Global Sourcing of IT-enabled Business Processes: The Rationale of Unbundling and locating

We analyze the business process offshore/outsourcing trend based on the theoretical framework of transaction cost economics and resource-based view. We propose a two-dimensional taxonomy of different sourcing arrangements of business processes and services. Along the outsourcing/vertical integration dimension, we emphasize the effect of the characteristics of business processes such as asset specificity, strategic criticality and process maturity on transaction costs associated with outsourcing and thus the firm’s decision of governance forms. Along the offshore/local dimension, we note the effect of the macroenvironment factors such as country risk, cultural distance, physical infrastructure, labor productivity and wage differential on the firm’s decision of offshoring. In addition, given the firm offshoring, risk variables such as country risk, culture distance and unfamiliar legal environment would affect the firm’s governance choice and increase the threat of contractual hazards imposed by the asset specificity and uncertainty.