The Transaction Cost Economics Of Service Outsourcing And Its Implication For China

As one of the most prominent economic phenomenon in the recent global market,the rapid development of service outsourcing has drawn the wide attention of theacademia. As for the perspective of economic, the emergence of service outsourcinghas undoubtedly offered a new path for the model and strategic choices of theeconomic development. The study of the economic characteristics of serviceoutsourcing has significant attribution for undertaking the international serviceoutsourcing activities and the development of service outsourcing in our country. Thispaper aimed to analyze the governance structure, the decision-making mechanism aswell as the factors to the transaction costs of service outsourcing from the perspectiveof the transaction cost economics As for the research methods, this paper mainly usesthe transaction costs theory (Coase) and the transaction cost economics(Williamson)as the theoretical basis, launching an all-round analysis about the service outsourcingin the theoretical level on the basis of domestic and international researches. In thispaper, the analysis begins with the governance structure of the service outsourcing,this mainly answers the question of “what is the service outsourcing organization”,then followed by the analysis of the econometric decision-making model of serviceoutsourcing, this mainly answers the question of “when to take the serviceoutsourcing strategy”, at last, this paper expands and refines the determinants of thetransaction costs of the service outsourcing. These three questions cover the maincontent of the transaction cost economics analysis in service outsourcing.This paper has six chapters:Chapter one is the introduction part, it consists of the research background, theraise of the issues as well as the relevant research literature review. The section of theoverview of the literature review covers three aspects including the theoretical basisfor the development of service outsourcing, the motivation of services outsourcingand the economic effects of service outsourcing.Chapter two is an overview of the concepts of service outsourcing, including themeaning of service outsourcing, its classification, the motivation of its developmentand its economic effects, etc., answering the questions of "What is the serviceoutsourcing, what is the classification of service outsourcing, the reasons for thedevelopment of service outsourcing and its impacts on economics. This will help usform a basic understanding of the service outsourcing and provide a basis for the latertheoretical studies in-depth. Chapter three is a description of the governance structure of the serviceoutsourcing and its characteristics. In this chapter, the study is based on the theory oftransaction cost economics (Williamson),the first step is to classify the type oftransactions according to the characteristics of the three dimensions of transaction andpoint out the existence of different organizational structures(market, corporation andthe mixed forms) in the society, these different organizational structures matchdifferent types of transactions to minimized the transaction costs, then, this chapterdescribe the contract characteristics of different governance structures. At last, thestudy comes to conclusion that the governance structure of service outsourcing is abilateral governance model based on the contractual relationship, this conclusionanswer the question of “what is the structure of service outsourcing”.Chapter four is the establishment and the analysis of a decision-making model ofservice outsourcing. This chapter focuses on the question of “when” to take the policyof service outsourcing, basing on the theory of transaction costs (Coase), this paperviews the transaction costs as the main factor for the decision-making of serviceoutsourcing. Considering that the production inputs are essential (the costs ofproduction are the same) no matter taking the market governance or the corporategovernance, the further analysis puts forward a corresponding theory and amathematical model by assuming that the choice of service outsourcing depends onthe trade-off between the transaction costs of service outsourcing and the internalorganization costs. At last, this chapter analyze the “cost–income” outcomes underthe service outsourcing decision.Chapter five is an extensive analysis about the determinants to transaction costsof service outsourcing. This chapter answers the questions of “what impacts thetransaction costs of service outsourcing” and “how do they affect the transactioncosts”. As for these two issues, this chapter starts from the particularity of assetspecificity of service outsourcing, dividing the service outsourcing assets intofirm-specific resources and human capital investment, and viewing the investment inhuman capital as the main input of service outsourcing, then this chapter divides thespecificity of human capital into the expertise in specific business areas and theexpertise in service outsourcing from the angle of the clients and the suppliers. Afterthat this chapter puts the attention on the relations between the dimensions oftransaction, the complexity of the contracts and the transaction costs and comes upthe mechanism of how the dimensions of transaction works on the transaction costs. Chapter six is the analysis about the situation of service outsourcing industry inchina and the suggestions of the countermeasures. This chapter firstly introduces theachievements and the shortcomings in undertaking the service outsourcing in china,and proposes some countermeasures to promote the development of china inundertaking service outsourcing from the perspective of transaction cost economics.