
ICT policy and architecture IT-people
Sub-category: International affairs
International policy board
Sub-category: Legal
Legal department Legal (3X)
Legal affairs (2X)
Sub-category: Marketing, sales and after-sales
After-sales Front offce, sales
Airport, sales Marketing (4X)
Sales offce Sales (5X)
Business delivery units Sales management
Commercial departments Sales director
Commercial affairs (2X) Services (2X)
Delivery unit
Sub-category: Operations
Operations manager Production and assembly
Department operations Production (3X )
Operations (7X)
Research, trading Press, project groups, protocol
Main category: Whole organization
Sub-category: Whole organization
All (4X) Whole company (3X)
Alle levels Whole organisation (2X)
Alle departments (2X) Small company, its us
Every one (2X) Not applicable (small company) (2X)
There are no separate departments Not applicable (small holding)
Engineering department Mergers and acquisitions, existing production schedule
Drivers Dutch subsidiary with foreign subsidiary
Drivers and planning department No departments
Consultancy (2X) Planning (2X)
Control Product development
Corporate business development Purchase
Corporate controlling Research development (3X)
The order comes from Germany Secretariat, consultants
Assistance and claims settlement Special accounts
Implementation Technical departments
Import department Technische department
Engineering companies Is responsibility of subsidiary
Purchasing Those responsible for area of expertise
Local people (2X) Subsidiaries
Dont know (3X) Dont know are in Japan
010_080678_APP 05.indd 267 16-09-2008 15:11:54
Appendix 5.23
Codifcation Development Respondents in Tracks A and B divided
over Service Categories
Service Categories
Telecommunications
Business services, e.g. consulting, software, engineering, researching, marketing, construction, design and trade
Transport, e.g. passenger, shipment or mailing transport, transport equipment or system engineering
Financial, e.g. banking, insurance, investment or currency
Other, namely
Codifcation of answer option Other, namely to Q1: To which service category
does your frm belong?
Business services
Construction Wholesale of non-agricultural intermediate goods (3X)
Consultancy Research and advisory services
Staffng services (2X) Engineering
Printing Import and export services
Wholesale (2X) IT
Wholesale and repairs IT sector
Trade services Education
Trading company Project management
ICT Recycling synthetics
Industrial services (2X) Retail
Construction Tourist destination
Business services Training
Transport and logistics Retail sale via mail order houses
Interior design Rental, construction
Export services
Transport
Cacao storage Maritime transport
Financial services
Investment frm in semiconductors
010_080678_APP 05.indd 268 16-09-2008 15:11:54
Appendix 6.1
Codifcation Development for Objectives for Offshoring Activities
Main Category: Cost advantages
Cost advantages Effciency
Cost effectiveness Lowering costs
Cost reduction Reducing costs per hour
Cost savings Favorable exchange rate US Dollar
Main Category: Strategic asset seeking
Flexibility management Increase volume
Improving the level of services provided internally Move production closer to customers
Continuity in delivery services Not having to deal with non-core activities
Create proft center Process innovation
Delegating managerial tasks Proximity to source
Ensuring continuity Reliability regarding on-time delivery
Flexibility Risk management
Improve quality Saving time so you can focus on other tasks
Improving contact with authors Scalability
Increase proft margins Speed
Increase scale Upgrading quality
Main Category: Strategic resource seeking
Access to knowledge Knowledge seeking
Availability of qualifed employees Capacity problems
Available expertise at the offshore location Marketing expertise
Capacity Qualifed employees
Learning from marketing expertise readily available in the US
Strategic decision to start developing software and new technology at offshore
location
Expected unavailability of qualifed employees in the Netherlands
Utilizing and securing existing knowledge of local people to respond to
demand for capacity from the Netherlands
Expertise Getting access to qualifed employees
Sharing knowledge for a larger market
Main Category: Market access seeking
Business opportunities Follow customers
Business opportunities due to more fexible EU-legislation regarding road
transport
Follow supplier
Entering into market Market access
011_080678_APP 06.indd 269 16-09-2008 15:11:12
Appendix 6.2
Codifcation Development for Barriers for Offshoring Activities
Main Category: Unfavorable government policy
Bureaucracy to establish a new company (fscal and administrative
burden)
Legal and fnancial issues
Existing rules and regulations Legislation
Government policy not allowing to own frm Local bureaucracy
Government policy regarding land title rights Obtaining green cards for employees
Import and export restrictions Political instability
Drafting watertight contracts with the distributors Law and regulations especially from the ministry of health
VAT issues imposed by the Dutch government
Main Category: Management issues
Big investment Internal communication regarding employees
Change management Internal competition
Changing relationship with offshore provider Internal resistance
Communicating in different languages International banking
Communication
It took a long time before the service was delivered according to quality
and technology requirements
Communication in different languages Lack of clear milestones
Control Lack of Dutch specifcations/requirements for the process of technology
Convincing the board Language
Cost savings Loss of proft margins
Costs even higher ex-post Loss of reputation
Costs involved in sales activities ranging from the east to the west coast
in this large country
Management issues related to getting used to a different way of working
Cultural barriers Managing the process
Cultural differences Resistance within the frm
Cultural differences resulting in a lack of taking ownership of projects by
Indian employees
Distance between the Netherlands and Indonesia
Travel times Resistance within the industry
Differences in culture Lack of taking ownership of projects by Indian employees
Diffcult to manage Unforeseen communication problems
Trust Unforeseen tasks and responsibilities
Duration of the project Workarounds
High costs involved for employing a fulltime specialist Working with two systems
Increasing costs due to which offshore location became less attractive Lack of experience
Coaching Romanian employees Transportation
Lack of practical experience of employees regarding the product and
therefore distance to the end user
Main Category: Unavailability of strategic resources
High attrition rate Qualifed management
High attrition rate with low loyalty of employees Lack of knowledge regarding working with photogrammetric technology
Infrastructure Unavailability qualifed employees
Lack of an increase in knowledge due to a too narrow focus on railway
engineering
Main Category: Unavailability of strategic assets
Climate Reliability
Lack of Internet facilities Reliability joint-venture party
Lack of reliability regarding intellectual property Reliability of partners regarding on time delivery
No third party available to implement offshoring Scalability
Quality
Scalability as the costs for managing the offshoring project are too high
and productivity too low
Quality of work Scalability of contract
Main Category: No barriers
No barriers
011_080678_APP 06.indd 270 16-09-2008 15:11:12
Appendix 6.3
Codifcation Development for Objectives achieved by Offshoring
Activities
Main Category: Cost advantages
Cost effectiveness Reducing costs per hour
Cost reduction Favorable exchange rate US Dollar
Main Category: Market access seeking
Business opportunities Follow supplier
Entering into market Market access
Follow clients Strategic decision to start developing software and new technology
Follow customers
Main Category: Strategic asset seeking
Flexibility, speed, saving time so you can focus on other tasks
Business opportunities due to more fexible EU-legislation regarding road
transport
Increase scale Increase volume
Continuity in delivery services Move production closer to customers
Delegating management tasks Not having to deal with non-core activities
Effciency Process innovation
Increase proft margins Proximity to source
Flexibility Quality
Flexibility management Reliability regarding on time delivery
Create proft centre Risk management
High quality Scalability
Improve quality Sharing knowledge for a larger market
Improving contacts with authors Upgrading quality
Ensuring continuity Improving the level of services provided internally
Main Category: Strategic resource seeking
Access to knowledge Getting access to qualifed employees
Availability of qualifed employees Knowledge seeking
Available expertise at the offshore location Marketing expertise readily available in the US
Capacity Solving capacity problems
Expected unavailability of qualifed employees in the Netherlands
Utilizing and securing existing knowledge of local people to respond to
demand for capacity from the Netherlands
Expertise
011_080678_APP 06.indd 271 16-09-2008 15:11:12
Appendix 6.4
Questionnaire In-depth Interviews
service frm and interviewee profle
Name and position interviewee and name service frm (name of frm and
intervieweewillnotbeusedforpublication)
Whichsectorisyourfrmrepresenting?
Pleasestatethenumberofoffshoringprojectsyouhavebeeninvolvedin,which
areeitherperceivedassuccessfulornotsuccessful?
Howmanyjobsareinvolvedinrelocatingactivitiescombinedforalloffshoring
projects?
Howmanyyearsofoffshoringexperienceisthereinthefrm?
Did the frm have foreign market experience prior to starting the offshoring
projects?
Offshore location
Whatis/aretheoffshorelocation(s)choseninthisproject?
Whenwastheprojectinitiatedattheoffshorelocation?
Offshoring activity
Whichactivityoractivitieswererelocatedinthisproject?
Was/werethis/thesecoreornon-coreactivities?
Whatwastheskilllevelofthejobsinvolvedinrelocatingthisactivity?
Whatwasthescaleoftherelocatedactivity?
type of offshoring
How did you relocate your activities by way of a foreign direct investment
(captiveoffshoring)orviaathirdparty(offshoreoutsourcing)?
Incaseofcaptiveoffshoring,whichformdidyouapply:greenfeld,brownfeld,
jointventureormergeroracquisition?
Objectives
Whatwereyourex-anteobjectivesforthisproject?
Whichoftheex-anteobjectiveswasperceivedasmostimportant?
Whatweretheex-postobjectivesforthisproject?
Whichoftheex-postobjectiveswasperceivedasmostimportant?
011_080678_APP 06.indd 272 16-09-2008 15:11:12
Barriers
Whatweretheex-antebarriersforthisproject?
Whichoftheex-antebarrierswasperceivedasmostimportant?
Whatweretheex-postbarriersforthisproject?
Whichoftheex-postbarrierswasperceivedasmostimportant?
Objectives (not) achieved
Didyouachieveyourobjectives?
011_080678_APP 06.indd 273 16-09-2008 15:11:12
Appendix 6.5.1
Case: IT frm provides ICT and related services to customers which are partly
organized in twelve global delivery centers. These services include outsourcing,
solutions,productsandhumanresources.Customersrepresentdifferentcategories
offrms,i.e.transport,travelandlogistics,industry,fnancialservices,government,
energyandutility,mediaandentertainment,telecoms,careandastronautics.
Service frm IT frm
BIK
1
Computer service and information technology
Type of service frm Hard
Firm size Large frm 100 FTE
Date interview 30-10-2006
Date verifying interview 1-4-2008
Position interviewee Director offshoring
Number of projects One project
Total number of jobs relocated with all projects 600 FTE
Foreign market experience previous to offshoring
All major EU-countries, Russia, China. (Currently: also in India, Malaysia, Brazil, the
Philippines, and East European (EU) countries)
Number of years experience with offshoring Fifteen years
Project 1: Captive offshoring to India
Offshore location India
Number of years experience at offshore location
Center was set up in 1998; NL is using it since 2003. The frm had previous offshoring
experience with a service center in Wales
Category of offshoring activity Application management, business process outsourcing and infrastructure management
Type of offshoring activity Hard
Number of jobs relocated 600 FTE
Core or non-core offshoring activities Core business, however, core is changing rapidly
Skill level of jobs relocated Low, middle and high skilled
Type of offshoring Originally it was a captive; when NL started to use it in 2003, it already existed as a subsidiary
In case of captive offshoring, which form Existing subsidiary, i.e. brownfeld
Objectives ex-ante Cost savings: cheaper production
Objectives ex-post
Increase quality by organizing processes (2), qualifed employees, fexibility of the
organization (1), cost advantages (3)
Which one is most important Flexibility
Barriers ex-ante Internal resistance
Barriers ex-post Unavailability of qualifed employees and internal resistance
Which one is most important Unavailability of qualifed employees
Internal use of captive center rather disappointing in the sense that it did not show the
expected growth, though the services delivered are of high quality. This makes the project
overall successful with growth potential in the future
1 BIKreferstobranchcategorizationoftheChamberofCommerce.(2004).Branche Indeling Kamer van Koophandel.ChamberofCommerce.TheHague.
Availableat:http://www.kvk.nl/Branches/010_Zoeken_van_brancheinformatie/debranchewijzer/debranchewijzer.asp
011_080678_APP 06.indd 274 16-09-2008 15:11:13
Appendix 6.5.2
Case: Import and distribution company of fresh and frozen seafood products.
ItsuppliestotheconsumermarketsinbothEuropeandAmerica.
Service frm Import and distribution company of fresh and frozen seafood products
BIK
1
Wholesale of other food including fsh
Position interviewee CEO
Number of projects Five projects in Africa (Ghana, Uganda, Tanzania), Hungary, Viet Nam, Indonesia and China
Foreign market experience previous to offshoring Yes
Number of years experience with offshoring Seventeen years
Project 2: Offshore o utsourcing to Africa
Offshore location Ghana, Uganda, Tanzania
Number of years experience at offshore location Seventeen years
Category of offshoring activity Preparation of fsh
Number of jobs relocated < 25 FTE
Type of relocated jobs/functions Production
Core or non-core offshoring activities Core
Skill level of jobs relocated Low skilled labor
Type of offshoring Offshore outsourcing
Objectives ex-ante Cost savings, improve quality
Which one is most important Cost savings
Objectives ex-post Same objectives though quality became more important than cost savings
Which one is most important Quality became most important objective
Barriers ex-ante
Law and regulations, especially from the ministry responsible for health and import and
export restrictions, political instability
Which one is most important Law and regulations
Barriers ex-post Lack of market expertise, professionalism and speed
Which one is most important Lack of market expertise
Achieved (not) objectives All objectives were achieved
Project 3: Offshore outsourcing to Hungary
Offshore location Hungary
Number of years experience at offshore location Two years
Category of offshoring activity Production/preparation of fsh
Barriers No barriers
Objectives (not) achieved All objectives achieved
011_080678_APP 06.indd 275 16-09-2008 15:11:13
Project 4: Offshore outsourcing to Viet Nam
Offshore location Viet Nam
Number of years experience at offshore location Four years
Category of offshoring activity Preparation of fsh
Barriers ex-ante
Law and regulations especially from the ministry responsible for health and import and export
restrictions
Barriers ex-post Differences in culture, language and diffcult to manage
Which one is most important Language
Project 5: Offshore outsourcing to Indonesia
Offshore location Indonesia
Number of years experience at offshore location Eleven years
Objectives ex-post Same objectives though quality became more important then cost savings
Barriers ex-ante Local bureaucracy
Project 6: Offshore outsourcing to China
Offshore location China
Objectives ex-post They changed from cost savings as most important to quality as most important
Which one is most important Improving quality became the most important objective
Barriers ex-ante Lack of reliability regarding intellectual property
The quality does not meet frms requirements while reliability in terms of intellectual
property is hindering success as well. Hence, objectives are not achieved and project is not
successful
011_080678_APP 06.indd 276 16-09-2008 15:11:13
Appendix 6.5.3
Case: Publishing company of scientifc journals, books and databases. Its core
businessispublishingscientifcbooks,journalsanddatabases.Thefrmpublishes
annuallyonemillionjournalpagesandover4,000books.
Service frm Publishing frm of scientifc journals, books and databases
BIK
1
Publishing of books and the like
Position interviewee CEO
Number of projects Three projects
Total number of jobs relocated with all projects 1,200 FTE
Number of years experience with offshoring Twelve years
Number of years experience at offshore location Twelve years
Category of offshoring activity Pre-press activities involving the typesetting of articles, quality check and control
Skill level of jobs relocated High skilled labor
Type of offshoring Captive offshoring
In case of captive offshoring, which form Greenfeld
Objectives ex-ante Cost reduction, availability of qualifed employees
Which one is most important Cost reduction
Objectives ex-post
Cost reduction, upgrading quality, improving contact with authors, delegating managerial
tasks
Barriers ex-ante No third party available to implement offshoring, resistance within the company
Which one is most important Equally unimportant as they are just management issues that have to be solved
Barriers ex-post No barriers
Objectives (not) achieved All objectives have been achieved
Project 8: Offshore outsourcing to the Philippines
Offshore location The Philippines
Number of years experience at offshore location Seven years
Category of offshoring activity Pre-press activities
Objectives ex-post
tasks
Barriers ex-ante Resistance within the frm
Cost reduction of 75% has been achieved; quality and productivity are at least as good as
before
011_080678_APP 06.indd 277 16-09-2008 15:11:13
Project 9: Offshore outsourcing to India
Category of offshoring activity Pre-press activities
Type of relocated jobs/functions Production
Objectives ex-post
tasks
Cost reduction of 75% has been achieved; quality and productivity are at least as good as
before
011_080678_APP 06.indd 278 16-09-2008 15:11:13
Appendix 6.5.4
Case: Financial services frm focusing on providing banking and stock broking
transactions with the highest possible quality against the lowest possible cost.
Thisgoalisachievedbyincreasingthevolume,theuseofnewtechnologyandan
effcientwayofworking.
Service frm Financial services frm specialized in services related to stock broking transactions
BIK
1
Activities auxiliary to fnancial intermediation
Type of service frm Soft
Firm size SME < 100 FTE
Position interviewee Managing Director
Number of projects Two projects
Foreign market experience previous to offshoring No
Number of years experience with offshoring Four years

