Location drivers, governance model and performance in service offshoring

The present paper deals with the performance implications of service activities offshoring, meant as the delocalization of business services in foreign countries. Data have come from the Offshoring Research Network (ORN) and have been analysed using an Exploratory Factor Analysis to aggregate variables first and then through a two-stage approach to control for the potential endogeneity problem arising from the self-selection bias in the regression models. Through these models we investigate the relationship between the motivations leading to choose a specific offshoring location (i.e. strategic location drivers: low cost, resources availability, cultural proximity, and the presence of local networks) and both operational and strategic performance of the offshoring firm. Provided that offshoring may occur either through a wholly-owned subsidiary (captive offshoring) or by outsourcing the service activity (offshore outsourcing), we provide a contribution by investigating the moderating role of the governance model on the relationship between location drivers and performance. Our results show that both operational and strategic performance are affected positively by low cost and resources availability, while local networks has a positive impact on strategic performance and negative one on operational performance. Moreover, offshore outsourcing strengthens the effect of resources availability and local networks on operational performance, as well the effect of cultural proximity and resource availability on strategic performance, while captive offshoring strengthens the effect of low cost and local networks on strategic performance.