Economics of Offshore IT Outsourcing: An International Trade Perspective

Bijoy Bordoloi, Anne Powell

Computer Management and Information Systems, Southern Illinois University at Edwardsville, Edwardsville, USA.

DOI: 10.4236/ti.2013.44032                

Abstract

In recent times, offshore outsourcing of Information Technology (IT) products and services, including software development and maintenance activities, has been an issue of much controversy in the United States, with popular sentiment being against outsourcing in the mass media. Is offshore outsourcing really bad for the US economy? If yes, why did so many US companies, including IT companies, start outsourcing to begin with and still continue to do so? For that matter, why doesn’t the federal government simply ban it as a national policy? To provide some possible answers to these questions, this paper examines the issue of offshore outsourcing from the perspectives of international trade theory and the unique cost characteristics of “information goods”.

Keywords

Technology Economics; Economics of Offshore Outsourcing; International Trade Theory; Information Economics; Position Paper

Conflicts of Interest

The authors declare no conflicts of interest.

References

[1]	S. Pearlstein, “Outsourcing: What’s the True Impact? Counting Jobs Is Only Part of the Answer,” Washington Post, 1 July 2012.
[2]	P. Tambe and L. Hitt, “How Offshoring Affects IT Workers,” Communications of the ACM, Vol. 53, No. 10, 2010, pp. 62-70. http://dx.doi.org/10.1145/1831407.1831426
[3]	M. Cheon, V. Grover and J. Teng, “Theoretical Perspectives on the Outsourcing of Information Systems,” Journal of Information Technology, Vol. 10, No. 4, 1995, pp. 209-219. http://dx.doi.org/10.1057/jit.1995.25
[4]	P. Roberts, “A Greater Threat than Terrorism: Outsourcing the American Economy,” 2010. http://economyincrisis.org/content/greater-threat-terrorism-outsourcing-american-economy
[5]	H. Wickford, “Negative Effects Outsourcing Has on Organizations,” 2012. http://smallbusiness.chron.com/negative-effects-outsourcing-organizations-25351.html
[6]	S. Hargreaves, “The Case for Outsourcing Jobs,” CNN Money, 2012. http://money.cnn.com/2012/09/14/news/economy/outsourcing-jobs
[7]	T. Hamburger, C. Loennig and Z. Goldfarb, “Obama’s Record on Outsourcing Draws Criticism from the Left,” Washington Post, 9 July 2012. http://www.washingtonpost.com/business/economy/obamas-record-on-outsourcing-draws-criticism-from-the-left/2012/07/09/gJQAljJCZW_story.html
[8]	O. Williamson, “The Economic Institutions of Capitalism,” The Free Press, New York, 1985.
[9]	M. Lacity, S. Khan, A. Yan and L. Willcocks, “A Review of the IT Outsourcing Empirical Literature and Future Research Directions,” Journal of Information Technology, Vol. 25, No. 4, 2010, pp. 395-433. http://dx.doi.org/10.1057/jit.2010.21
[10]	J. Lee and Y. Kim, “Effect of Partnership Quality on IS Outsourcing Success: Conceptual Framework and Empirical Validation,” Journal of Management Information Systems, Vol. 15, No. 4, 1999, pp. 29-61.
[11]	O. Bertrand, “What Goes Around, Comes Around: Effects of Offshore Outsourcing on the Export Performance of Firms,” Journal of International Business Studies, Vol. 42, 2011, pp. 334-344. http://dx.doi.org/10.1057/jibs.2010.26
[12]	R. Hirscheim and M. Lacity, “The Myths and Realities of Information Technology Insourcing,” Communications of the ACM, Vol. 43, No. 2, 2000, pp. 99-107. http://dx.doi.org/10.1145/328236.328112
[13]	J. Dibbern, T. Goles, R. Hirschheim, and J. Bandula, “Information Systems Outsourcing: A Survey and Analysis of the Literature,” Database for Advances in Information Systems, Vol. 34, No. 4, 2004, pp. 6-102. http://dx.doi.org/10.1145/1035233.1035236
[14]	D. Di Gregorio, M. Musteen and D. Thomas, “Offshore Outsourcing as a Source of International Competitiveness for SMEs,” Journal of International Business Studies, Vol. 40, 2009, pp. 969-988. http://dx.doi.org/10.1057/jibs.2008.90
[15]	D. Ricardo, “The Principles of Political Economy and Taxation,” Cambridge University Press, London, 1966.
[16]	R. J. Carbaugh, “International Economics,” 14th Edition, Cengage Learning, 2012.
[17]	H. Varian, J. Farrell and C. Shapiro, “The Economics of Information Technology,” Cambridge Press, Cambridge, 2005.
[18]	“Editorial,” The Wall Street Journal, 23 March 2005.
[19]	R. Gonzalez, J. Gasco and J. Llopis, “Information Systems Outsourcing: A Literature Analysis,” Information & Management, Vol. 43, No. 7, 2006, pp. 821-834. http://dx.doi.org/10.1016/j.im.2006.07.002