Category of offshoring activity IT
Core or non-core offshoring activities Non-core
Objectives ex-ante
Cost effectiveness; existing packages did not perform, quality, scalability to be able to supply
on demand
Which one is most important Quality
Objectives ex-post Cost effectiveness, scalability, quality
Which one is most important Scalability, quality
Barriers ex-ante
Big investment, internal communication regarding employees, convincing the board, cultural
differences, change management that needed to take place due to offshoring
Which one is most important Big investment, change management
Barriers ex-post
Unforeseen tasks and responsibilities, workarounds, working with two systems and scalability
of contract with third party. Furthermore, duration of the whole project was too long; it
should be managed in projects with clear milestones that can be communicated during the
process while providing an opportunity to adjust project internally as well as externally
Which one is most important Lack of concrete milestones during the offshoring process
Objectives (not) achieved Slow start with high potential for success in the future
Project 11: Offshore outsourcing to Belgium
Offshore location Belgium
Category of offshoring activity IT hardware
Objectives ex-ante
Strategic: entering into market, sharing knowledge for a larger market, scalability in order to
supply on demand
Which one is most important Scalability in order to supply on demand
Barriers ex-ante
Relationship with third party offshore provider changed from a combination of business
partner and supplier to being just a supplier. They did not have the organizational readiness
to serve as just a supplier. Partnership became less attractive
Barriers ex-post Unforeseen communication problems
In the end successful and objectives achieved. Even though it took a lot of time, energy and
fnancial resources to make it a success. It is not stable and needs constant management
attention to keep the project on track
011_080678_APP 06.indd 279 16-09-2008 15:11:13
Appendix 6.5.5
Case: Firm trading in basic organic commodities by coordinating the process of
gettingfreshproductsfromthefarm,processingitaccordingtocustomerdemand
and shipping it to customers. The frms aim is to create a one stop shopping as
onesinglesourceofsupplyforallorganicingredients.
Service frm Trading company in basic organic commodities
BIK
1
Wholesale of agricultural raw materials and live animals
Position interviewee Management advisor
Number of projects Four projects
Type of offshoring Started out as offshore outsourcing in 1996 and was transformed into a captive center
In case of captive offshoring, which form Captive center was initially a joint venture and since 2005 a fully owned subsidiary
Objectives ex-ante Cost savings, proximity to source, improve quality and increase scale
Which one is most important Proximity to the source
Objectives ex-post Market access
Barriers ex-ante
Communication, trust, quality of work, qualifed management, climate, legal and fnancial
issues. In the past the government would not allow joint ventures (not to speak of majority
joint ventures)
Which one is most important Qualifed management
Barriers ex-post Qualifed management
About 80% of all objectives are achieved. Although the factory is working well, it did not
make a proft so far. In that respect, the project is not successful
Project 13: Captive offshoring to Thailand
Offshore location Thailand
Number of years experience at offshore location Nine years
Category of offshoring activity Coordination offce
Type of offshoring activity Soft
Number of jobs relocated Two FTE
Objectives ex-ante Cost savings and proximity to the source
Which one is most important Proximity to the source, cost savings
2
Objectives ex-post Proximity to the source
Barriers ex-ante Communication, trust and quality of work
Which one is most important Communication
Barriers ex-post Communication
Objectives (not) achieved All objectives are achieved; project is extremely successful
2 Intervieweereferredtotwoobjectivesasmostimportant.
011_080678_APP 06.indd 280 16-09-2008 15:11:13
Project 14: Captive offshoring to Ethiopia
Offshore location Ethiopia
Category of offshoring activity Rental of farm equipment
Skill level of jobs relocated Low and medium skilled labor
In case of captive offshoring, which form Joint venture
Objectives ex-ante Cost savings, proximity to the source, increase scale and improve quality
Objectives ex-post Increase scale
Barriers ex-ante
Communication, trust and quality of work. The communist regime did not allow foreign
parties to own a company. Therefore, the frms farm machinery was traded against products
of the corporations
Which one is most important Quality of work
Barriers ex-post Quality of work
Objectives (not) achieved All objectives were achieved. The project is referred to as successful
Project 15: Captive offshoring to Serbia
Offshore location Serbia
Number of years experience at offshore location Five years
Category of offshoring activity Freezing of biological fruit products
Objectives ex-ante Cost savings, proximity to source, improving quality, increase scale
Objectives ex-post Increase scale
Barriers ex-ante Communication, reliability, quality of work, land title rights
Which one is most important Communication, reliability
Barriers ex-post Reliability of the joint-venture partner
40% of objectives are achieved. Overall not very successful as there are problems with the
joint venture partner
011_080678_APP 06.indd 281 16-09-2008 15:11:13
Appendix 6.5.6
Case: Firm is a leading supplier of digital models for infrastructure and the
environment, including the Geographical Information Systems (GIS) and IT
applications. Furthermore, it is building and operating databases and provides
highly specialized services, such as land surveying, aerial photography and
topography. As of September 1, 2007 it has been acquired by an international
frm that delivers consulting, engineering and project management services for
infrastructure,environmentandfacilities.
Service frm Engineering
BIK
1
Engineering activities and related technical consultancy on civil and utility building;
application management, interim system management, software implementation
Number of projects Four projects
Number of years experience with offshoring Fifteen years
Project 16: Captive offshoring to Egypt
Offshore location Egypt
Category of offshoring activity
Digitalization of drawings for example of buildings (CAD - Computer Added Design) and
production of maps (GIS - Geographical Information Systems)
Objectives ex-ante Cost reduction, process innovation
Objectives ex-post
Objectives remained the same, though the way how to reach them evolved over time when
the frm was acquired by another company with different priorities and strategies
Barriers ex-ante
Lack of knowledge regarding working with photogrammetric technology, communicating in
different languages, managing the process
Which one is most important Managing the process and especially the interaction between people in both countries
Barriers ex-post Internal competition battle, internal politics and resistance, reputation loss
Which one is most important Internal politics and resistance
Objectives regarding cost reductions achieved. However, the project was not given enough
time to reach its full potential regarding process innovation
011_080678_APP 06.indd 282 16-09-2008 15:11:13
Project 17: Offshore outsourcing to Russia
Offshore location Russia
Number of years experience at offshore location 15 years
Software development; the design of computer programs for city councils to map out a
specifc area; this software helps them, for example, in budgeting the costs of maintaining
parks
Core or non-core offshoring activities
Non-core; although the selling and design of maps is core business, the development of the
software for the design work is labeled as being more of a back offce type of activity and
therefore not really part of the core business
Objectives ex-ante Cost reduction
Objectives ex-post Cost reduction, knowledge seeking
Barriers ex-ante
Lack of the Dutch specifcations/requirements for the process of technology, communication
in different languages
Which one is most important
Lack of the Dutch specifcations/requirements for the process of technology, communication
in different languages
2
Barriers ex-post Increasing costs, which made offshoring to Russia less attractive
Successful as cost reduction was achieved despite the increasing costs during the
implementation of the project
Project 18: Captive offshoring to Romania
Offshore location Romania
Category of offshoring activity Civil engineering, for example, the drawing of the construction of a roundabout
In case of captive offshoring, which form Acquisition
Objectives ex-ante Increase proft margins
Objectives ex-post Increase proft margins, create a proft center, ensure continuity of the frm
Which one is most important Increase proft margins, ensure continuity of the frm
3
Barriers ex-ante Scalability, coaching Romanian employees, travel time and infrastructure
Which one is most important Scalability
Barriers ex-post Internal resistance
All objectives, increasing proft margins, creating a proft center and thereby ensuring
continuity, have been achieved. Due to the learning curve, it became easier and less costly to
manage the offshoring project
Project 19: Captive offshoring to Indonesia
Offshore location Indonesia
Number of years experience at offshore location Six years
Category of offshoring activity Train security systems
Objectives ex-ante Cost reduction, capacity, utilize and secure existing knowledge of local people, cost reduction
Utilizing and securing existing knowledge of local people in order to respond to demand for
capacity from the Netherlands
Objectives ex-post Reducing costs per hour
Barriers ex-ante
Scalability as the costs for managing the offshoring project are too high and productivity
too low; distance between the Netherlands and Indonesia; high costs involved in employing
a fulltime specialist to manage offshoring project versus too low production; a lack of an
increase in knowledge due to a too narrow focus on railway engineering
Which one is most important Scalability
Barriers ex-post Lack of an increase in knowledge due to a too narrow focus on railway engineering
It is referred to as successful because objectives have been achieved. Though it is diffcult to
further expand offshoring activities in the future due to narrow focus on railway engineering
2 Intervieweereferredtotwobarriersasmostimportant.
011_080678_APP 06.indd 283 16-09-2008 15:11:14
Appendix 6.5.7
Case: Construction installation and technical frm. It is divided in two divisions.
The construction division is involved in project and planning, renovation,
maintenance, telecoms and infrastructure. The technical division is involved
in electrotechnics, energy and facility management, security systems, cooling
techniquesandelevators.
Service frm Construction, installation and technique
BIK
1
Building and construction
Position interviewee Chairman of the Board
Number of projects Six projects
Number of years experience with offshoring Six years
Project 20: Captive offshoring to Poland
Offshore location Poland
Category of offshoring activity Calculations performed by engineers who are not suffcient available on the domestic market
Skill level of jobs relocated Medium and low skilled labor
Objectives ex-ante Getting access to qualifed personnel
Barriers ex-ante No barriers
Objectives (not) achieved Objectives are achieved
Project 21: Captive offshoring to Romania
Offshore location Romania
Category of offshoring activity Installation work (e.g. electronic fttings) on ships
Objectives ex-ante Follow customers, cost savings
Which one is most important Follow customers
Objectives ex-post Reliability regarding on-time delivery and cost savings
Which one is most important Reliability regarding on-time delivery
Barriers ex-ante VAT issues, but they are not perceived them as a real barrier
011_080678_APP 06.indd 284 16-09-2008 15:11:14
Project 22: Captive offshoring to China
Number of years experience at offshore location Three years
Category of offshoring activity Installation work on ships
Objectives ex-ante Follow customers as they were moving their shipyards to foreign locations
Objectives ex-post
On-time delivery by cooperating with a reliable partner, solid contractual agreements and
cost savings
Which one is most important On-time delivery by cooperating with a reliable partner, solid contractual agreements
2
It has been successful, objectives are achieved and business is booming. Firm is booked till
2013
Project 23: Captive offshoring to Viet Nam
Offshore location Viet Nam
Number of years experience at offshore location One year
Category of offshoring activity Installation work on ships (prefabricated in the Netherlands)
Objectives ex-post
cost savings
Which one is most important On-time delivery by cooperating with a reliable partner, solid contractual agreements
3
Objectives (not) achieved Objectives are achieved. The project is successful; Viet Nam is booming at the moment
Project 24: Captive offshoring to Turkey
Offshore location Turkey
Category of offshoring activity Installation work on ships (prefabricated in the Netherlands)
Objectives ex-post On time delivery by cooperating with a reliable partner and cost savings
Which one is most important On time delivery by cooperating with a reliable partner
Barriers ex-post Cultural differences
Objectives (not) achieved Project is not very successful; not all objectives have been achieved
Success/failure Not very successful
011_080678_APP 06.indd 285 16-09-2008 15:11:14
Project 25: Captive offshoring to the United States
Offshore location United States
Number of years experience at offshore location It has just started
Category of offshoring activity Production of rotisseries
Objectives ex-ante Follow supplier, favorable exchange rate US-dollar, move production closer to customers
Which one is most important Following supplier
Objectives ex-post
cost savings
On-time delivery by cooperating with a reliable partner and solid contractual agreements are
more important than cost savings
4
Barriers ex-ante Obtaining Green cards for the employees is an issue. However, it is perceived as a minor issue
The project is successful so far. Though it is too early to determine whether all objectives
have been achieved
011_080678_APP 06.indd 286 16-09-2008 15:11:14
Appendix 6.5.8
Case:Financialservicesfrmaimingtogainandmaintainrelationshipsandtrust
withitsclientswhileprovidingvariousfnancialservices.
Service frm Financial services
BIK
1
Monetary intermediation
Firm size Large frm 100FTE
Position interviewee Executive Director and Global Head of Service Management for Services Division
Number of projects Three projects
Total number of jobs relocated with all projects 6,000 FTE
Number of years experience with offshoring Five years
Category of offshoring activity Transaction banking, wholesale banking, consumer banking back offce
Number of jobs relocated 4,000 FTE
Skill level of jobs relocated Low to medium skilled
In case of captive offshoring, which form Brownfeld
Objectives ex-ante Improving quality, agility management, risk management, cost reduction
Which one is most important Improving of quality and cost reduction
2
Objectives ex-post
Improving the level of services provided internally, improving quality, agility management,
risk management, cost reduction
Barriers ex-ante Resistance within the frm, existing rules and regulations
Which one is most important Resistance within the frm
Barriers ex-post Management issues related to getting used to a different way of working
Cost reduction was achieved; target is to save 900 million euros by the end of 2008, currently
[DvG: March 2008] a saving of 570 million euros has been achieved; quality is higher than the
fnancial services of peers; agility and risk management are diffcult to measure
Project 27: Offshore outsourcing to Poland
Number of years experience at offshore location One year
Category of offshoring activity Financial reporting
Skill level of jobs relocated Medium to high skilled
Objectives Cost reduction
Barriers ex-post Internal competition with frst offshore captive site in India
a saving of 570 million euros has been achieved; quality is higher than the fnancial services of
peers; agility and risk management are diffcult to measure
011_080678_APP 06.indd 287 16-09-2008 15:11:14
Project 28: Offshore outsourcing to India
Category of offshoring activity IT and application management
Core or non-core offshoring activities Related to core business; it is mostly core business that has been offshored
Skill level of jobs relocated High skilled
Objectives ex-ante Cost reduction and not having to deal with non-core activities
Objectives ex-post Cost reduction
Barriers ex-post Internal competition with frst offshore captive site in India
a saving of 570 million euros is achieved; quality is higher than the fnancial services of peers;
agility and risk management are hard to measure. An external organisation is developing a
method to measure the standard of quality within the company so an evaluation can take
place to see whether it is improving or not
011_080678_APP 06.indd 288 16-09-2008 15:11:14
Appendix 6.5.9
Case:Asportsshoedesignandtradingfrm.
Service frm Distribution of sport shoes
BIK
1
Wholesale of footwear
Position interviewee CEO and Co-founder
Total number of jobs relocated with all projects Less than 10 FTE
Number of years experience with offshoring Three years
Project 29: Offshore outsourcing to Japan, Korea, Italy, Germany, Belgium, Poland, Serbia, Croatia, England, Dubai;
starting up in Spain and the United States
Offshore location
Japan, South Korea, Italy, Germany, Belgium, Poland, Serbia, Croatia, England, Dubai;
starting up in Spain and the United States
Category of offshoring activity Distribution
Type of offshoring activity Hard (transport and logistics); soft (sales)
Number of jobs relocated Less than 10 FTE
Skill level of jobs relocated Low to medium skilled labor
Objectives ex-ante Flexibility, speed, saving time so you can focus on other tasks
Which one is most important Flexibility
Barriers Loss of proft margins and control
Which one is most important Loss of proft margins
011_080678_APP 06.indd 289 16-09-2008 15:11:14
Appendix 6.5.10
Case: Firm providing dental techniques to dentists and dental laboratories. It
supports customers (dentists) by providing them with procedural information
andinformationonnewdevelopmentsandtechniques.
Service frm Delivering dental techniques to dentists and dental laboratories
BIK
1
Dental laboratories
Position interviewee Director and Major Shareholder
Project 30: Captive offshoring to China
Category of offshoring activity Dental techniques
Objectives ex-ante Cost reduction
Objectives ex-post Cost reduction, increase volume, effciency
Barriers ex-ante Resistance within the industry
Barriers ex-post VAT issues imposed by the Dutch government
Objectives (not) achieved All objectives are achieved
011_080678_APP 06.indd 290 16-09-2008 15:11:14
Appendix 6.5.11
Case: Firm contributes to innovation by providing companies with a model to
ensureaccesstomarketsoftheirclientspharmaceuticalproducts.Itsmainservices
include product development, access to new markets, product management,
strategic business solutions, regulatory affairs, quality assurance, EU authorized
representativeforpharmaceuticalproducts,USagentandreimbursements.
Service frm Healthcare frm
BIK
1
Research and development on medical sciences and pharmacology; legal activities; market
research and public polling activities
Function interviewee Founder and CEO
Category of offshoring activity Production
Objectives ex-ante Cost savings, available expertise at the offshore location
Which one is most important Cost savings is the main objective but not if you have to sacrifce quality for it
Objectives ex-post Market access, cost savings and expertise
Which one is most important Market access
Barriers Communication, legislation, transportation and drafting contracts with the distributors
Which one is most important Communication
The objectives have been achieved now, but in the frst couple of years the investment was
bigger than expected. To date sales are so good that the loss caused in the beginning of the
project is compensated for
Project 32: Offshore outsourcing to Portugal
Offshore location Portugal
Category of offshoring activity Production of moulds
Objectives Access to knowledge
Barriers Cultural differences
Objectives (not) achieved Objective has been achieved
011_080678_APP 06.indd 291 16-09-2008 15:11:14
Appendix 6.5.12
Case: Firm is exploiting a miniature city including merchandising, catering and
banquetingactivities,consultancy(forotherminiaturecities)togeneratefnancial
resourcesforcharity.
Service frm Recreation
BIK
1
Fair and amusement park activities
Total number of jobs relocated with all projects Six FTE
Foreign market experience previous to offshoring Yes, in Israel and Spain
Number of years experience with offshoring Two years
Project 33: Offshore outsourcing to Turkey
Offshore location Turkey
Category of offshoring activity Model building
Number of jobs relocated Six FTE
Objectives ex-ante Cost savings, capacity problems, fexibility
Objectives ex-post Market access seeking
Barriers ex-ante Communicating in a different language and international banking
Which one is most important Communicating in a different language
Barriers ex-post
It took a long time before the service was delivered according to quality and technology
requirements
Objectives (not) achieved Objectives have been achieved
011_080678_APP 06.indd 292 16-09-2008 15:11:14
Appendix 6.5.13
Case:Transportandlogisticsfrmspecializedinroadtransportandwarehousing.
Inadditionthefrmisforwardingbycombiningdifferentaspectsoftransportand
organizingandmanaginglargescalecomplexlogisticalprocessesdigitallyforits
customers.
Service frm Transport and logistics
BIK
1
Transport
Function interviewee Cluster Director Logistic Services
Number of projects Six projects
Total number of jobs relocated with all projects 1,500 FTE divided over all seven projects
Project 34: Captive offshoring to Hungary
Category of offshoring activity Road transport, dispatchers
Number of jobs relocated < 1,500 FTE
Objectives
Cost advantages, business opportunities due to more fexible EU-legislation regarding road
transport
Which one is most important Business opportunities
Barriers ex-ante Legislation
Barriers ex-post Cultural barriers
Objectives (not) achieved Both objectives of cost advantages and creating business opportunities have been achieved
Project 35: Captive offshoring to Germany
Offshore location Germany
Objectives ex-ante Cost advantages, business opportunities
Which one is most important Cost advantages
Objectives ex-post Cost advantages, business opportunities
Which one is most important Both business opportunities and cost advantages
2
011_080678_APP 06.indd 293 16-09-2008 15:11:15
Project 36: Captive offshoring to Germany
Offshore location Germany
Number of years experience at offshore location Six months
Which one is most important Both cost advantages and business opportunities
3
Which one is most important Both cost advantages and business opportunities
4
011_080678_APP 06.indd 294 16-09-2008 15:11:15
Category of offshoring activity Road transport, dispatchers, warehousing
Objectives Follow customers
Objectives ex-post Cost advantages
Project 40: Captive offshoring in Hungary
Category of offshoring activity Road transport, dispatchers, warehousing
In case of captive offshoring, which form
It started as a joint venture. However, at a later stage one of the partners was bought out.
Subsequently the entity became a production unit
Objectives ex-ante Follow customer
Objectives ex-post Follow customer, cost advantages, business opportunities
Barriers ex-ante
Bureaucracy regarding starting a greenfeld at the offshore location resulting in a fscal and
administrative burden
Barriers ex-post Legislation
Objectives have been achieved, though Poland is relatively more successful than Hungary due
to more fexible employees
011_080678_APP 06.indd 295 16-09-2008 15:11:15
Appendix 6.5.14
Case: Firm supplying about two million customers, being both business and
individualhouseholds,withenergy.
Service frm Energy company providing and distributing energy
BIK
1
Production and distribution of electricity, natural gas, steam and hot water
Position interviewee CIO
Total number of jobs relocated with all projects 420-450 FTE
Foreign market experience previous to offshoring Yes, though limited
Number of years experience with offshoring No previous experience in offshoring
Project 41: Offshore outsourcing in India
Category of offshoring activity Data entry of asset management
Objectives Cost savings
Barriers No barriers
Project 42: Offshore outsourcing in Poland and in either Serbia or Romania
Offshore location Poland and deciding upon Serbia or Romania
Number of years experience at offshore location No previous experience in either country on the short list of offshore locations
The development and management of data and application systems as well as
IT-infrastructure
Core or non-core offshoring activities It is a crucial activity, but non-core
Skill level of jobs relocated Medium to high skilled labor
Objectives
Cost savings, continuity in delivering services, expected unavailability of qualifed employees
in the Netherlands
Which one is most important Continuity in delivering services
Barriers Political instability
Objectives (not) achieved No results yet, in planning phase
011_080678_APP 06.indd 296 16-09-2008 15:11:15
Appendix 6.5.15
Case:ITsoftwarefrmdevelopingITsoftware(BPM,BusinessProcessManagement).
Thesesoftwarepackagesarebusinessprocesscentricinsteadofdatacentric.They
providewaystoovercomethechallengesofcollaborationbetweenbusinessandIT
byenablingbusinessuserstomanagetheirownprocessesandhaveanIT-unifed
control over building and managing the composite applications that automate
theirprocesses.
Service frm IT software frm
BIK
1
Software development, producing and publishing; software consultancy
Position interviewee Founder & Chairman
Number of projects Three
Total number of jobs relocated with all projects 1,300-1,400 FTE
Number of years experience with offshoring 21 years
Project 43: Offshore outsourcing in India
Number of years experience at offshore location Implemented 21 years ago
Type of relocated jobs/functions Writing of software
Skill level of jobs relocated High
Objectives ex-ante Capacity
Objectives ex-post Strategic decision to start developing software and new technology at the offshore location
Barriers ex-ante No experience with offshoring
Achieved objectives Achieved but disappointing end results in terms of quality
Objectives achieved, however, the chosen foreign entry mode is not satisfactory. Project is
continued with captive offshoring (greenfeld)
Project 44: Captive offshoring in India
Offshore location India (Mumbai and Hyderabad)
Number of jobs relocated Approximately 300 FTE
Objectives ex-ante Capacity
Objectives ex-post Capacity, quality, knowledge seeking
Which one is most important Knowledge seeking
Barriers ex-ante
Lack of Internet facilities, lack of practical experience of employees regarding the product and
therefore distance to the end user, lack of taking ownership of projects by Indian employees
Which one is most important Distance to the end user due to lack of practical experience of Indian employees with the product
Barriers ex-post Cultural differences resulting in a lack of taking ownership of projects by Indian employees
Objectives achieved. Project is successful and will be continued in Hyderabad with top quality
employees and for increasing volume the frm will move to the south of India
011_080678_APP 06.indd 297 16-09-2008 15:11:15
Project 45: Captive offshoring in the United States
Offshore location United States
Category of offshoring activity Marketing and sales
Type of offshoring activity Soft
Skill level of jobs relocated High
Objectives ex-ante Following customers and learning from marketing expertise readily available in the US
Which one is most important Following customers
Objectives ex-post Following customers, access to marketing knowledge
Which one is most important Marketing knowledge
Barriers ex-ante
Cultural differences in dealing with arrogance and convincing sales pitches; high costs
involved in sales activities ranging from the east to the west coast in this large country
Which one is most important Cultural differences
Barriers ex-post
Cultural differences, meanwhile even higher costs for operating in this country, low loyalty of
employees and high attrition rate
Which one is most important High costs involved in operating in this market
011_080678_APP 06.indd 298 16-09-2008 15:11:15
Appendix 7.1
Questionnaire
Nyenrode Institute for Competition (NIC) is conducting a research study on global sourcing (relocation
of business activities outside the Netherlands) in the service sector. It is part of a more extensive research
on different kind of international growth strategies of service frms and executed in cooperation with he
Ministry of Economic Affairs and Statistics Netherlands (Centraal Bureau voor de Statistiek).
As we highly value your participation in our research, we would like to provide you with the research
results and also to invite you for an event on Global Sourcing & Innovation organized by Nyenrode in
cooperation with the Wall Street Journal Europe and other partners on December 6, 2007. The regular
costs for participating in this event are 595 euros, but as a participant in our research we have the pleasure
of inviting you as our guest and to participate for free.
This means that as a token of appreciation for completing the questionnaire, both our publication with
the research results as well as participation in the event will be free of costs for you. The last question of the
questionnaire will provide you with the opportunity to express your interest in receiving our publication
and/or invitation for December 6 .
If you are not involved in relocating activities to foreign locations or in the related decision making process,
we appreciate if you send this invitation to a colleague within your organization who is involved in this
issue. If you participate in this research, please answer the questions for all activities which are relocated to
foreign locations by the entire company.
Completing the questionnaire will take about 10 minutes of your time. You can access the survey by
clicking on the following link:
Thank you in advance for your time and effort.
Yours sincerely,
Dsire van Gorp and Pieter Klaas Jagersma
Nyenrode Business Universiteit ( http://www.nyenrode.nl/nic)
012_080678_APP 07.indd 299 16-09-2008 15:11:42
S1. Have/are you (been) involved in relocating activities to foreign locations or in the decision
making process?
a. yes
b. no
What is global sourcing?
Global sourcing refers to a strategy whereby business activities and jobs included are relocated to a
foreign location where low costs, qualifed employees and good infrastructure provide added value for
a company.
This questionnaire focuses on relocating business activities to foreign locations under direct control
(captive offshoring) or via a third party (offshore outsourcing). It means that execution of these business
activities is not continued in the Netherlands but at a foreign location instead. Both types of global
sourcing are marked bold in the fgure below:
Ownership
Location
Internal
Direct control
External
This questionnaire does not include outsourcing of business activities in the Netherlands under direct
control (1. insourcing) or via a third party (2. outsourcing).
1. To which main category of services does your company belong?
a. Business services e.g. ICT, consultancy, legal, research and development, marketing and design
b. Financial services e.g. banking, insurance and investment
c. Transport, logistics and communications e.g. telecommunications, transport of passengers and
products, mailing and courier services
d. Health and welfare services
e. Distribution and trade in electricity, natural gas and water
f. Renting and trading in real estate and movable property
g. Building and civil engineering e.g. road construction
h. Trading and repairing of consumer goods e.g. trade agency and wholesale trade
i. Hospitality services
j. Environmental services, culture and recreation
k. Other, namely

