Annotations Of Transaction Cost Theory On International Service Outsourcing

Since the economy has become an independent social science, researches on international trade were along such a chain:inter-industry tradeâ†'inntra-industry tradeâ†'intra-products specialization. Researchers built many theoretical models to a variety of new phenomena on a strict logical explanation. It seems that a popular accepted theoretical model on service trade hasn’t been concluded although the scale of service trade enjoyed the rapid growth recent years.Maybe it’s more difficult in measure and simplifies the heterogeneity and essential terms such as "input" and "outputs" in services than in tangible goods trade. As an important form of services trade, international service outsourcing (or offshore service outsourcing) occupied the businessmen and macroeconomic policy makers and became a hot spot in the recent decade. Similar as conditions on service trade, there has not yet formed a popular theory on international service outsourcing to cover basic aspects of its essence, even on the motivators of service outsourcing issue, there exists different voices. Many researchers take reducing human costs as a self-evident excuse for international service outsourcing, the judgment is mainly based on the fact:the major cost of service products is labor costs, the human cost in developing countries is relatively lower than in developed countries when the quality of human capital is the same. However, such a view arises paradoxical infer:Why should not all enterprises in developed countries are service outsourcers if there’s an apparent interest to reduce human costs? Cannot the developing countries as outsourcee obtain other benefits from the business? It seems there’re essential factors that are hidden under the phenomenon.Motives for service outsourcing are important because different conclusions will lead to different judgments on the role of service outsourcing, future development patterns and the impact on the overall economy, and etc. To explore the motives is fundamental.For the outsourcer, international service outsourcing means transferring inter service production to external market, the enterprise scant its scale or function actively, the phenomenon in transaction cost theory(TCT) terms to be boundaries issues. TCT is one of the mainstream theories on the modern firm, it has explanations strengths on the existence, firm boundaries (or the scale), internal governance of the firm. According to the similarity, to explore the motives of international service outsourcing from the perspective of TCT seems a feasible approach.The paper defines international service outsourcing as a business which established by outsourcer and outsourcee through formal or informal "service level agreements" accompany with the modern technology on network communication and popularization of IT. The definition includes the service functions or support services processes both in manufacturer and service enterprise, ITO and BPO business is the main content. The basis characteristics of contemporary international service outsourcing into four areas:â‘ International service outsourcing is an important part of worldwide service industry transfer;â‘¡International service outsourcing can not go without modern network communication, computer and IT technology in all areas of large-scale popularization;â‘¢International service outsourcing enterprises led by the developed countries, firms in developing country are main outsourcee;â‘£as a business mode, International service outsourcing can be used in different fields where electronic data processing operations can work, the quantity of "non-tradable goods" decrease, the degree of value-added business differ greatly.Based on the analysis from TCT perspective, the conclusions are:the outsourcers obtain net benefits from international service outsourcing; it’s a comparative result between the hierarchical production cost and market cost in essence. The different features of transaction and characteristics of governance match different advantage and disadvantage on adaptation. In the complex world market, reducing costs is important, to gain certain control power over global production networks and allocation rights on specialization production interests should be more strategic. In addition, the outsourcer may also gain operating benefits including eliminating the sunk costs, making full use of internal resources to strengthen core strengths, approaching target markets rapidly and so on. The outsourcee main obtain interests from specialized division of labor, optimizing industrial structure and the conversion of natural labor to human capital.Chinese government supports the enterprises to undertake international service outsourcing business eagerly in the hoping of leading other related industries up to a higher position in value chain. It’s necessary to evaluate and judge if current policies are sustainable and strategic. As a developing country, China actively involved in promoting global integration and gradually opening up service markets according to relevant rules. It’s important to create sound macro environment to support the Chinese enterprises into the global production network and provide "learning by doing" opportunities. On long terms, China may benefit from the specialization, employment effects, cultivating new points of economic growth and the adjustment of industrial structure and trade growth pattern which will be generated in the development of international service outsourcing. Costuming international service outsourcing is not only the way to solve practical problems but also to support China’s future stable economic growth and the quality enhancement of long-term economies. However, the advance in fewer economic sectors has limit effect in enhancing national industry structure; it’s a vital test for the government in making prudent policies to coordinate current interests of all parties and embody future strategic changes.The summary of the full text occupied the last paragraph. The innovation of the paper is the adoption of TCT perspective to explore the motives avoiding address discrete excuses, it’s structured and logical arranged, and will be ideal had the statistical work of international service outsourcing could supply adequate data to allow empirical research to support related viewpoints, further study on the point will be carried on in the future.