Examining factors influencing offshore outsourcing decisions

The Gartner Group recently predicted that offshore outsourcing will become a major part of an organization's long-term IT sourcing strategy. Others organizations such as Global Insight, Inc. and DiamondCluster have also projected a rapid development rate for offshore outsourcing. These organizations cite lower labor cost, better service quality, and an overall better strategic fit as major benefits of offshore outsourcing. However, these benefits may be offset by recent attention in the media as to its risk and potential backlash, thus making offshore outsourcing decisions challenging to organizations.; Even though an abundance of research has studied various aspects of domestic outsourcing decision-making, the lessons learned cannot necessarily be applied directly to offshore outsourcing due to its unique context of trading across national borders. Offshore outsourcing encompasses the complexity of foreign national environments and international environments absent in domestic outsourcing. The potential interplay of these environments complicates offshore outsourcing decision-making and thus highlights the need to address the relative lack of research in this area. This is accomplished in this study using a two-phase design. Phase 1 involved 18 decision-makers participated in a card sorting exercise aimed at grouping a list of factors into different categories (i.e., clusters). Using hierarchical cluster analysis and multidimensional scaling, eight orthogonal clusters emerged: overall IT cost savings, competitive benefits, the offshore vendor's business environment, the U.S. business environment, organizational compatibility, future IT absorptive capacity, subjective norm, and the offshore vendor's reputation. These clusters were treated as factors and were mapped onto the Theory of Planned Behavior in Phase 2. A survey questionnaire was then developed based on the factors.; A total of 139 IT executives participated in an online survey in Phase 2. The results show that the factors from the Theory of Planned Behavior are strong predictors of decision-makers' intention to send IT jobs offshore. Overall IT cost saving, the offshore vendor's reputation, and the U.S. business environment are also significantly related to the intention to outsource offshore. Contrary to findings in the domestic outsourcing literature, competitive benefits and absorptive capacity do not impact the intention to outsource offshore.