2. Is your company part of an enterprise group?
a. Yes, it is the parent (ultimate controlling institutional unit) of an all-resident group of
enterprises
b. Yes, it is the parent (ultimate controlling institutional unit) of a multinational group of
enterprises
c. Yes, it is a subsidiary
d. No, it is not part of an enterprise group
3. In which country is the parent company of your subsidiary located?
To select a country you may type in the frst letter of the country of your choice and subsequently use the
scroll function to select a specifc country.
012_080678_APP 07.indd 300 16-09-2008 15:11:42
4. What is approximately the of number employees (FTE) working for your company in the
Netherlands?
a. 1-10
b. 11-50
c. 51-100
d. 101-500
e. 501-1,000
f. 1,001-5,000
g. 5,001-10,000
h. 10,001-50,000
i. More than 50,000
5. Did your company relocate business activities to foreign locations or is it planning to do so
within the next twelve months?
a. Yes, our company has relocated business activities (once or more than once) before.
b. Yes, our company is planning to relocate business activities for the frst time within the next
twelve months.
c. No, our company did not relocate any business activities and is not planning to do so within the
next twelve months.
6. How many years of experience does your company have with relocating activities to a foreign
location?
a. Less than 1 year
b. 1 to 5 years
c. More than 5 years
7. Your company does not consider relocating activities because:
1. Relocation of activities brings too many barriers
a. Yes
b. No
2. The Dutch business environment is preferred compared to a foreign location
a. Yes
b. No
3. Other reason
8. For what reason(s) does your company refrain from relocating activities to a foreign
location?
012_080678_APP 07.indd 301 16-09-2008 15:11:42
9.1 Which barrier(s) is/are decisive for your company to refrain from relocating activities to a
foreign location?
You may choose more barriers.
a. Diffcult to manage (e.g. due to physical distance or lack of internal capacity)
b. Communication in different languages
c. Cultural differences regarding corporate culture and national customs and traditions
d. Unfavorable legislation and regulations at foreign location
e. Internal processes insuffciently structured to assign to a third party
f. Insuffcient quality of services delivered at foreign location
g. Low productivity of labor at foreign location
h. Insuffcient qualifed employees at foreign location
i. Insuffcient experience with relocating activities
j. Insuffcient possibilities for protecting knowledge regarding technology and innovation
k. Lack of relevant clusters (e.g. transport and ICT) at foreign location
l. Unstable political situation at foreign location
m. Other, namely
9.2 Which of the barriers mentioned, is the most important one for your company?

