The Role of Innovation in Upgrading in Global Value Chains

ABSTRACT

We examine the role of innovative efforts in industries from the perspective of global value chains (GVCs). We set up a simple model and empirically test it using patent and bilateral export decomposition data. The model shows that innovative activities assumed to decrease the cost of conducting high-skilled tasks can upgrade the position of the industry in GVCs. This is also supported by data on patents and GVC-related data from the OECD and the Asian Development Bank. The empirical results reveal that a higher number of patent applications are closely related to more production of intermediate goods rather than assembly.     

Task trade and employment patterns: The offshoring and onshoring of Brazilian firms

The present paper tackles the question whether firms in a middle-wage country offshore production to save labor costs or if they onshore tasks that were offshored from high-wage countries. To distinguish which is the empirically more relevant case, I analyze the effect of importing intermediate inputs on the labor composition using matched employer–employee data and information on trade transactions from the universe of Brazilian firms. Propensity score matching indicates that an intermediate import expansion at the extensive margin leads to employment growth, higher intensities in routine and non-routine manual tasks and an increased share of intermediates exports. These findings thus point out that Brazil's intermediate imports predominantly represent onshored tasks. This result holds regardless of whether intermediate imports from high- or low-wage countries are considered. In line with theoretical considerations, the data show that Brazil's comparative advantage is in medium-complex and routine manual intensive production stages.     

The effects of offshoring on employer-provided training

This study examines how offshoring affects employers’ investment in training. Departing from the standard assumption in the literature that low-skilled jobs are transferred to developing countries while high-skilled jobs are still performed in the Home Country, we argue that whether a productive activity is offshored depends on whether its associated occupation is offshorable, regardless of its skill content. Our theoretical model suggests that the offshoring of productive activities involving offshorable occupations raises the wage rate for non-offshorable occupations in the Home Country, and thus reduces the incentive for firms to provide training in non-offshorable occupations. The effects of offshoring on training for offshorable occupations, however, are ambiguous. Based on two new measures of offshoring and data from the National Longitudinal Survey of Youth 1979 (1989–2004), we empirically investigate the relationship between offshoring and employer-provided training in the United States. For non-offshorable occupations, we find that offshoring has a significant negative relationship with the incidence of training, but does not have much, if any, significant relationship with the intensity of training. For offshorable occupations, offshoring does not have any significant relationship with either the incidence or the intensity of employer-provided training. These findings are in line with our theoretical model.     

Exploring the effects of international sourcing on manufacturing versus service firms

As the extent of international sourcing rises and the number of functional activities spreading across-national borders increases, there is a call for a better understanding of its impact on structural change. In this work, we explore the effects of international sourcing comparatively and look for differences between manufacturing and service firms. This study is based on a unique Slovenian data set that links the recently conducted Eurostats survey on international sourcing with a detailed financial firm-level data. The results from the matching methodology suggest that service firms involved in international sourcing gain an improvement in the quality and technological learning, resulting in the employment growth and development. This is not the case for manufacturing firms driven primarily by cost cutting. In our view, a better understanding of these effects is vital for both manufacturing as well as service firms that are influenced by this new trend.     

An Empirical Analysis of Motives for Offshore Outsourcing by U.S. Firms

In light of the political debate on offshore outsourcing, this article examines firm financial characteristics associated with the probability of being identified as an outsourcer. In a sample of S&P 500 firms, we find that firms identified as outsourcers operate in more competitive industries and have relatively worse operating performance, higher administrative overhead, and higher labor overhead. These firm characteristics are consistent with cost-cutting objectives and the need to respond to competitive pressures. We find that the need to lower labor costs is a significant determinant of manufacturing firms locating operations overseas, while lowering administrative overhead influences service firms' outsourcing decisions. From a policy perspective, our results suggest that the political pressure to limit firms' ability to offshore outsource will likely reduce their flexibility to respond to operating and competitive challenges.     

