The Stability of Offshore Outsourcing Relationships: The Role of Relation Specificity and Client Control
Offshore outsourcing of administrative and technical services has become a mainstream business practice. Drivers include the increasing commoditization of business services, and growing client experience with service providers. Yet, despite continuous concerns with service quality and other performance issues, data from the Offshoring Research Network (ORN) indicates that clients often renew provider contracts rather than switching to new providers in a rapidly growing global market. Using ORN data, this paper discusses drivers behind enduring outsourcing relationships, focusing on relation specificity and client control. More concretely, we find that client-specific investments and client involvement in operations promote deal renewal, whereas high degree of contract specification surprisingly has a negative effect. Also, the higher the knowledge intensity associated with an outsourcing contract the lower the likelihood of renewal. Finally, the smaller the provider the lower the likelihood of renewal. We discuss implications of our findings for research on strategic outsourcing and the governance of offshore outsourcing relationships.