10.1 Which advantage(s) of the Dutch business environment is/are decisive for your company to
refrain from relocating activities to a foreign location?
You may choose more advantages.
a. Innovative climate (e.g. easy access to technology)
b. Good infrastructure
c. High labor productivity
d. Suffcient qualifed employees at national labor market
e. Existing relevant clusters (e.g. transport and ICT)
f. Easy to employ foreign knowledge workers
g. Favorable legislation and regulations (e.g. regarding tax, employing and discharging
employees)
h. Low costs (e.g. regarding wages, corporate location and transport)
i. The Netherlands as a gateway to co-operation with partners within and outside Europe
j. Other, namely
10.2 Which of the advantages mentioned is the most important one for your company?
012_080678_APP 07.indd 302 16-09-2008 15:11:42
11A. Which activity(ies) and jobs involved is/are relocated to a foreign location?
You may choose a maximum of fve activities. If you relocated more than fve activities, please choose the fve
most important ones.
a. Distribution & logistics
b. Marketing
c. Sales
d. After sales service
e. IT-infrastructure
f. Technology & application development
g. Financial & administrative services
h. Management functions (e.g. HRM and strategy)
i. Engineering
j. Research & Development
k. Other, namely
11B. Which activity(ies) and jobs involved does your company plan to relocate to a foreign
location?
You may choose a maximum of fve activities. If you intend to relocate more than fve activities, please
choose the fve most important ones.
a. Distribution & logistics
b. Marketing
c. Sales
d. After sales service
e. IT-infrastructure
f. Technology & application development
g. Financial & administrative services
h. Management functions (e.g. HRM and strategy)
i. Engineering
j. Research & Development
k. Other, namely
12A. Is/are the relocated activity(ies) core or non-core business activity(ies) for your company?
12B. Is/are the activity(ies) your company is planning to relocate core or non-core business
activity(ies)?
13A. Are the jobs involved in relocated activities mainly:
a. Low skilled labor
b. Medium skilled labor
c. High skilled labor
13B. Are the jobs involved in relocating activities in the future mainly:
a. Low skilled labor
b. Medium skilled labor
c. High skilled labor
012_080678_APP 07.indd 303 16-09-2008 15:11:42
14A. To which country(ies) did your company relocate its activity(ies)?
You may choose a maximum of three countries.
14B. To which country(ies) is your company planning to relocate its activity(ies)?
You may choose a maximum of three countries.
15A.1 What is/are your companys objective(s) for relocating activity(ies)?
You may choose more objectives.
a. Increase labor productivity
b. Improve quality/services
c. Follow customers/suppliers
d. Increase fexibility
e. Availability of qualifed employees at foreign location
f. Increase innovation capacity
g. Exploit advantages of legislations and regulations (e.g. regarding taxes, establishing joint
ventures, employing and discharging employees)
h. Cost savings (e.g. regarding wages, transport and corporate location)
i. Enter new markets
j. Improve/maintain competitiveness
k. Other, namely
15A.2 Which of the objectives mentioned is the most important one for your company?
15B.1 What is/are your companys objective(s) for relocating activity(ies) to a foreign location in the
future?
k. Other, namely
15B.2 Which of the objectives mentioned is the most important one for your company?

