Offshoring, Outsourcing and Production Fragmentation

Offshoring, Outsourcing and Production Fragmentation

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Offshoring, Outsourcing and Production Fragmentation Linking Macroeconomic and Micro-Business Perspectives Mariusz-Jan Radlo Associate Professor of Economics, Warsaw School of Economics, and Managing Partner at SEENDICO, Warsaw, Poland

OFFSHORING, OUTSOURCING AND PRODUCTION FRAGMENTATION Copyright Mariusz-Jan Radło 2016 Softcover reprint of the hardcover 1st edition 2016 978-1-137-57124-3 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission. In accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6 10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First published 2016 by PALGRAVE MACMILLAN The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of Nature America, Inc., One New York Plaza, Suite 4500, New York, NY 10004 1562. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. ISBN 978 1 349 84847 8 E-PDF ISBN: 978 1 137 57125 0 DOI: 10.1057/9781137571250 Distribution in the UK, Europe and the rest of the world is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Library of Congress Cataloging-in-Publication Data is available from the Library of Congress. A catalog record for this book is available from the Library of Congress A catalogue record for the book is available from the British Library

To Ulla, the love of my life, and our amazing sons: Hubert-Jan, Igor-Jan and Dawid-Jan

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Contents List of Figures List of Tables Acknowledgments ix xi xii Introduction 1 1 Offshoring, Outsourcing, Production Fragmentation: Definitions, Measures and Origin of the Research 8 1.1 Introduction 8 1.2 Definitions and taxonomies of offshoring and outsourcing 9 1.3 Origin and main issues in research on offshoring and outsourcing 22 1.4 Measuring offshoring and outsourcing 30 1.5 Summary and conclusions 38 2 Offshoring and Outsourcing in Economic Theories 41 2.1 Introduction 41 2.2 Offshoring and outsourcing in neoclassical theory of the firm 44 2.3 Offshoring and outsourcing in the new institutional economics 55 2.4 Offshoring and outsourcing in light trade theory 67 2.5 Offshoring and outsourcing in the perspective of foreign direct investment theories 78 2.6 Summary and conclusions 94 3 Explaining and Modeling Offshoring and Outsourcing in Enterprises 98 3.1 Introduction 98 3.2 Evolution of the scope and structure of offshoring and outsourcing in enterprises 99 vii

viii Contents 3.3 Offshoring and outsourcing in enterprises: motives and location factors 108 3.4 Models offshoring and outsourcing in enterprises 115 3.5 Summary and conclusions 123 4 Evolutionary View of International Production Fragmentation in Enterprises 127 4.1 Introduction 127 4.2 Case and comparative studies: data, method, results, and discussion 129 4.3 Industry case studies 131 4.4 Discussion of results 145 4.5 Summary and conclusions 150 5 Production Fragmentation in the World Economy 153 5.1 Introduction 153 5.2 Main trends in trade and FDI flows 154 5.3 Offshoring and the development of global production chains 161 5.4 Offshoring impact on wages, employment and labor productivity 172 5.5 Summary and conclusions 181 Summary and Conclusions 184 References 195 Index 213

List of Figures 1.1 Number of articles in scientific journals mentioning outsourcing and/or offshoring in ScienceDirect and ProQuest databases 11 1.2 Key terms related to production fragmentation 21 2.1 Firm equilibrium in neoclassical model 46 2.2 Captive production fragmentation and firm equilibrium in neoclassical model, perfect competition 49 2.3 Non-captive production fragmentation and firm equilibrium in neoclassical model, perfect competition 51 2.4 Captive production fragmentation and firm equilibrium in neoclassical model, monopolistic competition 52 2.5 Non-captive production fragmentation and firm equilibrium in neoclassical model, monopolistic competition 53 3.1 Determinants of production fragmentation and related theories 118 4.1 Production fragmentation at various stages of internationalization of companies 146 5.1 Inward foreign direct investment flows, annually, 1970 2013 154 5.2 Outward foreign direct investment stock, annually, 1980 2013 154 5.3 Exports of goods and services, annually, 1980 2013 156 5.4 Exports of goods and services, annually, 1970 2013 157 5.5 Outward and inward FDI stock, annually, 1980 2013 157 5.6 Tariff rate, applied, weighted mean, all products 159 5.7 Restrictions to FDI and the value of inward FDI stock 160 5.8 Share of intermediate goods in exports and imports of goods 162 ix

x List of Figures 5.9 Exports of goods and services, annually, 1992 2014 164 5.10 World exports of computers and information, and other business services, 1992 2013 166 5.11 World exports of computers and information, and other business services, 1992 2013 (percentage of total exports of services) 167 5.12 Offshoring indicator in key sectors and in selected economies 171

List of Tables 1.1 Manifestations of production fragmentation and the relevant data sources 32 2.1 Simple contractual schema and the organization of transactions 58 2.2 Motives for FDI, stage of internationalization, and production fragmentation 91 3.1 Models of production fragmentation 117 3.2 Determinants of captive and non-captive production fragmentation 119 4.1 Internationalization and fragmentation in Nestlé and Maspex (as of 2012) 133 4.2 Production fragmentation in software industry: IBM versus Asseco (as of 2012) 138 4.3 Internationalization and fragmentation in H&M and LPP (as of 2012) 142 5.1 Main exporters of telecommunications, computer, and information services, and other business services (as of 2013) 169 xi

Acknowledgments First, I would like to express my sincere appreciation for many valuable comments from my colleagues from the World Economy Research Institute at the Warsaw School of Economics on the concept of the study, its individual parts and its structure, as well as for helpful suggestions received from Prof. Marzenna A. Weresa and Dr Dorota Ciesielska. I would also like to thank the reviewers of my habilitation thesis preceding this book: Prof. Wojciech Bieńkowski, Prof. Sławomir Bukowski, Prof. Adam Budnikowski, Prof. Andrzej Wojtyna, Prof. Zofia Wysokińska, and Prof. Wacław Jarmołowicz, for their insightful comments. This book would not have come to fruition without the support of the Polish National Science Center Grant No NN 112394040 titled Service offshoring and its impact on enterprises. My sincere thanks also go to Laura Pacey, Assistant Editor for Economics at Palgrave Macmillan, who encouraged me when writing this book and made me deliver the manuscript on time. Last but not least, I would like to thank my wife and my sons for their patience and support when writing this book. xii