Offshoring Research Network

The Offshoring Research Network is an international network of researchers and practitioners studying organizations in their transition to globalizing their business functions, processes and administrative services. The ORN conducts annual surveys tracking global sourcing strategies, drivers, concrete implementations and plans across all business functions and processes.
The ORN is managed by Duke University, The Fuqua School of Business, Center for International Business Education and Research (CIBER). It involves partner universities in Europe, Asia and Australia. The ORN has over 3,000 corporate participants across all industries from all over the world. Based on annual surveys, the ORN research team maintains a comprehensive database of firms and governmental organizations and their implemented and planned offshore sourcing projects over time. In addition, the ORN research team collects data on service providers offering offshore services.
Offshoring, according to the ORN, refers to the process of sourcing business functions or processes supporting home-based or global operations from a foreign country, either through wholly owned organizational units (captive offshoring/shared services) or external service providers (offshore outsourcing). The ORN project captures a wide range of business functions and processes, such as information technology (IT), finance & accounting, contact centers, human resources, legal services (LPO), analytical and knowledge services (KPO), software development, procurement, marketing and sales, engineering and new product development. The ORN studies do not cover offshoring of manufacturing activities, nor do they capture outsourcing or shared services activities onshore/domestically.
Based on their research, ORN partners have published a number of academic and practitioner-oriented articles. In addition, the ORN has completed various research projects as well as case studies; organized academic and practitioner-oriented workshops and webcasts; delivered executive education programs and completed commissioned studies for corporate members of the ORN.
History and current objectives.
The ORN project was launched in 2004 by the Center for International Business Education and Research (CIBER) at Duke University, The Fuqua School of Business. Dr. Arie Y. Lewin, Professor of Strategy and International Business and Director of Duke CIBER, was the initiator and has been the Lead Principal Investigator of the ORN project. The initial idea behind the project was to study the advancing trend of offshoring white-collar work, including administrative and technical tasks, as opposed to blue-collar work, which is mainly associated with manufacturing and which has been practiced for many years. In 2004, the CIBER research team launched the first annual on-line survey of U.S. companies engaged in or considering offshoring administrative and technical tasks. The survey was sponsored by Archstone Consulting. It was conceptualized as an annual survey to track offshoring drivers, risks and concrete implementations over time.
After the second annual survey in 2005, Duke CIBER launched collaborations with European research partners to expand the research initiative into a research network and to facilitate the recruiting of companies for the survey. The third survey in 2006 was sponsored by Booz Allen Hamilton and involved data collection from U.S. as well as European firms and public agencies, from Germany, the Netherlands, the UK, and Spain. Since then, the project has been further extended and now includes research partners and organizations from Scandinavia, Belgium, Australia and Italy. In 2007, the Conference Board became a lead supporter of the ORN project, and the ORN team launched for the first time a complementary survey of service providers, mainly based in India, China and the United States. In 2009, the ORN survey is being converted to a web-based application with a new benchmarking feature adding value to participating organizations. The findings from the annual research surveys have shifted the focus of ORN research over time. After its initial orientation to offshoring white-collar work, the ORN project has put more emphasis on the global search for talent and offshoring of higher-skilled tasks, in particular product development. Most recently, the ORN project has positioned itself as a research project focusing on studying companies in their transition to globalizing their business functions, processes and administrative services. Offshoring is understood as an intermediary step towards evolving new global organizational capabilities rather than an end in itself.
Network partners and sponsors.
The ORN currently involves nine research partner universities and more than 3,000 corporate participants from all over the world. Until 2008, the ORN project was partly funded by a federal grant through Duke CIBER, and partly by private organizations. Since 2008, the ORN project has been mainly funded by private companies and business associations. Currently, ORN has two main sponsoring organizations: The Conference Board and PricewaterhouseCoopers. In addition, ORN has been supported by 14 private organizations and 10 affiliated CIBERs and universities. The partners and sponsors of ORN are listed in the table below:
Sponsoring partners.
1 Florida International University, Indiana University, Michigan State University, Temple University, University of Connecticut, University of Hawaii at Manoa, University of Kansas, University of Maryland, College Park, University of Memphis, University of North Carolina at Chapel Hill
Surveys, case studies, and services.
Primary activities of the ORN include the annual Corporate Client Survey and the annual Service Provider Survey. In addition, the ORN conducts flash surveys on current or emerging topics, case studies and custom research. Based on their research, ORN members publish papers in both academic and practitioner-oriented journals. In addition, ORN partners, in particular the Duke University team, provide a range of services: education programs, workshops, webcasts and advisory services.
At the core of ORN is the annual "Corporate Client Survey". It tracks strategic drivers and risks of offshoring, location choices, delivery models, performance outcomes and future plans of U.S.-based, European and other companies.
Research themes.
The ORN research team has published a range of academic and practitioner-oriented articles that mainly focus on certain themes: the global search for talent, the globalization of innovation, the emergence of geographic knowledge service clusters, and the emergence of new global organizational capabilities.
Global search for talent.
A key ORN finding is the increasing importance of access to qualified personnel as a driver of offshoring decisions. Most scholars have argued that offshoring is primarily driven by opportunities to reduce labor costs and by labor arbitrage effects. While the ORN surveys confirm the importance of costs, they also reveal that companies use offshoring as a means to access talent pools outside their home countries, in particular for higher-skilled work. This trend has been explained by an increasing supply of science and engineering talent in emerging economies, e.g., India, and the increasing difficulty of finding talent in the U.S. and Western Europe. It is further reinforced by restrictive visa policies in the U.S. and incentives for foreign graduates to return to their home countries, a recent phenomenon referred to as brain circulation.
