Value Gains in Business Process Outsourcing: The Vendor Perspective

Business Process Outsourcing (BPO) is a contemporary phenomenon that has gained significant traction in recent years. Like other forms of outsourcing, BPO is both beneficial and risky. While extant research has examined the risks in outsourcing for clients, a limited insight exists on the risks associated with BPO for vendors. We examine the contexts in which the value proposition of BPO varies for vendor firms based on the risks associated with the contract. The risk in this context is posited to vary based on the type of task outsourced, the outsourcing motivation of the client and the duration of the contract. Using a sample of 231 BPO announcements over a thirteen-year period, we test our hypotheses using an event study. We find that BPO creates significant value gains for vendor firms, particularly for knowledge intensive processes. In addition, vendors lost value when they were sought out to develop specific capabilities for the clients that involved knowledge intensive processes. While vendors benefited from longer duration contracts, these benefits were not found to significantly vary across the different types of tasks outsourced.