Re-Evaluating the Offshoring Decision: A Behavioural Approach to the Role of Performance Discrepancy

Firms are in a continuous process of critically re-evaluating their offshoring strategies due to performance discrepancies. While prior research has focused on the implementation of organizational responses to performance shortfalls, we examine the offline search process, a key antecedent of organizational change, during which firms simultaneously explore alternative solutions when facing either a positive or a negative discrepancy between performance and aspirations. We adopt the Behavioural Theory of the Firm (BTOF) to investigate how the search process is affected by the size and nature (as being positive or negative) of the discrepancy as well as how it is moderated by cognitive biases. By examining 441 offshoring initiatives, we study firms' search processes in a novel context that refers either to ‘local’ solutions that are close to the current activity (i.e., expansion in the same host country) or ‘distant’ solutions that are far from the current one (i.e., relocation to a third country or to the home country). Our results provide new insights into organizational search, namely that performance shortfalls lead to distant search unless this choice is moderated by a location-specific anchor bias relating to the strategic importance of host location, while positive discrepancies trigger local search with decision-makers more inclined to consider expansion in the current host country.     

Uncovering the hidden costs of offshoring: The interplay of complexity,organizational design,and experience

This study investigates estimation errors due to hidden costs—the costs of implementation that are neglected in strategic decision‐making processes—in the context of services offshoring. Based on data from the Offshoring Research Network, we find that decision makers are more likely to make cost‐estimation errors given increasing configuration and task complexity in captive offshoring and offshore outsourcing, respectively. Moreover, we show that experience and a strong orientation toward organizational design in the offshoring strategy reduce the cost‐estimation errors that follow from complexity. Our findings contribute to research on the effectiveness of sourcing and global strategies by stressing the importance of organizational design and experience in dealing with increasing complexity. Copyright © 2012 John Wiley & Sons, Ltd.     

The antecedents and innovation effects of domestic and offshore R&D outsourcing: The contingent impact of cognitive distance and absorptive capacity

This paper analyzes differences in the antecedents and performance consequences of domestic and offshore R&D outsourcing. Offshore outsourcing is characterized by larger cognitive distance. We find that absorptive capacity from internal R&D allows for more offshore outsourcing and that offshore outsourcing leads to more positive innovation outcomes, especially product innovation.     

CEO compensation: A resource advantage and stakeholder‐bargaining perspective

This paper studies how CEO pay and its composition is shaped by strategic factors related to the firm's capacity to generate rents and value, the uncertainty of its resource advantage, and the competitive interaction between firm stakeholders and top management. This is done using an analytical framework in which the CEO and other firm stakeholders interact over the firm's resource surplus as utility‐maximizing claimants based on their relative bargaining power while providing shareholders their market‐based required return. Results from the model yield a number of cogent strategic insights and predictions on the causal interplay between CEO pay, firm growth and risk characteristics, stakeholder management, corporate strategy (e.g., offshoring production), and behavioral biases such as CEO optimism and overconfidence. Copyright © 2012 John Wiley & Sons, Ltd.     

Brands that ‘sell their soul’: offshoring,brand liquidification and the excluded consumer

ABSTRACT

Fuelled by open markets and globalisation, offshoring has become a common business practice for firms in industrialised countries. However, consumer research investigating offshoring in a larger macroeconomic and political context is scant. Using a naturalistic, contextualised approach, the current research investigates how a predominantly working/middle-class consumer segment perceives production offshoring for durable goods. The findings show how consumers can develop a sentiment of being excluded or left behind, even when they do not belong to traditionally disadvantaged segments in society defined by income, gender, education, appearance or sexual preference. Perceived brand liquidification, discussed through the marketplace mythologies of corporate greed and the opportunistic consumer, perceived brand de-contagion and patriotism/nationalism, leads to sentiments of exclusion and a longing for re-solidification. Exploring these relationships helps to understand current consumer sentiment towards offshoring in the larger context of neoliberalism and labour arbitrage.