Human resource outsourcing: Market and operating performance effects of administrative HR functions

Using event study methodology and two-stage regression analysis on a sample of firms announcing human resource outsourcing (HRO) contracts, this study tests the association between administrative HRO and firm-level capital market and long run operating performance, with archival financial data controlling for endogeneity and outsourcing decision optimality. The results demonstrate that the equity capital market responds positively to client firms announcing administrative HRO, particularly service firms and those outsourcing transactional HR tasks. Additional statistical analysis shows that suboptimal outsourcing is negatively associated with long run operating performance measured as return on assets and operating return on assets. This study contributes to outsourcing literature by more precisely quantifying outsourcing performance through archival financial data and employing capital market empirical tests. Further, it controls for outsourcing decision optimality in examining long run operating performance effects. This research focuses on HR, a critical function within the firm and value enhancing to the firm.     

The Impact of Subprime Crisis on Asia-Pacific Islamic Stock Markets

This article looks at the link between the need for the pursuit of cost advantages via labor arbitrage on one hand, and the need for continued learning and sustainable competitive advantage on the other. We first define outsourcing and off-shoring and then provide a review of the primary elements of the first wave of outsourcing. We then turn to discussing some proactive mechanisms that national governments should consider to counter the short-term impacts concomitant with the first wave of outsourcing of jobs offshore. Finally, we discuss the next steps that firms need to consider in the ever-changing landscape of international competition.     

The interface of market and nonmarket strategies: Political ties and strategic competitive actions

We focus on corporate political connections as a critical nonmarket strategy and propose that political ties can facilitate firms’ strategic competitive actions but may also hurt the outcomes of such actions, depending on whether the ties are associated to central versus local political actors. Studying China's television manufacturers at the onset of deregulation and globalization, we find that central and local political ties have contrasting effects on firms’ competitive actions and their performance outcomes. To further shed light on theoretical mechanisms, we examine the impact of China's WTO accession on firm actions and contrast domestic-based and internationalization competitive actions.     

Book review

The existing literature on offshoring neglects the importance of host country conditions in affecting the boundaries of a firm. In this paper, we focus on the role of the host country's human capital in affecting the organization of offshore production. Acknowledging that an input is produced offshore only after training the host labor, we propose that this training cost depends on the human capital gap between the home and the host country. Our model finds that a sourcing firm prefers to offshore production internationally only if the human capital gap between the home and the host country is below a threshold. Secondly, as the human capital gap increases, the probability for international outsourcing vis-à-vis intra-firm trade increases. Finally, as opposed to conventional wisdom, our model shows the possibility of outsourcing inputs of a high-tech good when the human capital gap between the home and the host is high.     

Outsourcing: Think more expansively

Outsourcing refers to the practice of a firm entrusting to an external entity the performance of an activity that was performed erstwhile in-house. Although off-shoring and offshore outsourcing to suppliers have dominated much of the recent discussion and debate on outsourcing in scholarly journals and the business press, the nature and scope of outsourcing that does not transcend national boundaries, and outsourcing to entities other than to suppliers is quite substantial. Against this backdrop, a five sources outsourcing framework delineating a broad array of outsourcing avenues available to firms is proposed. For the most part, lowering costs as a motive underlying off-shoring and offshore outsourcing have dominated recent discussion. Furthermore, in the aftermath of the rapid growth in offshore outsourcing in the services sector, the technological forces underlying these developments have been extensively written about. Against this backdrop, the relevance of considerations other than cost in the outsourcing decisions of firms, and the role of technology in automating and thereby either making redundant an erstwhile outsourced activity or performing the activity in-house are discussed.     

CEO's Total Wealth Characteristics and Implications on Firm Risk

We study the connections between firm risk and the CEO's personal wealth characteristics, using a unique dataset on CEO wealth and its components. Consistent with decreasing absolute risk aversion, we find that wealthier CEOs are associated with higher risk firms. Riskier firms tend to have CEOs whose wealth is more independent of the firm. We also find that CEOs with high personal portfolio betas run firms with higher betas. CEO's tenure is negatively associated with firm risk measured either as beta, idiosynchratic risk, or volatility of accounting profitability. A possible interpretation is that risk‐averse managers are better able to imprint their risk preferences on the firm over time. Stronger corporate governance weakens the connection between CEO wealth characteristics and firm risk.     

