Research on offshore outsourcing: a systematic literature review.

Mohiuddin, Muhammad

INTRODUCTION

Offshore outsourcing' is a comparatively new research area in international business field. Globalization and accelerated competition as well as ever increasing consumer demand for value have pushed firms to look for new way of value creation through efficient use of limited resources. Offshore outsourcing is one of the way through which the firms try to address the new requirements of the marketplace. Indeed, there is evidence that outsourcing contributes positively to market value (Alexander and Young, 1996). However, there exist lots of divergences among the practitioners, politicians, public in general and researchers on the offshore outsourcing concepts, factors and performances. The lack of strong theoretical development has accelerated the debate on the pertinence of offshore outsourcing. However, offshore outsourcing research is gaining momentum in International Business, Strategic Management and Supply chain management field. Though most of the previous research was on macro-level as well as dealing with the social and job related issues. The new research trend has started to investigate in economic aspects of offshore outsourcing research with firm level empirical data. In this paper, different avenues of emerging research issues are addressed through the use of extensive systematic literature reviews of previous researches.

CONTEXT AND FUTURE INSIGHTS OF OFFSHORE OUTSOURCING RESEARCH

The theoretical developments as well as offshore outsourcing research have been developed multifaceted. The most important questions in offshore outsourcing remains, according to the various literature reviewed, "the way to outsource successfully". What really interests to the practitioners in outsourcing from a research perspective is that why do some succeed and others fail in their outsourcing endeavors'?" The performance issues in offshore outsourcing and effects of the outsourcing on firm performance have, indeed, been identified also in the literature as one of the issues that still call for further investigation (Gilley and Rasheed, 2000; Mol et al., 2004; Quelin and Duhamel, 2003). A fundamental problem in addressing outsourcing performance is that the question of "how success in outsourcing should be evaluated" has not been examined thoroughly (Harland et al., 2005). As the performance can be evaluated against various different criteria, it would be important to find out which ones are the most relevant and what issues should be taken into consideration when selecting the performance criteria. According to the MGI study (Balasubramanian and Padhi, 2005),

"The highest levels of satisfaction and performance were reported by client companies that focus their offshoring performance metrics on a limited number of goals. Clients have relied on an assortment of detailed, mostly cost-focused metrics that failed to frame their strategic objectives and achieve sustained performance improvement. Successful client-supplier partnerships are moving away from such legacy reporting systems, which reinforce the micromanagement aspects of the staff augmentation model".

The offshore outsourcing performance is not determined by a single factor alone or only on cost-focused measures, it is the correct management of the entire outsourcing process, from the start to the end of the outsourcing process management which leads to either a successful or a failed outsourcing endeavor. With increasingly varied offshore outsourcing activities, we need integrative tangible and intangible measurements in order to qualify either success or failure in offshore outsourcing initiatives. The following issues are utmost important, in this regard, to take into consideration in future offshore outsourcing research.

Towards Multi-dimensional Offshore Outsourcing Research

Economic globalization, which creates interdependency among countries, is characterized not only by trade of goods, services and know-how and very often the intermediate goods, but also by the development of New Global Division of Labour (NGDL) phenomena (Su, 2009). The NGDL refers to the fragmented production system of goods in several locations around the world in order to take advantage of certain benefits associated with the cost and quality of production factors such as labour, skills, energy, capital, innovation, potential markets etc. According to Berger (2006), "in the world of fragmented production, the issues are what they have always been: profits, power, security and new opportunities. What has changed is that it is now possible firms to achieve these goals by positioning themselves at any segment of "value chain" of the product." In the context of a "modular world", a product is now most often "made in world" than manufactured only by one single country. In other words, several countries contribute to the different parts of the value chain, based on their strengths or competitive capabilities and all enjoy the benefits accordingly. The current offshore outsourcing falls in this NGDL thematic where firms look for not only cost advantages but also for knowledge and innovation from the offshore outsourcing relationships (Mohiuddin, Su, Su, 2010).

The theoretical literature on the firm's decision to produce in-house or outsource through market contracts is extensive and dates back to Coase (1937) and his theory of the firm. This theory is known as transaction cost economics (TCE) and implies that firms should produce goods in-house if the 'transaction cost' of market transaction is higher and if this cost is lower, firms should procure this goods from the market. Surprisingly, little material relating to the principal aspects of international outsourcing has been published in academic journals. Mol et al. (2005) found that from 1989 to 2000, only 7 articles contained the words "global" and "sourcing". Recently, however, the attention on the foreign aspects of the phenomenon has grown (Antras and Helpman, 2004). The majority of this work has most commonly focused on either transaction cost theory, or, the principal-agent framework (Ono and Stango, 2005) as well as on the Resource based view (RBV). According to the resource-based view (RBV), core resources and core capabilities are the major factors which allow an enterprise to sustain its competitive advantage (Prahalad & Hamel, 1990). Those resources and capabilities must be valuable, rare, imperfectly imitable, and non substitutable (Barney 1991). This approach suggests that a firm should invest in those activities that constitute its core competences and outsource the rest (Prahalad and Hamel, 1990).