012_080678_APP 07.indd 304 16-09-2008 15:11:42
16. Please indicate to which extent an objective linked to a specifc activity is approximately
accomplished:
a. 0%
b. 25%
c. 50%
d. 75%
e. 100%
17. What is the reason for not (fully) accomplishing the objective(s)?
18A. Which way has your company relocated its activity(ies) to foreign location(s)?
UNDER DIRECT CONTROL
Activities are relocated to a foreign location under direct control via:
a. Subsidiary at foreign location
b. Merger or acquisition
c. Greenfeld (newly established company at foreign location)
d. Joint venture
VIA A THIRD PARTY
e. Activities are relocated via a third external party to a foreign location.
18B. Which way is your company planning to relocate its activity(ies) to foreign location(s)?
UNDER DIRECT CONTROL
Activities are relocated to a foreign location under direct control via:
a. Subsidiary at foreign location
b. Merger or acquisition
c. Greenfeld (newly established company at foreign location)
d. Joint venture
VIA A THIRD PARTY
e. Activities are relocated via a third external party to a foreign location.
19A. In which country are the headquarters of the third party to which your company did outsource
its activity(ies)?
To select a country you may type in the frst letter of the country of your choice and subsequently
use the scroll function to select a specifc country.
19B. In which country are the headquarters of the third party to which your company will outsource
its activity(ies)?
To select a country you may type in the frst letter of the country of your choice and subsequently
use the scroll function to select a specifc country.
012_080678_APP 07.indd 305 16-09-2008 15:11:42
20A.1 Which barrier(s) did your company experience by relocating <<activity>> to a foreign
location?
g. Low labor productivity at foreign location
i. Higher costs involved in relocating activities than expected
j. Insuffcient experience with relocating activities
k. Insuffcient possibilities for protecting knowledge regarding technology/innovation
l. Lack of relevant clusters (e.g. transport and ICT) at foreign location
m. Unstable political situation at foreign location
n. Other, namely
20A.2 Which of the barriers mentioned is the most important one for your company?