A passage to India: A dual case study of activities,processes and resources in offshore outsourcing of advanced services

Research has shown that offshore outsourcing processes may influence the behavior and strategic choices of firms, but little is known about the determining factors that influence the evolution and outcomes of those processes. Furthermore, longitudinal studies able to generate such insights are lacking. This paper suggests a detailed, activity-based approach to the study of the process of offshore outsourcing of high-value, advanced service activities. While earlier research has considered either firm-internal or firm-external sources of resource building, this study offers a more comprehensive theoretical model that combines resource-based theory and international business network theory. It aims to investigate how determinants of the offshore outsourcing process contribute to the resource stocks of client firms. Based on two longitudinal case studies of offshore outsourcing to India, the study finds that offshore outsourcing operations, in general, make positive contributions to the resource stocks of client firms. Some determinants contribute to the building of resources (partnership commitment decisions, knowledge creation and learning, trust building, the interconnectedness of resources) while others impede resource building (time compression diseconomies, lack of resource mass efficiencies). Notably, the interconnectedness among onshore activities, offshore activities and the underpinning knowledge resources reduces the risk of erosion of client firm resources, although this remains a long-term risk.     

Market valuation of marketing alliances in East Asia: Korean evidence

This paper investigates firm value created by non-equity marketing alliance announcements of Korean listed firms in terms of stock price reactions to the announcements. We find evidence that on the Korean stock market, the announcements of marketing alliances produce significant positive abnormal returns, which reflect an increase in firm value, around the announcement date. This suggests that firm managers need to seek for various marketing alliances not only for an effective competition in competitive business environments but also for enhancement in shareholder wealth. The increase in firm value has inverse relationship with firm's size and growth opportunity. In particular, marketing alliances with firms based in G7-countries create greater firm value than ones with firms based in the home country. Our study provides investors, firm managers, and academics with valuable implications of an importance of marketing alliances for valuation of firms in other Asian countries as well as in Korea.     

The Structures of Cooperation: Downscaling,Outsourcing and the Networked Alliance

This article explores interfirm cooperation and its relationship with downscaling, cooperative outsourcing, and the network structures of multiple firm alliances. Downscaling is defined and related to cooperative outsourcing, as major influences shaping interfirm relations. The advantages of embedding cooperative outsourcing in strategic alliances are then addressed, with special relevance to small and medium-size firms. Five types of network structures that may develop within alliances are considered, relating their main characteristics and internal division of labor to various aspects of interfirm cooperation, such as embeddedness, disparities, commitment and trust.     

The performance implications of outsourcing customer support to service providers in emerging versus established economies

Recent discussions in the business press query the contribution of customer-support outsourcing to firm performance. Despite the controversy surrounding its performance implications, customer-support outsourcing is still on the rise, especially to emerging markets. Against this backdrop, we study under which conditions customer-support outsourcing to providers from emerging versus established economies is more versus less successful. Our performance measure is the stock-market reaction around the outsourcing announcement date. While the stock market reacts, on average, more favorably when customer-support is outsourced to providers located in emerging markets as opposed to established economies, approximately 50% of the outsourcing firms in our sample experience negative abnormal returns. We find that the shareholder-value implications of customer-support outsourcing to emerging versus established economies are contingent on the nature of the customer support that is being outsourced and on the nature of the outsourcing firm. Customer-support outsourcing to emerging markets is less beneficial for services that are characterized by personal customer contact and high knowledge embeddedness than for customer-support services that involve impersonal customer contact and are low on knowledge embeddedness. Firms higher in marketing resource intensity and larger firms benefit more from outsourcing customer-support services to emerging markets than firms lower in marketing resource intensity and smaller firms.     

Are entrepreneurs special? Evidence from board appointments

As shown in previous studies, founder-led firms perform better than those run by professional managers. Does this reflect the special relation of founders to their firms or do entrepreneurs possess attributes and experiences that are valuable even at firms not founded by them? Drawing on the resource-based view of the firm, we study this question by evaluating the effect of entrepreneurs who serve as outside directors of other firms. We find that the stock market reacts positively to appointments of outside entrepreneur directors and that firms with these directors have higher long-term value as measured by Tobin's q. Entrepreneur directors are also associated with increased R&D investment and higher sales growth, and their effect on firm value is larger among firms in R&D-intensive and competitive industries. We conclude that outside entrepreneur directors enhance firm value through their propensity to take risk and their ability to anticipate demand patterns and create new markets.     

