The 5 Pillars of the IT Nearshoring Index reflect different dimensions of Swiss IT Service firms’ offshoring decision.
The institutional reflects political factors and their direct economic consequences for the offshoring decision. For example it includes the regional quality of government given by Charron and Lapuente (2015) to indicate ease of doing business and dealing with the government in that specific region. Underlying we assume that better institutions decrease the costs of doing business in a region as well as political uncertainty and thus creating a more stable economic environment.
The location pillar refers more generally to geographical factors of the offshoring decision. We include for example the distance in kilometers between the region and Bern or the number of airport passengers in a region to reflect the reachability of a region. Studies, for example Egger et al. (2017) have shown that physical distance and communication barriers represent mayor obstacles for firms when engaging in international business.
The economic pillar considers more direct economic factors than the institutional pillar. These can be often independent of institutions. For example we include labor and corporate income taxes in this pillar, which are clearly an institutional/political outcome, but their value not fully explained by institutional factors, i.e., France has good and high equality institutions, but rather high corporate and labor tax rates, while institutions in Hungary are weaker and tax rates are lower.
The labor pillar reflects various dimensions of the local labor market. Specifically, IT labor supply and demand factors, as well as labor costs factors. Obviously, firms want to offshore to destinations with a high quality IT work force, which makes it easier to full open vacancies.
In the social pillar we consider all kind of social factors that might affect firms’ offshoring decision. This includes regional cultural distance measure of the region relative to Switzerland (as a whole country), which is given by Kaasa et al. (2013). Cultural distance is an import factor and a often underestimate obstacle for firms operating in foreign markets.
Below the 5 different pillars are described in more detail including all individual variables. If not mentioned otherwise variables were taken from the Eurostat Regional Database.
1. Labor market pillar
a. Employment in the IT sector relative to population in a NUTS 2 regions
b. Average hours worked per year and employee in the IT sector in a NUTS 1 region
c. Employment of young workers (25-34yrs) relative to IT overall employment in the IT sector at NUTS 1 region
d. Vacancy rate in the IT sector in percent of IT employees in a NUTS 1 region
e. Hourly labor costs (wages and bonus) in EURO in the IT sector in NUTS 2 region
f. Labor costs growth in % between 2016 and 2012 in the IT sector
2. Social pillar
a. Purchasing Power Standard (PPS) adjusted GDP per capita in a NUTS 2 region as a measure of economic wellbeing
b. Number of hotel beds in a NUTS 1 region as a measure of regional beauty/attractiveness
c. Number of expats in a country as a measure of openness towards foreigners
d. Life expectancy in years at the NUTS 2 region
e. Number of medical doctors per capita as measure of health system quality at the NUTS 1 region
f. Number of hospital beds per capita as measure of health system quality at the NUTS 1 region
g. Language proximity as measure of cultural closeness and ease of communication at the country level. This is not the same as common language, i.e., Italian and Spanish are language wise closer than Italian and German. Source: Melitz and Toubal (2014)
h. Number of Swiss expats in a country as measure of cultural closeness and possible contacts. Source: EDA Auslandschweizerstatistik
i. Murder rate per 100,000 inhabitants at the country level as measure of danger.
