Offshore Outsourcing and Productivity

1
Offshore Outsourcing and Productivity

• Chiara Criscuolo, OECD
• and
• Mark Leaver, ONS

2
Motivation

• Offshore outsourcing of services is a relatively
  new phenomenon thanks to ICT, services which
  were non-tradeable are now traded.
• Most press and media coverage has focused on the
  negative effect of services offshoring (e.g.
  adjustment costs, displacements, job losses etc.)
• Very little work on the positive effect of
  offshoring
• Few studies at plant level.

3
Motivation II why the UK?

• Services represent about 75 of UK GDP.
• Big player for international trade in services
  2nd largest exporter and 4th larger importer of
  services
• Services outsourcing is about 1.2 of GDP in 2001
• Data availability

4
Definition of Offshore Outsourcing or Offshoring

• There is a muddle over the definition of
  Offshore Outsourcing
• Procuring of both materials and services from
  abroad
• It might also include foreign direct investment
  by firms.
• We restrict our definition to purchase of
  services by a firm from a supplier located in a
  different country, with supplier and buyer
  remaining in their respective locations (Mode 1
  of the WTO ).

5
Offshore Outsourcing and Productivity

• Trade literature on productivity rankings
  globally engaged firms are more productive
• Theory predicts a ranking of productivity
• Literature on imports of material predicts a
  positive effect of importing intermediates and
  productivity
• Costs saving
• Learning by importing
• Increased variety of intermediates
• Increased specialisation

6
Previous plant-level Work

• Gorg, Hanley and Strobl (2004)
• Plant level data for Ireland over the 1990-1998
• Both material and services offshore outsourcing
• Evidence of positive productivity gains from
  importing from materials for exporting firms
• No short run productivity benefits of services
  offshoring (if anything a non significant
  negative effect)

7
Data

• ARD
• AFDI
• Information on ICT capital stocks
• ITIS International Trade in Services Inquiry
• Statutory survey covers 20,000 firms
• Collects data on 39 different types of services
  and the partner country
• 1996-2003
• Yearly and quarterly
• Sampling method
• Respondents survey

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How many firms offshore?
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Who are the firms that offshore(I)?
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Who are the firms that offshore (II)?
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Import of services and global engagement
12
Types of services (Balances)
SourceONS, Pink Book
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Are there differences?
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Offshore and Productivity the empirical model
15
Results
16
Results controlling for ICT
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Summary

• Between 2000/03 ABOUT 8-10 of firms offshore
  services
• These firms are larger, more productive use more
  capital, intermediates, are more ICT intensive
  and more globally engaged.
• Outsourcers are more likely to be also exporters
  of services, part of a MNE (domestic or foreign)
• Once we control for exporting and multinational
  status we find a ranking in line with what trade
  theory predicts
• In the regression we find that offshoring is
  positively correlated with (total factor)
  productivity
• the size of this correlation varies significantly
  across sectors and types of firms

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What next?

• Use ITIS to investigate differences in types of
  services and origin countries
• Can we say more about the causal effect of
  offshoring on productivity?
• Simultaneity of offshore outsourcing decision
• Dynamics
• Differences across globally engaged firms
• Heterogeneity across sectors