The value of family control during political uncertainty: Evidence from Thailand's constitutional change in 2014

We examine the effect of family control on firm value and corporate decision during Thailand's constitutional change arising from the 2014 coup d'état. We find that Thai family firms perform poorly when compared to non-family firms during the period of political uncertainty. The effect is more pronounced when firms have high expected agency costs from outside investors. Further, we find that family firms delay their investments, hold less cash, pay smaller dividends and have poorer access to debt financing sources relative to non-family firms. The reductions in investment and financing activities may at least partially account for their underperformance. Our evidence is consistent with the view that family control enhances firms' survivorship by establishing political connections in times of political uncertainty at the expense of minority shareholders.     

Small & Medium Gold & Fashion Enterprises (SMEs) in Arezzo,Italy: Competitive Challenges and Strategic Implications

ABSTRACT

This paper provides some empirical evidence on organizational characteristics and strategies of firms in the Italian gold and fashion industries. The analysis is based on a data set of three SME clusters in Arezzo (a city and province in Tuscany, Italy, southeast of Florence) which led us to the identification of two main alternative strategies which can be implemented when facing the new global competition: a firm-centered brand strategy and an outsourcing strategy (a supply alliance with co-branding possibilities with one or more large Italian firms). We analyzed the resources and competencies of firms that adopted different export marketing strategies and further explored the relationship between strategic choices and performance of participating firms (measured in terms of growth, innovation, and export capabilities). The results show that the choice of a strategy is strongly influenced by the ability of SMEs to respond to changes in consumer behavior and competition, and that some variables significantly affect performance. Both strategies can be effective, and in some cases it is suggested to follow the middle of the road competitive approach: combining the two strategies, exporting own brand directly to the end markets and collaborating with a large firm in order to achieve a sustainable and significant competitive advantage.     

外包:集成整合视角

外包是企业集成整合外部资源、充分发挥自身核心能力的新商业模式。文章认为,外包一方面是企业融合市场的结果,另一方面是产品结构模块化的结果。外包架构由提供类似产品的发包商、为发包商提供竞争性组件的模块商、发包商之间的竞争性整合、模块商之间的竞争以及模块商对发包商的可能替代构成。厂商应尽可能模块化产品结构,充分利用发包商和模块供应商的制造优势,并利用模块化优势共同推动产品快速升级换代。     

The relationship between venture capital backing and the top management team quality of firms going public and implications for initial public offerings

We make use of hand-collected data on a large sample of entrepreneurial firms going public to analyze the association between venture capital (VC) backing and the top management team (TMT) quality of firms at the time of their initial public offerings (IPOs), and the effect of both VC-backing and TMT quality on the growth in their post-IPO operating performance and IPO firm valuations. We first show that VC-backing is associated with higher TMT quality. We then show that both higher TMT quality and VC-backing lead to higher growth in post-IPO operating performance and higher IPO valuations. We find that the above two variables affect the growth in post-IPO operating performance through an “ability channel,” whereby the TMTs of such firms choose projects with higher equilibrium scale and implement them more ably. Further, TMT quality and VC-backing affect IPO firm valuations not only through the above ability channel, but also through a “certification channel,” whereby higher TMT quality and VC-backing credibly certify intrinsic firm value to the IPO market, thus reducing the extent of asymmetric information facing such firms in the IPO market and yielding these firms higher IPO valuations. Finally, we show that TMT quality and VC-backing act as complements in their effect on IPO firms' growth in post-IPO operating performance.     

The interplay of need and opportunity in venture capital investment syndication

This study examines the syndication of investments novel to a VC firm as a function of the firm's need and opportunity to do so. We distinguish two types of uncertainty that firms face when considering novel investments: egocentric, pertaining to making the right decisions, and altercentric, pertaining to being evaluated as a potential partner on the investment. Whereas the former increases the firm's need to syndicate the investment, the latter reduces the firm's opportunity to do so, making it contingent upon the firm's status and reputation for attracting potential partners. Using data on first-round venture capital investments, we find that novel investments are more likely to be syndicated. Moreover, this relationship is stronger for firms with higher status and weaker for firms with higher reputation. These results highlight a relational aspect of uncertainty, inherent in a particular VC firm — investment dyad, and suggest that status and reputation play different roles in aligning the need and opportunity to syndicate novel investments.     

