Outsourcing and Offshoring: Implications for Productivity of Business Services

This paper reviews the implications of outsourcing and offshoringfor the productivity of business services in the UK. Officialstatistics indicate that business-service productivity has grownby over 20 per cent in the last 7 years at the same time asemployment grew by 20 per cent. The paper considers possiblefactors that account for the simultaneous growth of employmentand productivity. First, we discuss outsourcing and offshoring,and their role in enhancing productivity through greater specialization,standardization, and consolidation of business processes, anda shift to higher value-added services. Outsourcing of businessservices is interpreted as part of corporate restructuring,namely as the unbundling of corporate functions as well as verticaldisintegration. Second, as some services become more like products,both low-skilled and high-skilled jobs are subjected to productivitygrowth through standardization and digitization. It is argued,however, that the future of business-service productivity ison a knife-edge, depending on the mix of two sources of productivityenhancement—namely greater standardization and capturingvalue from customized solutions. Footnotes ¹ E-mail addresses: mari.sako{at}sbs.ox.ac.uk