20B.1 Which barrier(s) does your company expect to experience by relocating <<activity>> to a
foreign location?
g. Low labor productivity at foreign location
i. Insuffcient experience with relocating activities
j. Insuffcient possibilities for protecting knowledge regarding technology/innovation
k. Lack of relevant clusters (e.g. transport and ICT) at foreign location
l. Unstable political situation at foreign location
m. Other, namely
20B.2 Which of the barriers mentioned is the most important one for your company?
012_080678_APP 07.indd 306 16-09-2008 15:11:42
21A. How many jobs per activity are approximately relocated to a foreign location?
a. 1-10
b. 11-50
c. 51-100
d. 101-500
e. 501-1,000
f. 1,001-5,000
g. 5,001-10,000
h. 10,001-50,001
i. More than 50,00
j. Other, namely
21B. How many jobs per activity are you approximately planning to relocate to a foreign
location?
a. 1-10
b. 11-50
c. 51-100
d. 101-500
e. 501-1,000
f. 1,001-5,000
g. 5,001-10,000
h. 10,001-50,000
i. More than 50,001
j. Other, namely
22. Is your company planning to relocate more activities in the future?
a. Yes
b. No
23. What is/are your companys objective(s) for relocating more activity(ies) in the future?
k. Other, namely
012_080678_APP 07.indd 307 16-09-2008 15:11:42
24. What are the most important reasons for your company to refrain from relocating activities
in the future?
You may choose more reasons.
b. Poor performance (e.g. fnancial) of relocated activities
c. High costs involved in relocating activities
d. Poor communication lines with foreign location due to different languages
e. Insuffcient synergy between activities at local and foreign location
f. Unfavorable legislation and regulations at foreign location
g. Insuffcient qualifed employees at foreign location
h. Insuffcient quality of services delivered at foreign location
i. Cultural differences regarding corporate culture and national customs and traditions
j. Unstable political situation at foreign location
k. Low labor productivity at foreign location
l. Insuffcient possibilities to innovate
m. Internal processes insuffciently structured to assign to a third party
n. Insuffcient possibilities for protecting knowledge regarding technology and innovation
o. Lack of relevant clusters (e.g. transport and ICT) at foreign location
p. Other, namely

25. Did your company withdraw relocated activities to the Netherlands or is it planning to do
so?
a. Yes
b. No
26. What are the most important reasons for your company to withdraw relocated activities to
the Netherlands?
You may choose more reasons.
b. Poor performance (e.g. fnancial) of relocated activities
c. Higher costs involved with relocating activities than expected
d. Poor communication with foreign location due to different languages
e. Insuffcient synergy between activities at local and foreign location
f. Unfavorable legislation and regulations at foreign location
g. Insuffcient qualifed employees at foreign location
h. Insuffcient quality of services delivered at foreign location
i. Cultural differences regarding corporate culture and national customs and traditions
j. Unstable political situation at foreign location
k. Low labor productivity at foreign location
l. Insuffcient possibilities to innovate
n. Insuffcient possibilities for protecting knowledge regarding technology/innovation
o. Lack of relevant clusters (e.g. transport and ICT) at foreign location
p. Other, namely
012_080678_APP 07.indd 308 16-09-2008 15:11:43
27.1 Which issues in the Dutch business environment should be improved upon in your opinion?
You may choose more issues for improvement.
a. Innovation climate including access to technology
a. Infrastructure
b. Labor productivity
c. Availability of qualifed employees on national labor market
d. Clusters (e.g. transport and ICT)
e. Easy to employ foreign knowledge workers
f. Legislation and regulation (e.g. liberalization of termination of employment)
g. Costs (e.g. regarding wages, corporate location and transport)
h. The Netherlands as gateway to cooperation with partners within and outside Europe
i. Other, namely
27.2 Which of the issues for improvement mentioned is the most important one for your
company?
012_080678_APP 07.indd 309 16-09-2008 15:11:43
End of questionnaire
Thank you for your time and kind contribution to our research. We highly appreciate the fact that you
shared your expertise and experience on global sourcing with us. As a token of appreciation, we would like
to provide you with the opportunity of receiving our publication with the research results for free as well
as participate as our guest in the Global Sourcing & Innovation event on December 6. You can express your
interest in either one or both opportunities in the box below.

