ARTI GROVER


 

 

 

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Business Process Outsourcing: The Home, the Host and the Supplier

 

The Indian Business Process Outsourcing Industry: An Evaluation of Firm-Level Performance

 

International Outsourcing and the Supply Side Productivity

 

Vertical FDI versus Outsourcing: The Role of Technological Complexity and Absorptive Capacity

 

Vertical FDI versus Outsourcing: A Welfare Comparison from the Perspective of the Host Country

 

 

 

 

 

 

 

Business Process Outsourcing: The Home, the Host and the Supplier

Abstract

The offshoring service provider sector, popularly known as the Business process outsourcing (BPO) industry in the host country, has grown meteorically in the last decade. However, offshoring is still primarily analyzed through the lens of a home country and its firms. In this paper, we build a model to explain some of the stylized facts of the BPO industry by embedding the bargaining framework developed in Spencer and Qui (2001) in the Ruffin’s (2001) quasi-specific factors general equilibrium model. Services in the BPO industry are differentiated in terms of their complexity, where a more complex service has a higher cost of provision but leads to larger savings for the sourcing firm. Important findings of our paper are:

1. BPO firms providing a complex service always employ higher skills and pay higher wages

2. There is a tradeoff between scale and complexity

3. Under certain conditions, a high ability BPO firm may choose to provide a simple service if the skill distribution of the host country is biased in favor of low skill

4. Outsourcing to a larger host country increases wage inequality in the north

5. Outsourcing makes the host country’s wage inequality positively dependent on the home country’s wage inequality

Our model has policy implications for large countries participating in outsourcing of services. Since partnering with a larger host country increases wage inequality in the home and the host, it must be accompanied by huge skill formation, more so in the home country.

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The Indian Business Process Outsourcing Industry: An Evaluation of Firm-Level Performance

Abstract

The impact of outsourcing on the productivity of the buyer has been widely researched, however, little investigation has been done to explore the factors that explain the productivity of the supplier in an outsourcing relationship. In the absence of any theory of a service provider firm or more popularly called a Business Process Outsourcing (BPO) firm, we use the representation of an intermediate good firm of an endogenous growth model. In particular, we combine suitable elements from the model of an intermediate good firm in Aghion et al (1999) endogenous growth theory, Arora and Asundi (1999) representation of Information Technology outsourcing firms in India and Antràs (2005) internalization theory to bring out the factors that affect a service provider’s performance. By applying these models, we are able to support an econometric model of firm performance comprising of non-conventional productivity determinants like number of clients, information security certification and quality certifications. Our empirical results indicate that in the year 2002-03, prior experience, number of locations, number of clients and funding from a venture capitalist had a positive influence on a third party vendor’s performance while information security certifications negatively affected the firm’s performance. 

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International Outsourcing and the Supply Side Productivity

Abstract

A service provider firm in an outsourcing relationship is distinct from a typical firm because it is not a stand alone organization and fits somewhere in between the value chain of its client’s business. Thus, conventional factors like wages, capital, rent, energy consumption cannot appropriately determine a Business Process Outsourcing (BPO) firm’s productivity. Academic research is silent on the factors that influence the performance of a BPO firm even though the issue is pertinent from the perspective of the host country, the sourcing firm, the global outsourcing industry and of course the service provider firm. In this paper, we embark on to explore these factors. 

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 Vertical FDI versus Outsourcing: The Role of Technological Complexity and Absorptive Capacity

Abstract

Technology transfer costs have a profound influence on a firm’s organizational choice in a production sharing relationship. To explore this nexus, we associate the technological complexity of the off-shored input with the organizational mode of international production sharing by extending the Antràs (2005) model. We modify the Antràs model by proposing that the low-tech input, as qualified within the model, cannot be produced in the low wage south without costly technology transfer. The cost of technology transfer in turn depends on the technological complexity of this input and the absorptive capacity of the host country. Our model refines the results obtained in Antràs (2005). We find that

1. For high-tech goods, intra-firm transfer is preferred vis-à-vis outsourcing only for intermediate range of technological complexity of the off-shored input,

2. On the other hand, for low-tech goods, where the likelihood of outsourcing is higher in Antràs, intra-firm offshore contract is still possible for low range of technological complexity.

Our model has policy suggestions for host countries which aspire to maximize their benefits from the expanding global production sharing phenomenon. As the wage gap between the source and the host country falls, cost considerations for offshoring disappear. New sources of comparative advantage should therefore be created in the host country by subsidizing technology investment and higher education to build higher absorptive capacity.

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Vertical FDI versus Outsourcing: A Welfare Comparison from the Perspective of the Host Country

Abstract

Internalization theory is most often viewed through the lens of a sourcing firm, especially so in a vertical relationship. In this paper we recognize the importance of the mode of organization of fragmented production for the host country. Whether production sharing arrangement is internalized by the parent firm in the form of a vertical foreign direct investment (VFDI) relationship or transacted externally through outsourcing contracts, affects the welfare of the host country in a significant way. Using a Grossman-Helpman quality ladders kind of set up, we compare the welfare derived from the two alternative regimes of production sharing arrangements in the host country. The ability to maximize welfare in the alternative regimes is found to be contingent on the absorptive capacity of the host country. If the host country's absorptive capacity is above a threshold level, outsourcing is more welfare enhancing vis-à-vis VFDI; while even with an absorptive capacity lower than this threshold, outsourcing being welfare improving over VFDI cannot be ruled out.

 

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