Outsourcing internazionale dei servizi: effetti sulla produttività delle imprese
Author(s)
Gregori, Osea
Date Issued
January 10, 2011
Type
Doctoral Thesis
Abstract
The start of the new millenium was characterised by the worldwide dissemination of services outsourcing, adopted by the more competitive organisations to externalise their staff functions (Human Resources , Information Technology, Costumer care, Finance & Accounting) in order to concentrate internal, human and financial resources on the company’s core business.
In the absence of official data, to illustrate the present dimensions of services-based outsourcing in Italy and in Europe, for this research I used the more significant results of three studies recently conducted on the subject (the Everest Research Institute analysis, presented in 2007 at the Salone dell’Outsourcing; R. Crinò’s contribution to the 2008 Ice-Istat Report; and Ernest & Young’s European survey, conducted in 2008). The global Services-based Outsourcing and Offshoring market has grown vertiginously over the last decade, achieving, in 2007, $63 billion dollars. In the European market, the United Kingdom alone represented 50%, followed by Germany (20%), Benelux (10%), France and Italy (5% each). The Italian Outsourcing market increases by 5-10% per year but still focuses chiefly on information Technology - over 70%. The Compay process Outsourcing is still very limited but in some areas is on the upswing: Contact Management, Logistics and Facility Management. The trend, observed in all major suppliers (around 80%) is to deliver more and more all-inclusive services, end to end.
Theoretical literature does not arrive at any univocal conclusion as regards the effects produced by offshoring on productivity. According to Williamson’s Transaction Cost Theory (TCE) (1981) the market is the most efficient form of transaction governance only when it is possible to conclude instantaneous and exhaustive contracts, when uncertainty is low, the measurability of the object exchanged is high, specific investments are non-existent and the parties are easily replaceable. In reality these conditions are rarely present, above all when the object to be exchanged is a service, in relation to which a market crisis and the need to internalise the transaction may take shape. According to the Resource Based View (RVB), offshoring may increase productivity permitting companies to reorganise their productive process, transferring abroad their lower added-value activities and concentrating on other phases. Offshoring may also operate by expanding the range of intermediate goods and services available to companies in favour of higher quality offers, or by permitting a learning process whereby the companies involved learn new and more efficient production techniques from foreign suppliers (Aubert and others, 2004; Leiblein and Miller, 2003; Klaas and others 2001). However, these short-term, positive effects repeatedly induce the management to apply an outsourcing strategy (reiteration dynamics) thus losing sight of the possibility that the company’s capacity for innovation with negative effects on total, long-term productivity. On the basis of the Modular Theory, out-sourcing tends, in fact, to weaken the synergies between externalised activities and those remaining within the organisation. This undermines the organisational memory and the intellectual patrimony of the company (Windrum and others 2008, Brouthers and Brouthers, 2003). For Mahnke’s Evolutionistic Theory (2001) a series of complications exist, associated to the transit from hierarchy to the market, which may compromise the productivity increases expected from the out-sourcing strategies. In particular, assigning activities and functions to outside sources is often hindered by the tendency, on the part of the client company’s employees, to information retention: leading, as a result, to considerable transaction costs, depriving the company of specific skills and know-how and, consequently, impoverishing its patrimony of intangible resources. Capacity for innovation assumes a central role also in the Theory of Endogneous Growth. Naghavi and Ottaviano (2006) analyse the organisational structure of companies in a context of endogenous growth in order to cast light on the relations existing between growth and adoption of complementary innovations within their internal frameworks. The analysis indicates the emergence of tension between the dynamic and static implications of out-sourcing: companies involved in make-or-buy decisions confront the research and transaction costs linked to out-sourcing with the governance and specialisation costs linked to
vertical integration, neglecting the effects of the organisational choices on innovation and growth. In some sectors, in the hypothesis whereby the company out-sources the production of inputs or the performance of services, dynamic losses for consumers, caused by a slowdown in innovation. may accompany the static advantages of specialisation. In particular, companies and consumers tend to prefer out-sourcing to vertical integration when this is associated with substantial specialisation benefits: the ex-post, contractual power acquired by suppliers and final producers encourages R&D companies to innovate. In this case research costs and hold-up difficulties are minimised.
Empirical literature separates the subject into two great categories: industry-level studies and company-level studies. Despite the fact that the various contributions use a standard approach to the analysis of the phenomenon, the results achieved are heterogenous highlighting, as regards services-based offshoring on productivity, an impact in some cases positive (Oulton,1999; Amiti and Wei, 2005, Crinò, 2009, ecc.), in others negative (Görzig and Stephan 2002; Daveri and Jona-Lasinio, 2007, ecc.) or insignificant (Ito and Tanaka, 2010, ecc.). I will summarise the analysing methods used in the foregoing studies when I compare them, here below, to my own research.
By comparing Italy and France, two economies characterised by low offshoring levels with respect to their chief European competitors, but which manifest different trends in terms of productivity (par.4), our analysis aims at verifying whether services-based offshoring counterbalances slowdowns in productivity or whether, on the contrary, it helps to amplify them. Italy, in the period examined, registered services-based offshoring levels relatively higher than in France – a slow but ongoing increase in the degree of international opening and a marked slowdown in the growth of productivity. France presented more or less constant or, in some cases, decreasing trends in the out-sourcing of services, but increasing productivity.