j. Cultural distance index between Switzerland and a NUTS 1 region. Source: Kaasa et al. (2013)
k. Power distance index between Switzerland and a NUTS 1 region. Source Kaasa et al. (2013)
l. Uncertainty avoidance distance between Switzerland and a NUTS 1 region. Source: Kaasa et al. (2013)
m. Masculinity distance between Switzerland and a NUTS 1 region. Source: Source: Kaasa et al. (2013)
n. Individualism distance index between Switzerland and a NUTS 1 region. Source: Kaasa et al. (2013)
3. Institutional pillar
a. EU/EEA member ship indicator at the country. Source: Wikipedia
b. Schengen indicator at the country. Source: Wikipedia
c. Doing business indicators at the country level. Source: Doing Business, The World Bank
i. Ease of starting a business score
ii. Ease of dealing with construction permits score
iii. Ease of getting electricity score
iv. Ease of registering property score
v. Strength of minority investors protection score
vi. Ease of paying taxes score
vii. Ease of trading across border score
viii. Ease of enforcing contracts score
ix. Ease of resolving insolvency score
d. Rule of law index at the country. Source: The World Justice Project (2018)
e. Quality of government scores at the NUTS 1 region level. Source: by Charron and Lapuente (2015)
i. Overall score
ii. Impartility score, treating individuals and firms equally
iii. Corruption score in education, health care, law enforcement, elections, corruption experience
iv. Education, health care and law enforcement quality score
f. Voter turnout in the last (general) election as a measure of political participation at the NUTS 1 region level
4. General location pillar
a. Physical distance between Bern and a NUTS 1 region in km
b. Number of airport passengers in 1,000 at NUTS 1 region as a measure of reachability
c. Motorways km per sq. km as a measure of infrastructure and mobility within the NUTS 1 region
d. Broadband access in % of population within NUTS 1 as a measure internet infrastructure
e. Common spoken official language in a country and Switzerland in % of population of the foreign country. Source: Mayer and Zignago (2011)
f. Percent of population speaking English. Source: English First Country Ranking
g. Office rental costs in EUR for 80% prime office space. Based on selected cities within the NUTS 1 region. Source: Cushmann & Wakefield, Occupancy Metrics
5. General economic pillar
a. Non-wage related labor costs (taxes, etc.) in percent of IT employees’ wage in NUTS 1 region
b. Corporate income tax in percent at the country level. Source: EY Worldwide Corporate Tax Guide (2018)
c. Inflation between 2015 and 2018. Taking 2015 as a base year
d. Variation in yearly exchange rates between the foreign currency and CHF between 2008 and 2018. Source: IMF Exchange Rates
e. Exchange rate trend between foreign currency and CHF between 2008 and 2018. Deprecation is better for Swiss firms. Source: IMF Exchange Rates
f. GDP in EURO in the NUTS 2 region
g. GDP per capita in EURO in the NUTS 2 region
h. GDP growth between 2014 and 2018 by NUTS region
i. Ease of getting credit score. Source: Doing Business, The World Bank
Eurostat Regional Database: https://ec.europa.eu/eurostat/web/regions/data/database
Melitz, Jacques & Toubal, Farid, 2014. "Native language, spoken language, translation and trade," Journal of International Economics, Elsevier, vol. 93(2), pages 351-363.
EDA Auslandschweizerstatistik: https://www.eda.admin.ch/eda/de/home/leben-im-ausland/publikationen-statistiken/statistiken.html
Kaasa, A., Vadi, M., & Varblane, U. (2013). European Social Survey as a source of new cultural dimensions estimates for regions. International Journal of Cross Cultural Management, 13(2), 137–157. https://doi.org/10.1177/1470595813485379
Wikipedia EU/EEA and Schengen Area Membership: https://en.wikipedia.org/wiki/Schengen_Area
Doing Business, The World Bank http://www.doingbusiness.org
The World Justice Project (2018): https://worldjusticeproject.org/
Charron, N., Dijkstra, L., & Lapuente, V. (2015). Mapping the regional divide in Europe: A measure for assessing quality of government in 206 European regions. Social Indicators Research, 122(2), 315-346.
English First Country Ranking: https://www.ef.edu/epi/
Cushmann & Wakefield, Occupancy Metrics: https://occupiermetrics.com/offices-metrics#page=calculator&country=FI&city=0
EY Worldwide Corporate Tax Guide (2018): https://www.ey.com/gl/en/services/tax/worldwide-corporate-tax-guide---country-list
IMF Exchange Rates: https://www.imf.org/external/np/fin/ert/GUI/Pages/CountryDataBase.aspx