Yes, I would like to receive free of charge your publication with the research results
Yes, I would like to receive an invitation to participate free of charge in the Global Sourcing & Innovation
event, which is organized by Nyenrode Business Universiteit in cooperation with Wall Street Journal
Europe and other partners.
No, I neither would like to receive free of charge your publication with the research results nor an
invitation to participate in the Global Sourcing & Innovation event.
Name:
Function:
Street/P.O. Box:
Postal code:
City:
E-mail:
Thank you again for your time and effort.
Yours sincerely,
Dsire van Gorp
Pieter Klaas Jagersma
Nyenrode Institute for Competition (http://www.nyenrode.nl/nic)
012_080678_APP 07.indd 310 16-09-2008 15:11:43
flow of the Questionnaire

1. To which main category of service does your company belong?
2. Is your company part of an enterprise group?

Subsidiary of enterprise group No, or head of enterprise group
3. In which country is the parent company of
your subsidiary located?
4. What is approximately the number of employees (FTE) working for your company?
5. Did your company relocate business activities to foreign locations or is it planning to do so within twelve
months?

Yes Planning to do so No
6. How many years of
experience does your
company have with
relocating activities to a
foreign location?
7. For what reason(s) does your company not
consider relocating activities?

b. Preference
for the Dutch
business
environment

c. Other
reason

8. For what
reason does your
company refrain
from relocating
activities to a
foreign location?
a. Too many
barriers
9.1 Which barrier(s) is /
are decisive for your
company to refrain
from relocating
activities to a foreign
location?
>1 answer 1 answer
9.2 Which of the
mentioned barriers is
the most important
one for your
company?
If not mentioned 7b.
11a. Which activity (ies)
and jobs involved are
relocated to a foreign
location?
11b. Which activity
(ies) and jobs involved
does your company
plan to relocate to a
foreign location?
12a. Is the relocated (x)
activity a core or non-
core business activity
for your company?
12b.Is the (x) activity
your company is
planning to relocate a
core or non-core
business activity?
13a.What is the skill
level of the jobs
involved in the relocated
(x) activity mainly?
13b.What is the skill
level of the jobs
involved in the future
relocated (x) activity
mainly?
If not mentioned 7b.
S1. Have/are you (been) involved in relocating activities to foreign locations or in the decision making
process?

10.1 Which advantage(s)
of the Dutch business
environment is/are
decisive for your company
to refrain from relocating
activities to a foreign
location?
>1 answer 1 answer
10.2 Which of the
mentioned advantages is
the most important one for
your company?
14a.To which country
(ies) did your company
relocate its (x) activity?
14b. To which country
(ies) is your company
planning to relocate its
(x) activity?

15a1.What is/are your
companys objective(s)
for relocating the (x)
activity?

>1 answer 1 answer

16. Please indicate to which extend (y)
objective is achieved with relocating the (x)
activity:
0% 50% 75% 100%
18a2. The (x) activity
is relocated under
direct control via:
greenfield, merger,
joint venture or
subsidiary?
18a1. Which way has your company
relocated its (x) activity to a foreign
location?

Under direct control Via third party
18b1. Which way is your company
planning to relocate its (x) activity to a
foreign location?

Under direct control Via third party

15a2.What is/are your
companys objective(s)
for relocating the (x)
activity?
15b1. What is/are your
companys objective
(s) for relocating the
(x) activity in the
future?

>1 answer 1 answer
15b2. What is/are
your companys
objective(s) to relocate
its (x) activity in the
future?

17.What is the reason
for not (fully)
accomplishing the (y)
objective?
18b2. The (x) activity
is planned to be
relocated under direct
control via: greenfield,
merger, joint venture
or subsidiary?
19a. In which
country is the
headquarters
of the third
party to
which your
company did
outsource its
(x) activity?
19b. In which
country is the
headquarters
of the third
party to
which your
company is
planning to
outsource its
(x) activity?

20a1. Which barrier(s) did your company
experience by relocating the (x) activity to
a foreign location?

1 answer > 1 answer

20b1. Which barrier(s) does your
company expect to experience by
relocating the (x) activity?

1 answer > 1 answer
20a2. Which of the barriers mentioned is
the most important one for your company?

20b2. Which of the barriers mentioned is
the most important one for your
company?

21a. How many jobs (FTE) per activity are
approximately relocated to a foreign
location?

21b. How many jobs (FTE) per activity
are you approximately planning to
relocate to a foreign location?

22. Is your company planning to relocate
more activities in the future?

Yes No
23. What is/are your
companys most important
objective(s) for relocating one
or more activity (ies) in the
future?
24. What is/are your
companys most important
reason (s) to refrain from
relocating more activity (ies)
in the future?
25. Did your company withdraw relocated activities to the
Netherlands or is planning to do so?
Yes No
26. What is/are your companys most
important reason(s) to withdraw relocated
activities to the Netherlands
27.1 Which issues in the Dutch business environment should be improved upon in your
opinion?
>1 answer 1 answer
27.2 Which issues for improvement mentioned is the most important one for your company?
End of survey
The activity (ies) mentioned in question 11 is/are repeated in question 12, 13, 14, 15, 16, 17, 19, 20, 21, and 22
and indicated with (x) in this questionnaire.
The objective(s) mentioned in question 15 is/are repeated in question 16, 17, and 18 and indicated with (y) in this
questionnaire.
012_080678_APP 07.indd 311 16-09-2008 15:11:43
Appendix 7.2
Codifcation Development of Service Category for Respondents in
Tracks A, B and C
Service category
Frequencies
track A
Percentages
track A
Frequencies
track B
Percentages
track B
Frequencies
track C
Percentages
track C
Business services e.g. ICT, consultancy, legal,
research and development, marketing and design
92 61.33 23 71.88 303 56.53
Building and civil engineering e.g. road
construction
14 9.33 2 6.25 84 15.67
Trading and repairing of consumer goods e.g. trade
agency, wholesale trade and mail order frm
16 10.67 4 12.50 57 10.63
Financial services e.g. banking, insurance and
investment services
6 4.00 0 0.00 34 6.34
Transport, logistics and communications e.g.
telecommunications, transport of passengers and
products, mailing and courier services
10 6.67 1 3.13 26 4.85
Health and welfare services 7 4.67 0 0.00 8 1.49
Hospitality services 1 0.67 0 0.00 11 2.05
Renting and trading in real estate and movable
property
1 0.67 1 3.13 5 0.93
Distribution and trade in electricity, natural gas
and water
2 1.33 1 3.13 3 0.56
Environmental services, culture and recreation 1 0.67 0 0.00 5 0.93
Total 150 100.00 32 100.00 536 100.00
Codifcation of answer option Other, namely to Q1 To which main category of
services does your company belong?
Main Category: Business services
Staffng services Music printing
Biotechnology Education
Biotechnology , life sciences Manufacturing (3X )
Business services Publishing (5X )
Call center (2X ) R&D, production and trade in agricultural products
Clinical research Advertising
Communication Recruitment and contracting
Consumer goods Cleaning and sanitation
Contact center services Cleaning (9X )
Distribution industrial materials Maritime
Printing Service frm active in the advertising industry
Engineering contractor Service frms in the feld of career services and coaching
Engineering (2X ) Expert cleaning services
Graphics (7X) Exhibit design, interior design, advertising
Wholesale Sterilization medical appliances
Internet exchange Design and consultancy for maritime industry
Offce, museum, retail design Technical sector
Laboratory Ticket telesales
Land surveying (2X ) Outsourcing civil engineering design (CAD)
Law Crop improvement
Marketing consultancy Catering
Marketing Nutrition research
Media Business and fnance services
Media, B2B Cleaning in building industry
Steel industry Animal care
Service frm is an agricultural service supply agency Service frm is an agricultural service supply agency
Pastoral care
012_080678_APP 07.indd 312 16-09-2008 15:11:43
Main Category: Financial services
Regional economic development agency
Main Category: Transport, logistics and communications
Service frm providing services in logistics Touring cars and taxi services
Logistics (2X )
Main Category: Health and welfare services
Occupational health and reintegration
Main Category: Building and civil engineering
Industrial and home appliance installation Electro technical installations
Building company Industry, maritime storage
Security Steel industry
Industrial building company
Service frm providing services to fber glass construction for the
telecommunication industry
Main Category: Trading and repairing of consumer goods
Flowers and plants Trade and repair consumption goods, machinery
Flower export (2X ) Trade in raw goods for agriculture (biological)
Fire safety Import and distribution of dental products
Retail (3X ) Importing cars
Retail supermarkets Agriculture
Trade and distribution of medical appliances Flower delivery
Distribution of printed materials Develop, manufacture and sale of electronic goods
Engineering, manufacturing & assembly Repairs of electronic appliances
Automotive wholesale Technical trade
Interior design wholesale Technical trade B2B
Diesel engine parts, wholesale Technical industry
Refuse transportation Wholesale, medical products
Trade and repair of metalworking machinery Repairs
Consumer electronics trade
Main Category: Environmental services, culture and recreation
Sewage sanitation Tourism
012_080678_APP 07.indd 313 16-09-2008 15:11:44
Appendix 7.3
Codifcation Relocated Activities Respondents in Tracks A and B
Activity Frequencies track A Percentages track A Frequencies track B Percentages track B
Technology & Application Development 38 15.77 7 16.28
Production 24 9.96 3 6.98
Engineering 19 7.88 6 13.95
Financial & Administrative Services 22 9.13 2 4.65
Research & Development 20 8.30 4 9.30
Sales 18 7.47 5 11.63
Distribution & Logistics 19 7.88 1 2.33
IT-infrastructure 20 8.30 0 0.00
Marketing 13 5.39 3 6.98
After sales services 12 4.98 4 9.30
Managerial Tasks 15 6.22 1 2.33
Construction 7 2.90 0 0.00
Other 14 5.81 7 16.28
Total 241 100.00 43 100.00
Codifcation of answer option Other, namely to Q11A Which activity(ies) and
jobs involved are relocated to a foreign location? and Q11B Which activity(ies)
and jobs involved does your company plan to relocate to a foreign location?
Main Category: Sales
Acquisition abroad
Main Category: Technology and application development
Dental technology outsourced Technical goods
Main Category: Financial and administrative services
Accounting
Main Category: Management tasks
Legal and tax consultancy Holding company (not jobs outsourced)
Consultancy (2X ) Legal
Recruitment and contracting
Main Category: Engineering
Detailed engineering Engineering drawing
Category: Research and development
Procurement market research Development
Laboratory Project development
Market research
Main Category: Construction
Construction (3X ) Drainage, concrete repairs
Construction department Maritime construction
Ma in Category: Production
Assembly Production (19X )
Part of manufacturing Production and processing
Mining/quarrying raw materials for construction Seed production
Manufacturing (2X ) Cultivation and (part) processing
Main Category: Other
Back-offce activities Installation activities in maritime sector
When size is right, sterilization Core activities
Publishing company Takeover
Call center Project based
Call center services Reintegration
Certifcation Testing and certifcation
Data processing Expand activities in general
Part of the quality control tasks Execution
Services Dont know yet
Graphic data services Business Services
Implementation
012_080678_APP 07.indd 314 16-09-2008 15:11:44
Appendix 7.4
Codifcation Development for Objectives of Respondents
in Tracks A and B
Frequently mentioned objectives
Frequencies
track A
Percentages
track A
Frequencies
track B
Percentages
track B
Cost advantages Cost savings 122 20.89 18 14.63
Increase labor productivity 51 8.73 12 9.76
Improve quality/services 63 10.79 12 9.76
Increase innovation capacity 35 5.99 7 5.69
Improve/maintain competitiveness 69 11.82 13 10.57
Centralizing
1
5 0.86 0 0.00
Strategic resource seeking Availability of qualifed employees at foreign location 40 6.85 10 8.13
Government policy Exploit advantages of legislation and regulations 19 3.25 5 4.07
Other Other, namely 12 2.05 6 4.88
Total 584 100.00 123 100.00
Most important objectives
Frequencies
track A
Percentages
track A
Frequencies
track B
Percentages
track B
Cost advantages Cost savings 66 27.39 7 16.28
Increase labor productivity 9 3.73 3 6.98
Improve quality/services 22 9.13 3 6.98
Increase innovation capacity 15 6.22 1 2.33
Improve/maintain competitiveness 26 10.79 2 4.65
Centralizing
2
4 1.66 0 0.00
Strategic resource seeking Availability of qualifed employees at foreign location 14 5.81 1 2.33
Government policy Exploit advantages of legislation and regulations 7 2.90 1 2.33
Total 241 100.00 43 100.00
Codifcation of answer option Other, namely to Q15A What is/are your companys
objective(s) for relocating the X
3
activity? And Q15B What is/are your companys
objective(s) for relocating the X activity to a foreign location in the future?
1 Added in fnal coding.
3 X refers to specifc activity relocated by a respondent.
012_080678_APP 07.indd 315 16-09-2008 15:11:44
Financial benefts Reduce costs
Bigger margins
Depends on construction demand Activities to be carried out by customer
Mutual servicing
Increase growth Sales
Growth German economy Representation
Seek out new customers Looking for new markets
Expansion (2X )
Sub-category: Other
Bridge between US and Europe
Sub-category: Increase labor productivity
Effciency
Sub-category: Improve quality/services
Better customer relations Focus on core activities (2X)
Improve operations as a result of better understanding of language/
culture of the country in questions

