Proximity and Information Technology Outsourcing: How Local Are IT Services Markets?

Author List: Arora, Ashish; Forman, Chris;
Journal of Management Information Systems, 2007, Volume 24, Issue 2, Page 73-102.
We examine the question of which services are tradable within a concrete setting: the outsourcing of information technology (IT) services across a broad cross-section of establishments in the United States. If markets for IT services are local, then we should expect increases in local supply would increase the likelihood of outsourcing by lowering the cost of outsourcing. If markets are not local, then local supply will not affect outsourcing demand. We analyze the outsourcing decisions of a large sample of 99,775 establishments in 2002 and 2004, for two types of IT services--programming and design and hosting. Programming and design projects require communication of detailed user requirements whereas hosting requires less coordination between client and service provider than programming and design. Our empirical results bear out this intuition: the probability of outsourcing programming and design is increasing in the local supply of outsourcing, and this sensitivity to local supply conditions has been increasing over time. This suggests there is some nontradable or "local" component to programming and design services that cannot be easily removed. In contrast, the decision to outsource hosting is sensitive to local supply only for firms for which network uptime and security concerns are particularly acute.
Keywords: informationtechnology outsourcing;outsourcing;servicetradability;services;servicesoutsourcing
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#291 0.165 local global link complex view links particularly need thought number supports efforts difficult previously linked achieving simple poor individual rise
#274 0.138 outsourcing transaction cost partnership information economics relationships outsource large-scale contracts specificity perspective decisions long-term develop requirements economic association factors hypotheses
#112 0.125 services service network effects optimal online pricing strategies model provider provide externalities providing base providers fee complementary demand offer derive
#52 0.090 supply chain information suppliers supplier partners relationships integration use chains technology interorganizational sharing systems procurement buyer interfirm coordination enterprises flexibility
#297 0.086 programming program programmers pair programs pairs software development problem time language application productivity best nominal languages programmer generators working reduces
#270 0.081 design designs science principles research designers supporting forms provide designing improving address case little space criteria methods increasing synthesis designer
#171 0.076 markets industry market ess middle integrated logistics increased demand components economics suggested emerging preference goods interesting form recent vertically chinese
#243 0.062 states united employment compensation labor workers paper work extent findings increasing implications concerns relationship managerial wage options offer salary entry