Whether offshoring is primarily driven by costs, by the global search for talent or a combination of both has been widely debated. Some scholars argue that science and engineering degrees in India and other emerging economies are, on average, not yet compatible with degrees in the U.S. and Western Europe. Therefore, the supply of qualified talent in emerging economies is more limited than often argued in the business press. Some Asian companies, for example, have recently hired a number of Western managers. However, foreign client firms sometimes respond to that challenge by setting up complex collaborations with local universities to secure access to qualified personnel. Also, recent studies suggest a trend towards modularization and standardization of higher-skilled work allowing for the use of less qualified personnel for lower costs. According to ORN studies, the search for talent and cost considerations therefore depend on changes in technology, education policies, firm capabilities and economic conditions. In the short term, the financial crisis might result in labor cost savings becoming a more important offshoring driver.
Globalization of innovation.
The ORN surveys reveal that more and more firms are offshoring knowledge work, including software development, engineering, product design, research and development. Previously, offshoring was mainly associated with Information Technology Outsourcing and standard business processes. However, according to ORN findings, small companies in particular seek to offshore knowledge work, partly using specialized suppliers, to compensate for their limited capital and capacity for product development. Drivers of this trend include the potential to increase speed to market and better access to qualified personnel.
This trend is increasingly being discussed in the academic and practitioner-oriented literature. The economist Alan Blinder argues that technical processes, such as software testing and engineering support, are becoming easy to offshore because advanced information technology helps decompose and separate technical processes which can then be undertaken and coordinated remotely. Other researchers argue that knowledge-intensive tasks remain difficult to decompose because of the complex and often tacit knowledge involved in carrying out these tasks. ORN findings, however, suggest that this trend is likely to continue as more and more service providers offer product development services, as firms look for external sources of new ideas (e.g., open innovation), and as new business models and technologies (e.g. Internet marketplaces such as Innocentive.com) emerge.
Geographic knowledge services clusters.
One major factor contributing to recent offshoring and outsourcing trends is the emergence of new geographic knowledge services clusters. In general, business clusters can be defined as geographic concentrations of firms and institutions related to particular industries or fields. In the offshoring space, a new type of cluster is emerging, quite different from [Silicon Valley], which often serves as a prototype of an industry cluster. These new types of clusters are highly dependent on foreign investment and are characterized by the supply of specialized talent and expertise that is demanded across industries. One key example of such a cluster is Bangalore for IT-related services and software programmers who have developed specialized service capabilities, which are in demand worldwide in several different industries, including manufacturing, financial and professional services. Recent studies further indicate that these clusters increasingly show similar institutional features across the world, such as collaborative agreements between foreign firms and local universities, which are a result of local embedding and sourcing strategies of multinational enterprises across locations.
The ORN research team has started to conduct survey- and case study-based research to better understand the development of these clusters. A very recent project, for example, seeks to investigate the emergence of new IT and software development clusters in Latin America which attract foreign investors from Spain and the U.S. in particular. A longer-term project involves the identification of knowledge service clusters around the world, using a longitudinal study of location choices and the delivery of offshore services from particular locations. Other scholars have also looked into the emergence of offshore destinations, in particular in India, and the factors contributing to the selection of locations by investors.
New global organizational capabilities.
One key proposition raised by the ORN research team is that offshoring is an intermediary step to evolving new global organizational capabilities rather than an end in itself. In general, organizational capabilities denote the ability of organizations – in this case firms – to deploy and use resources in a way that help them survive in a changing, competitive environment. As companies face various challenges related to offshoring, for example the challenge of attracting and retaining talent, or of losing managerial control and process knowledge, they are forced to develop new capabilities that help them manage offshore operations and that fundamentally transform their internal processes. Examples of this sort of new capability include new procedures to manage interfaces between tasks, locations, business units and teams; new employment models using external talent agencies; new procedures for training and evaluating external suppliers etc.
The development of these capabilities is a continuous learning process and involves the search for solutions of unanticipated challenges. For example, a recent ORN study indicates that many companies go through a period of declining cost savings – the so-called 'inefficiency trap' – as they increase the scale and scope of offshore operations. This trap is largely caused by 'hidden costs' involved in coordinating offshore operations that only become apparent over time. To study how companies deal with these challenges, the ORN research team is conducting a number of case studies involving series of interviews and field visits at U.S. and European companies.
Relevance and impact.
The ORN project and the annual surveys in particular have been recognized as an important source of knowledge in the offshoring debate by the academic community and practitioners.
Academic research.
Research papers based on ORN data have been presented at major academic conferences in the field of management and international business research, in particular at annual meetings of the Academy of Management, the Academy of International Business, and the European Group for Organizational Studies. ORN research papers have been or will be published in a number of major journals in this field, including "Long Range Planning", "Academy of Management Perspectives", "Journal of International Business Studies", and "Harvard Business Review". Through its publications, the ORN team seeks to advance knowledge about the antecedents, process and effect of offshoring, outsourcing and global sourcing, the transformation of global firm structures and the emergence of global organizational capabilities.
Criticism and responses.
The ORN project has been criticized for being biased towards corporate interests. This criticism primarily relates to the funding structure of the project in its early years. In the first three years, the main ORN survey was sponsored by advisory firms.