Sub-category: Centralizing
Centralization (5X )
Sub-category: Other
Continuity of process Improve offshore
Production continuity Risk spread
Head offce supervision Advantages of scale (2X)
Climatic considerations As close as possible
Sub-category: Availability of qualifed employees at foreign location
Availability of high-skilled personnel Not enough qualifed personnel
Knowhow present Increase knowledge
Recruitment of qualifed personnel Increase production
Knowledge not present in the Netherlands
Sub-category: Other
Problems with capacity Increase capacity
Capacity reasons Infrastructure
Main category: Government policy
Sub-category: Exploit advantages of legislation and regulations
Better able to anticipate local rules and regulations
A bit of everything Sold
Differs for each country and demands (2X)
012_080678_APP 07.indd 316 16-09-2008 15:11:44
Appendix 7.5
Codifcation Development of Barriers for Respondents
in Tracks A and B
Frequently mentioned barriers
Frequencies
track A
Percentages
track A
Frequencies
track B
Percentages
track B
Unfavorable government
policy
Unfavorable legislation and regulations at foreign
location
38 7.08 8 6.61
Insuffcient possibilities for protecting knowledge
regarding technology/innovation
12 2.23 3 2.48
Unstable political situation at foreign location 6 1.12 1 0.83
Management issues
Diffcult to manage (e.g. due to physical distance or
lack of internal capacity)
75 13.97 19 15.70
Communication in different languages 81 15.08 15 12.40
Cultural differences regarding corporate culture and
national customs and traditions
96 17.88 26 21.49
Higher costs involved in relocating activities than
expected
22 4.10 0 0.00
Unavailability of strategic
resources
Insuffcient qualifed employees at foreign location 22 4.10 9 7.44
assets
Internal processes insuffciently structured to assign
to a third party
37 6.89 10 8.26
Insuffcient quality of services delivered at foreign
location
38 7.08 5 4.13
Low labor productivity at foreign location 11 2.05 1 0.83
Insuffcient experience with relocating activities 33 6.15 17 14.05
Lack of relevant clusters (e.g. transport and ICT) at
foreign location
13 2.42 1 0.83
No barriers No barriers
1
21 3.91 0 0.00
2
10 1.86 1 0.83
Total 537 100.00 121 100.00
012_080678_APP 07.indd 317 16-09-2008 15:11:44
5 X activity refers to the specifc activity relocated by a respondent.
Most important barriers
Frequencies
track A
Percentages
track A
Frequencies
track B
Percentages
track B
Unfavorable government
policy
Unfavorable legislation and regulations at foreign
location
23 9.54 5 11.63
Insuffcient possibilities for protecting knowledge
regarding technology/innovation
3 1.24 1 2.33
Unstable political situation at foreign location 2 0.83 0 0.00
Management issues
Diffcult to manage (e.g. due to physical distance or
lack of internal capacity)
47 19.50 5 11.63
Communication in different languages 20 8.30 1 2.33
Cultural differences regarding corporate culture and
national customs and traditions
39 16.18 14 32.56
Higher costs involved in relocating activities than
expected
6 2.49 0 0.00
resources
Insuffcient qualifed employees at foreign location 5 2.07 0 0.00
assets
Internal processes insuffciently structured to assign
to a third party
16 6.64 6 13.95
Insuffcient quality of services delivered at foreign
location
18 7.47 1 2.33
Low labor productivity at foreign location 3 1.24 0 0.00
Insuffcient experience with relocating activities 10 4.15 4 9.30
Lack of relevant clusters (e.g. transport and ICT) at
foreign location
3 1.24 0 0.00
No barriers No barriers
3
21 8.71 0 0.00
4
10 4.15 1 2.33
Total 241 100.00 43 100.00
Codifcation of answer option Other, namely to Q20A Which barrier(s) did your
company experience by relocating the X
5
activity to a foreign location? And Q20B
Which barrier(s) does your company expect to experience by relocating the X
activity to a foreign location?
Sub-category: Unfavorable legislation and regulations at foreign location
Rules and regulations in Europe and the Netherlands
Sub-category: Other
Bureaucracy in Poland Gain understanding of foreign laws and regulation
German bureaucracy Dutch government provided little cooperation (2X)
Sub-category: Diffcult to manage (e.g. due to physical distance or lack of internal capacity)
Diffcult communications on joint project (because of distance, not
language/culture

Sub-category: Other
High employee turnover Start up and long lead times
Long lead times (2X) Transportation
People fred before handover was completed Process
Insuffcient communication about what would or would not be
subcontracted

Sub-category: Higher costs involved in relocating activities than expected
Costs to send Dutch people along
012_080678_APP 07.indd 318 16-09-2008 15:11:44
Sub-category: Other
Availability of these types of companies
Sub-category: Insuffcient experience with relocating activities
Not enough experience yet (3X)
Sub-category: Other
Limits on delivery time Customer dissatisfaction
Flexibility
Sub-category: Other
Accept delivery Outsourced to external supplier in the UK
Company focus changed Various
Green light Unfamiliarity with brand
Main category: No barriers
Sub-category: No barriers
None (14X) Dont have any
No barriers Nothing (2X)
Not one, all is going well Havent come across any barriers
No problems
No idea (2X) I dont know (2X)
No info (2X) Dont know (4X)
Not applicable
012_080678_APP 07.indd 319 16-09-2008 15:11:44
012_080678_APP 07.indd 320 16-09-2008 15:11:44

Off Shoring in The Service Sector

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003_080678_HFDST 06.indd 139 16-09-2008 15:11:05

Project 10: Captive offshoring to India

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