Impact Of International Service Outsourcing On Service Providers' Technological Capability

International service outsourcing has boomed as a new global production organization worldwide since mid-1980s, which offers opportunities of integration into the global production system for firms in developing countries. In the process of undertaking international service outsourcing from advanced foreign outsourcers, many firms in have improved its technological capability and shift to the higher end of the global value chain, while others have been locked in the lower end of the global value chain permanently. This study aims to find the underlying reasons of such differences, which is of special importance in guiding service providers to develop their core competence, and improve their position in global value chain.International service outsourcing was conceptualized as an inter-firm knowledge integration mechanism initiated by service outsourcers in developed countries. Based on this theoretical frame, impact of international service outsourcing on service providers' technological capability was discussed in perspective of inter-organizational knowledge transfer. Two related topics were explored in the study: first, factors influencing inter-organizational knowledge transfer in international service outsourcing; second, impact of inter-organizational knowledge transfer on service providers'technological capability.Literature research, field interview and social survey were employed in different stage of the study. Based on interview of service providers and literature research in international service outsourcing, inter-organizational knowledge transfer and technological capability, conceptual model and hypotheses were proposed. Social survey was conducted in international software outsourcing industry, which is typical in international service outsourcing. Data of104international software outsourcing service providers was collected and analyzed in SPSS (V.13.0). Descriptive statistics, correlation analysis and multiple linear regression analysis were employed in verifying of the initial conceptual model and research hypotheses.Key findings and implications from the research are as follows:(1) International service outsourcing is an inter-firm knowledge integration mechanism, which is initiated by service outsourcers in developed countries. Compared with manufacturing outsourcing, service-related knowledge is the most important productive resources of service providers. As a kind of relational contract, international service outsourcing may act as efficient knowledge transfer and integration mechanism. There is great difference between outsourcers and providers in motivation and mechanism of knowledge integration. For this difference, knowledge transferred by service outsourcers is task-specific and fragmental.(2) Characteristics of outsourcers and providers, the relationship between them have different impact on inter-organizational knowledge transfer in international service outsourcing. Outsourcers who have absolute knowledge advantage dominate the knowledge integration process. Content and scope of knowledge that service providers can acquire from outsourcers is determined by transaction-orientation of outsourcers. As a kind of risk control mechanisms, relational capital between outsourcer and provider facilitates inter-organizational knowledge transfer. Comparing with potential absorptive capacity, the realized absorptive capacity of service providers plays a key role in the process of knowledge integration in international service outsourcing.(3) Tacit knowledge transfer in international service outsourcing has great impact on service providers' technological capability, while the role of explicit knowledge transfer is limited. The knowledge transfer in international service outsourcing is task-specific, and the explicit knowledge transferred is some of "fragmentation", which has difficulty in being transmitted to service providers' technological capability directly. Since differences in perceived risk of two types of knowledge transfer and the attribute of the tacit knowledge, transfer of tacit knowledge is relatively systemic. Tacit knowledge, such as informal rules of coordination, organization routines serve as a kind of informal knowledge integrating mechanism in inter-organizational knowledge transfer.(4) Inter-organizational knowledge transfer has significant impact on routine technological capability of service providers, while its impact on innovative technological capability is limited. Guiding service providers to improve the efficiency of existing products and services, rather than high-risk product and service innovation, is a rational choice of outsourcers. On the other hand, the experience and specialized knowledge accumulation, relatively stable short-term financial benefits may reduce the willingness of exploring new opportunities, which pose barriers for service providers to improve its innovative technological capability.(5) Inter-organizational knowledge transfer mediates the relationships of characteristics of outsourcers and providers, the social ties between them with service providers'technological capability.This study makes several contributions to research on the impact of international service outsourcing on service providers'technological capability. Findings in this study add our knowledge on this topic in the following3aspects:(1) International service outsourcing was conceptualized as an inter-firm knowledge integration mechanism, which was initiated by service outsourcers in developed countries. This insight about the nature of international service outsourcing offers a new frame for research in this field.(2) The impact and mechanisms of international service outsourcing on service providers'technological capability is discussed systemically in perspective of inter-organizational knowledge transfer. And mediation effects of inter-organizational knowledge transfer was found in the relationships of characteristics of outsourcers and providers, the social ties between them with service providers'technological capability.(3) Characteristics of outsourcers and providers, the social ties between them have different impact on inter-organizational knowledge transfer, so do two types of inter-organizational knowledge transfer on service providers'technological capability.Based on the key findings of the study, some suggestions were put forward on service providers'technological capability improvement through knowledge transfer in international service outsourcing:(1) Service providers'knowledge acquisition strategy in international service outsourcing. First, based on its knowledge acquisition needs, service providers should undertake outsourcing business selectively. Business of strategic amplifications should be preferred. Secondly, service providers may enhance the quality of bilateral relations and try to establish a close long-term cooperative relationship with the outsourcers. Finally,"learning by doing" and "communities of practice" may be employed by service providers in developing their ability to digest and use of knowledge acquired from outsourcers.(2) Service providers'strategy to improve their technological capability through knowledge transfer in international service outsourcing. Tacit knowledge in international service outsourcing should be treated as the breakthrough in service providers'knowledge acquisition, which can integrate fragmental knowledge acquired from outsourcers in developing their technological capability. On the other hand, knowledge localization and knowledge creation should be emphasized equally with knowledge acquisition, which is of special importance in developing the innovative technological capability of service providers.