Offshoring of services is a younger sibling of the relocation of manufacturing pro- cesses abroad. It is directly reflected in the theoretical approaches to explaining both the tangible and intangible forms of offshoring. There are many similarities between them. In the beginning they were about cost reduction and access to ca- pacity. Moreover, offshoring of white-collar jobs or offshoring of knowledge-based tasks, especially in its nascent stage, was rather about repetitive tasks, where the input of the brainpower of a human being was limited.
Anyway, both types of offshoring underwent significant changes making the technology, knowledge, process excellence indispensable elements. Therefore, the presentation of the theoretical framework will employ approaches created both for offshoring in general and those specific to knowledge-intensive services. Actually, the original theoretical background created to explain the manufacturing opera- tions has been supplemented with elements directly related to services. Due to the rising complexity of tasks and greater expectations towards units providing the off- shoring solutions, the divergence between manufacturing and services became wider.
We agree with Bunyaratavej et al. (2011) that the theoretical approach to off- shoring of services requires an update and modification. It has been some time since their conclusion, but neither the universally accepted approach to the white- collar offshoring emerged nor the existing approaches coped adequately with the changes in the services offshoring. Especially the latter issue brings challenges to the theorists of economics and management. The inadequacy of the theoretical conceptu- alisation of ABS has been also pronounced for the recent developments in offshoring in both emerging and advanced Asian economies (Jones & Ström, 2018). This is due to the distinctive characteristics of the institutional, socio-cultural and corporate con- texts in local economies, but also as a result of global interconnections.
The theoretical framework of offshoring of services, in comparison to manufactur- ing, is very different when it comes to the trade costs. Physical goods require costly and time consuming transportation, what makes them prone to trade barriers. When it comes to offshoring of services, it is much cheaper and faster to transfer the knowl- edge using the digital communication infrastructure. It is also more difficult to design trade policy tools that will stop the transfer of such services across borders.
Besides the implicit economic costs, there is a new set of externalities related to the issue of offshoring, such as the costs to the natural environment. The issue of pollution due to transporting the goods over large distance is very important. Such
Open Access. © 2020 Artur Klimek, published by de Gruyter. This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
a situation does not concern the offshoring of services. Naturally, there is a cer- tain level of emissions due to ABS operations, however it is present irrespective of the country of execution of the activities. Actually the modern technologies and commoditisation of the services reduces the necessity of personal contacts, so the emission due to long journeys should be also reduced. This is the element that requires more attention in the literature, and especially in the theoretical framework.
We also argue that there is no framework, which can accommodate both busi- ness and economic approach. From the idealistic point of view, an economic model of offshoring should put in a broader context the assumptions of a business model, which explains offshoring inside a business organisation. Such approaches can be observed in international economics and international business regarding some other issues, such as foreign direct investment. However, the theory of offshoring is so vague that is impossible to find the common ground. The goal of the chapter is to review recent developments in economic and business theory of offshoring and try to find the potential common elements.
Offshoring has been predominantly considered as the transfer of tasks from high-cost to low-cost economies. However, this should be considered in the broader context. The issue that should be addressed in the theory is the hybrid form of off- shoring. By the word hybrid we mean a situation in which a firm, which specialises in the offshore outsourcing provisions for foreign clients, is also present in the home economy of the client. The flexibility of organising their operations due to the intangible nature of services means that they are present in various locations. For example, Indian companies, which provide services to clients in the United States have been attracted to invest in this economy in order to access knowledge sources, legitimate their presence in the industry and commission still more orders in the market (Ricart, Pisani, Agnese, & Adegbesan, 2011).
The issue, which is crucial in the theory of offshoring are time zones. The neces- sity to organise processes 24/7 makes it inevitable to fragment the provision of serv- ices in a few distant locations. One of the models adopted by Indian firms is to provide two shifts from India and the third one either from Mexico (for American clients) or from Africa (for European clients). The theoretical model provided evi- dence that under monopolistic competition, the existence of time zones reduces costs of services offshoring and makes such an option more profitable for firms off- shoring the activities, but also for providers of the services (Kikuchi & Long, 2010). They also argue that the welfare effects of services offshoring may be negative due to the increased waste in firms becoming providers of offshore services. Anyway, offshoring due to the time differences may be profitable due to the necessity of or- ganising process 24/7.
Conversely, relocating the tasks to a different time zone may increase welfare due to reducing the necessity of night shifts, thus avoiding higher costs and higher shift disutility (Matsuoka & Fukushima, 2010). In such a setting home country
workers do not need to work night shifts, but at the same time foreign workers in different time zone are also working during their day. However, there is a ne- cessity that services delivered by a foreign provider are not consumed immedi- ately (as for example call centre services). Such a situation is possible thanks to technology.
The arguments that time zones create business opportunities present only one side of the phenomenon. Actually, the time differences between economies may be treated as a form of a trade barrier. This is especially the case for provision of business services that require some level of interaction between employees in var- ious locations. Time differences make such contacts more difficult or at least one side should adjust working time to the other side. This is the case for many Indian and Philippine call centres working night shifts in order to contact American clients.
In general, the time differences should be seen from two perspectives. First, the time differences between the headquarters and a unit providing services from abroad. Then it should be more favourable for a firm to establish a service unit in an economy of the same or similar time zone. Second, the perspective of contacts between a service unit and its clients– other subsidiaries of a MNE. Time differen- ces are partly responsible for creating on particular continents the regional busi- ness centres, which operate in their time zones, thus the communication is easier. This is particularly important from the perspective of CEE as a host location. Sharing the same time zone with the large part of the Western Europe is one of the main advantages. This also partially explains why, in spite of much higher costs than in many Asian economies, offshoring of services is located in CEE. This also suggests why many American multinationals moved processes to CEE in order to serve the region of Europe and Middle East. On the whole, in spite of some theoreti- cal proposition, the time differences should be still treated as an obstruction to the seamless provision of white-collar services across borders.
All in all, building a universal model of offshoring of advanced business services is not possible now. It is due to the vast diversification of services that are offshored, evolution (or even revolution) of ABS, and differences between key offshoring destinations. India is rather the case for outsourcing operations with the large role of domestic dominant firms. The Philippines focus on voice services and some niche services. V4 is rather a relatively high-cost location with focus on a spectrum of various business functions. There is also the issue of offshoring and nearshoring. India and the Philippines are selected by firms from distant locations (e.g. the US or the Europe). V4 economies are selected predomi- nantly by EU firms looking for lower costs, but also sharing similar culture and institutional environment. Therefore, the models rather explain regional charac- teristics of offshoring in Europe or Asia, but do not comprehend the global perspective.