Using Eurostat-based information on the input-output tables system we will calculate the services-based offshoring indicators for nineteen manufacturing and service industries through the 1995-2006 period.
These indicators which measure the import quotas of six types of private services on the total number of non-energy uses, are comparable between the two countries, thanks to the adoption of a common classification system relating to the preparation of input-output tables.
The indicators will be combined with information on other technological characteristics and on other globalisation-linked phenomena linked, illustrated in the EUKLEMS data set (Timmer et al., 2007).
On the basis of the existing literature, the analysis will first of all focus on estimating the connection between services-based offshoring and the simplest productivity measure, i.e. labour. It will then concentrate on structural models, based on the use of the Cobb-Douglas production models, to evaluate the effects produced by services-based offshoring on a more complete measure of productive efficiency, i.e. Total Factors Productivity (TFP). With respect to previous contributions this study is distinguished by two aspects. The disaggregated indexes were constructed directly, on the basis of the imported use matrixes and the Eurostat uses tables, thus overcoming the typical limitations inherent to the proportionality method. From an econometric viewpoint two estimators will be applied: the dynamic GMM one-step per panel proposed by Arellano and Bond (1991) and the Least Square Dummy Variable Corrected (LSDVC) introduced by Bruno (2005), which extends Kiviet’ study (1995) to non-balanced panel data. The first estimator has been widely used in the empirical literature on the subject in order to solve the problem of the possible endogenous nature of offshoring and the persistence of productivity. The Least Square Dummy Variable Corrected has never been implemented in this framework but is particularly adapted to the analysis of the data set at our disposal. The Monte Carlo experiments conducted by Bruno (2005b) on small-size samples and by Judson and Owen (1999) on medium-size samples both clearly demonstrate the superiority of the LSDVC estimator over the IV-GMM estimators.
With respect to the effects of services-based offshoring on labour productivity, the results observed for Italy show a negative and statistically significant impact regarding the aggregated index, whereas for France the results show a statistically insignificant co-efficient.
When distinguishing offshoring among the various typologies of services, we observed a considerably heterogenous scenario in the relevant effects. In Italy, in particular, the indexes relating to Rental Services (with negative impact) and Other Private Services (with positive impact) are significant, but in France the only index with a significant impact concerns Computer Services (positive).
When estimating the TSOS effects on TFP, the results showed a negative and statistically significant coefficient for both Italy and France. In this estimation too, disaggregating the index supplies additional information, in particular: for Italy an increase in the indexes relating to Professional, Rental and Computer Services indicates a negative and significant impact on the TFP while the impact of Other Private Services is positive; on the contrary, for France we observe a negative impact significant only in the index relating to Financial Services.
In conclusion, the fact that France resorted in a lesser degree to services-based out-sourcing would appear to have encouraged the growth of productivity in this country during the time scale examined, whereas in Italy the higher rate of services out-sourcing caused a worsening of the negative trend in productivity and a slow down in the country’s economic revival.
The results obtained differ, in part, from those achieved by Crinò (2008), who highlights, in general, a positive impact as regards services based offshoring on productivity in Italy and in the other countries examined. Although the same specifications were used to analyse the data, the diverging results may be attributed to the different method employed to construct the offshoring indexes (in this study we used the direct method, whereas Crinò uses proportionality). Our evidence is consistent with the results achieved by Daveri and Jona-Lasinio (2007) who, using industry level panel data for Italy, found a positive correlation for the narrow offshoring of intermediate, but null or, more often negative for the offshoring of market services.
The results we obtained are, moreover, in line with other empirical studies conducted at firm level. Grzig and Stephan in particular (2002), using panel data relating to German manufacturers for the period 1992-2000, pinpointed a negative impact of services out-sourcing on the short term ROS. Grg and Hanley (2003), using data on Irish firms operating in the electronics sector between 1990 and 1995, found a positive and statistically significant correlation between services-based offshoring and productivity in companies downstream of the productive process and a negative correlation with the productivity of upstream firms. In the same way Calabrese and Erbetta (2004), by analysing the balance sheets of automotive suppliers located in Piedmont in the period from 1998 to 2001, indicate, for companies which pursued any type whatever of outsourcing strategy, a negative ROI variation, an increase in capital turnover and a downturn in operational efficiency.
The empirical results achieved by this study and by the other analyses mentioned indicate the ambiguous effect of services-based offshoring on productivity. The impact may vary over time and according to the typology of the out-sourced service. In the short term and as regards impersonal services, easily digitalised and less skill intensive, it can stimulate the reduction of operational costs and increase the productivity of the internal work force. Over long periods it can become a road with no return, in the sense that, on the one side, it might prove difficult to retrieve the internal performance of the externalised activities and, on the other, obstacles may emerge as regards the change of supplier. In addition, the transfer of know-how to a third-party might encourage imitation causing the company to lose its competitive advantage. In conclusion, the interaction between persons with skills in different functional areas often leads to positive results for the company, creating a fertile terrain for the emergence of brilliant intuitions capable of opening up new prospects for development and offering solutions to the company’s problems. Out-sourcing, if it entails the elimination of some company functions, may render more difficult the occurrence of this interaction and compromise the company’s capacity for innovation and, as a result, its very survival.
Additional information
Dottorato di ricerca in Economia e territorio
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