A study of the impact of owner's mode of entry on venture performance and management patterns

This study examines if firm performance and the associated patterns of management vary with the owner-manager's mode of entry into the firm in owner-started (OS), buyout (BO), and family firms (FF). Prior research suggests that these three types of firms differ on certain managerial characteristics but has not examined the role of the owner-manager's mode of entry in determining firm performance on the one hand and its influence on the firm's management pattern on the other.We collected data from 345 firms, employing four to 99 employees, operating in four northeastern states. Self-reported return on assets (ROA), annual sales, business strengths, competitive strategies, and management practices were compared for OS, BO, and FF firms. Performance was found to vary with owner's mode of entry. The 227 OS firms' average ROA was significantly higher than that of the 61 family firms and the 57 BO firms. Successful start-up owners may have enjoyed greater profits because they assumed greater risk compared to those who opted to buy an existing venture or took over a family firm. Annual sales were highest for FFs, second for OS firms, and the lowest for BOs. In terms of management patterns, owner-started firms rated themselves significantly higher on business strengths and tended to have higher self-ratings for competitive strategies and operations strengths than did FFs or BOs. All of these differences were significant after controlling for the age and size differences among the firms, indicating that mode of entry did directly impact performance as well as the management patterns.Examining the impact of mode of entry versus management patterns on venture performance, we found that while the OS mode of entry was associated with greater ROA, this was primarily due to the different management patterns adopted by the OSs. Looking at annual sales, the FF mode of entry was associated with higher sales, and this was independent of the types of management patterns adopted by the firms. A priori, BOs would appear to be in a better position to achieve superior performance, but this was not so in this sample.Further analysis revealed different paths to profitability for the three entry modes. For OS firms, high ROA was associated with operating in the service and retail sectors, developing a broad range of business strengths, and offering competitively priced but higher quality customized products. For OSs, ROA was also enhanced by using informal and personalized management practices. Sales performance was greatest when OSs employed trained staff for functions such as budgeting and sales. For FFs, ROA was enhanced by broad-ranging strengths, but it was hurt by price and quality competitiveness—mainly because on average, their lower prices were not supported by a competitive cost of goods. Sales performance was greatest when FFs had owner-managers with extensive industry experience, were conservative in adding workers, emphasized product customization, relied on written reports, but avoided long-range operations planning. Management patterns of BOs were not related to their ROA, but their annual sales were marginally higher when the acquiring owners had extensive industry background and employed a large workforce.Thus, this study confirms our hypotheses that performance and management patterns vary across mode of entry as does the effectiveness of strategic management patterns. Further, our findings concurred with previous studies which suggested that sales performance and profitability were likely to be influenced by different management actions. This study demonstrates that owner's mode of entry is an important explanatory variable for variations in performance as well as management patterns. Venture CEOs need to recognize that different management approaches may be needed for success depending upon whether they founded, purchased, or inherited their firms.     

Foreign firm characteristics,labour market restrictions and FDI spillovers: Evidence from Moldova

This paper investigates how productivity spillovers from foreign to domestic firms are affected by foreign firm characteristics and labour market conditions in Moldova. We use firm-level administrative panel data and annual survey region-sector indicators of labour market conditions in 2005–2014. Baseline regressions show that domestic firms benefit from backward FDI spillovers, while we find no evidence of horizontal or forward spillovers. Spillover effects are heterogeneous and depend on the ownership structure and age of foreign firms. Domestic firms in upstream sectors benefit from both wholly foreign-owned companies (WFOC) and joint ventures (JV). However, JVs need less time in the market for positive spillovers to materialise, while WFOCs only lead to larger spillover effects when they are older. In regions and sectors where firms experience fewer labour market restrictions, backward FDI spillovers are larger. Interacting foreign firm characteristics with labour market restrictions, we find that spillovers through the labour market channel materialise only for older FDI, regardless of ownership type. The results are in line with our expectation that WFOCs need more time than JVs to develop linkages with local suppliers and lead to spillovers through this channel. Moreover, in developing countries labour market restrictions reduce labour mobility and consequently, the size of FDI spillovers across industries.     

Do investors value the nonfinancial disclosure in emerging markets?

This paper studies the impact of the nonfinancial disclosure on firm value for a large sample of Indian firms, arguably emerging market with poor investor protections and legal enforcement. We proxy the nonfinancial disclosure by the Bloomberg score on the extent of a firm's Environmental, Social, and Governance disclosures, and find positive valuation effects associated with the nonfinancial disclosure. We find the nonfinancial disclosure is more valuable to standalone firms compared to business group firms. This paper shows that the positive valuation effects associated with the nonfinancial disclosure are attributable to lower cost of funds and higher operating cash flows.