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Management International Review
Published in: Management International Review 3/2011

01-06-2011 | Research Article

Impacts of Risk and Service Type on Nearshore and Offshore Investment Location Decisions

An Empirical Approach

Authors: Prof. Eugene D. Hahn, Prof. Kraiwinee Bunyaratavej, Prof. Jonathan P. Doh

Published in: Management International Review | Issue 3/2011

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Abstract

  • Offshoring of services has gained considerable attention in management circles. However, little empirical research has explored the emerging sourcing alternative of nearshoring, despite the fact that firms situate about one out of five projects abroad in a nearshore location as opposed to an offshore location.
  • We empirically assess the impact of economic and risk factors regarding firms’ services location choices between offshoring and nearshoring. We find these factors influence firm decision-making regarding services offshoring location choices, and that these factors are more or less important to firms depending on whether the firm offshores relatively higher versus relatively lower skill services.
  • Offshoring firms appear willing to trade off some gains in one area (lower wages) to mitigate costs in others (higher risk), and that the factors that drive nearshoring are qualitatively different than those that influence offshoring.
previous article Disentangling the Roles of International Experience and Distance in Establishment Mode Choice
next article The Stability of Offshore Outsourcing Relationships

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Footnotes
1
The term “offshoring” is partly a more general industry term involving the relocation of work somewhere abroad (i.e., non-domestic sourcing). Offshore outsourcing is a more specific industry term indicating that work has been relocated abroad and moreover is being conducted by a third-party instead of being undertaken by the firm. In the current work, we therefore use the word offshoring in a more specific way than would be used in industry, namely to indicate the relocation of work somewhere abroad but without the introduction of a third party. Similarly, we use nearshoring to indicate that, again, the firm retains control of the activity but that the activity has been relocated abroad to a nearshore location. The current paper specifically focuses on (captive) offshoring and nearshoring as opposed to offshore outsourcing and nearshore outsourcing.
 
2
The EU-14 is composed of Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom.
 
3
These host countries were: Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, China, Colombia, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Malaysia, Mexico, the Netherlands, New Zealand, Norway, Pakistan, the Philippines, Poland, Portugal, Romania, Russia, Singapore, Slovakia, South Africa, South Korea, Spain, Sweden, Switzerland, Thailand, Turkey, the UAE, the UK, the US, and Venezuela (note that it is possible for the EU 14 countries to offshore to the US, and vice versa).
 
4
Namely, the interaction effects are interpreted as deviations from the reference group’s effects.
 
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Metadata
Title
Impacts of Risk and Service Type on Nearshore and Offshore Investment Location Decisions
An Empirical Approach
Authors
Prof. Eugene D. Hahn
Prof. Kraiwinee Bunyaratavej
Prof. Jonathan P. Doh
Publication date
01-06-2011
Publisher
SP Gabler Verlag
Published in
Management International Review / Issue 3/2011
Print ISSN: 0938-8249
Electronic ISSN: 1861-8901
DOI
https://doi.org/10.1007/s11575-011-0078-z

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