Offshore-sourcing strategies and the puzzle of productivity: a micro-level analysis

Abstract

Purpose The purpose of this paper is to assess whether offshoring strategies are able to substantially enhance firms’ international competitiveness in terms of productivity, innovativeness and skill composition for a panel of Italian manufacturing firms. Design/methodology/approach A set of hypotheses derived from the extant literature is tested on data from balance sheets and qualitative surveys of about 4,000 Italian firms. The methodology used is a propensity score matching estimator and difference in differences method that allowed the authors to detect the causal effect of the offshoring status of the firms on some performance measures. Findings Results demonstrate that offshoring increases the propensity to innovate and the skill ratio of workers but does not show a significant association with productivity growth. The estimates are robust in all the specifications. Research limitations/implications The results are applicable to Italian firms. The magnitude and timing of the effects may vary across firms and countries. Originality/value This paper contributes to the empirical literature on offshoring by exploring its impact on a variety of firms’ performance measures by using matching techniques that allow us to investigate more in depth the causality link of the relationship and to control for the self-selection effect (more productive firms self-select to offshore).

Value creation via supply chain risk management in global fashion organizations outsourcing production to China

“…However, global outsourcing may not bring in benefits to all parts of the business. Capolupo et al (2017) demonstrate that offshoring increases the propensity to innovate and the skill ratio of workers but does not show a significant association with productivity growth. On the other hand, it has been noted that global sourcing brings more sources of risk to organizations, proving that the cost of failure associated with the increased risk is, in some cases, higher than the benefits obtained.…”

Entry-Mode Selection and Firm’s Productivity across Market Destinations: An Empirical Investigation

“…The possible explanation of no difference in productivity between these two forms of foreign investments is that they are strictly interrelated and firms engaged in both activities perform equally in terms of productivity. Another reason is that increasing productivity from FDI and offshoring is not a short run phenomenon but it takes time to be conducive to high productivity (see [46]) On the contrary, exporting firms are exposed to new knowledge, technology and greater competitiveness in the global market and take advantage from this exposure through substantial learning processes that may improve their performances. The learning effect of exporting, as the literature shows, does not require a long time spin.…”

Offshoring and the productivity question

“…Tackling this major question is at the heart of the article “Offshore-sourcing strategies and the puzzle of productivity: a micro-level analysis” by authors Capolupo et al (2017). Their research is based on the period in the late 1990s and early 2000s in Italy, where there was a good deal of offshoring activity on behalf of SMEs, as globalization got into full swing and new offshoring markets were starting to grow rapidly in India, China, and the newly opened up Eastern European countries.…”

“…The article “Offshore-sourcing strategies and the puzzle of productivity: a micro-level analysis” by Capolupo et al (2017) is a refreshing attempt to tackle on of the major assumptions made by businesses worldwide by looking at data and drawing logical conclusions. While the data seem old in going back two decades and offshoring is now more common and firms more sophisticated, nevertheless, the research presented is worth taking on board for any SME about to take the plunge with offshoring, if only as a salutary lesson in not believing the hype.…”