However, due to the dynamic changes in business environment, enterprises need to adjust or enhance their core resources and core capabilities to match current environmental evolution. According to the knowledge-based view (KBV), the dynamic core competence will be the major factor for enterprises'/alliances' ability to sustain a competitive advantage in today's value chain competition (Grant 1996). The networking or partnerships among the firms are considered very effective strategic decisions to encompass processing complexity, new market development, new product development and economies of all kinds (D'Amours, Montreuil, Lefrancois, Soumis, 1999).Via learning and knowledge/information sharing; the enterprise can enhance its dynamic core competence. Dynamic core competences are based on an enterprise's integration into systemic meta-learning of universal and tacit knowledge through information transfer, redefinition of heuristics, and continuous improvement based on experimentation and the development of firm-specific skills based on dynamic routines (Lei et al. 1996). Dynamic core competences (DCC) can be leveraged to create growth alternatives for global diversification, new applications of existing technologies and/or the development of new lines of business (Lei et al. 1996).Dynamic core competences can be used to reduce uncertainty and to induce path dependencies that create causal ambiguity (making imitation from other firms difficult). In so doing, they can form the basis of competitive advantages (Lei et al. 1996).

Outsourcing could also have productivity enhancing effects at a more aggregate level if offshoring would lead to the creation of new firms, and the destruction of old ones (Antras et al., 2004). This process is often associated with Schumpeter's theory of creative destruction, and numerous empirical studies have provided support for its positive impacts on productivity (Bartelsman et al., 2003). Other relevant theories have examined the potential for productivity enhancing effects due to knowledge spill-over as well as firms' abilities to focus on core competences by outsourcing relatively inefficient activities. To compete in increasingly competitive economic environments, decisions to offshore company activities are essentially driven by factors related to costs of production, distribution and productivity. From the perspective of the firm's offshoring, it is therefore seen as a part of its business strategy. For instance, if offshoring enables a firm to relocate its relatively inefficient production processes to external providers with cheaper and perhaps more efficient production capabilities, the firm can turn its focus to areas where it has a comparative as well as competitive advantage and expand output, or engage in new business activities.

Firms determine its outsourcing strategy on the basis of shortcomings in resources or capabilities. Grant (1991) points out that the organization's competence depends on its capability to combine resources and organizational processes to meet the desired objectives. Grant (1991) also states that the conventional approach to the creation of resources has focused on the company's lack of resources and capabilities. In other words, in order to exploit certain resources, firms need to acquire external complementary resources which it does not possess. Thus, the firm is not limited to exploiting its own stock of resources and capabilities (Das and Teng, 2000), but can cover its shortcomings by purchase or strategic alliance, one form of which is outsourcing. Therefore, suppliers can also be considered resources that consolidate the organization's internal competencies.

This perspective does not examine, however, the interrelationships and advantages when two or more organizations in the supply network unite to develop relational rents that could contribute to the development and maintenance of competitive advantage (Dyer and Singh, 1998). In view of this theoretical limitation, other determining variables in the outsourcing strategy must be considered. When firms outsource, they must consider the possibility of associative advantages for their internal and relational capabilities. The associative advantage would be the competitive advantage (Porter, 2005) achieved through a relationship between firms. The teaming upon companies to form business networks seems to be a promising competitive strategy since it permits the partner companies to concentrate on those activities of the value chain they perform best and thus every company forming the network maximizes its own added values (Poulin, Montreuil, Gauvin, 1994). This synergetic approach is considered as collaborative relationship based view (CRBV). This perspective of analysis suggests that critical resources can be expanded or built up beyond the confines of the firm and be integrated into inter-firm routines and processes. The use of outsourcing must be considered as a strategy in which essential process activities could be outsourced in a framework of long-term cooperation where the suppliers are considered to be partners (Pfohl and Buse, 2000). The greater the competitive advantage that is associated with an activity, the higher that activity's strategic relational value will be. Strategic relational value is generated by the development of capabilities across organizational boundaries and can be achieved by the creation of complementary resources, defined as "distinctive resources of alliance partners" that jointly generate rents higher than the sum of those generated independently by the resources of each organization (Dyer and Singh, 1998). The development of relational capabilities with customers and suppliers through process integration (Hammer, 2001), relational competitiveness and simplification of activities (Hammer and Champy, 1994; Davenport, 1996) can all be influential when process activities are outsourced. Thus, the relationship based theory expands the capacity of firms even if it does not have all the resources and competences. It also encourages firms to build cooperation in core competence fields. Relationship based theory differs from resource based view (RBV) whereby core competences should be kept inside the firm and thus should deprive other firms from enjoying the benefit from cooperative inter-organizational relationships.

Recent research in offshore outsourcing has been diverting its focus from the Transaction cost economics (TCE), Resource based view (RBV) and Resource dependence view (RDV) towards Knowledge based view (KBV) and collaborative relationship based view (CRBV). Collaborative Relationship based view (CRBV) develops and explains how firms gain and sustain a competitive advantage within inter-organizational relationships (McIvor, 2005). More and more authors are combining the KBV, CRBV and dynamic network theories in order to explain the virtue of collaboration among the firms and one of this forms is outsourcing. This evolution of theoretical development is required in an era of changing paradigm of offshore outsourcing argument which seems to be transforming from pure 'cost savings from labor arbitrage' to that of 'value creation through leveraging of resources'--a more sustainable proposition where clients and vendors are likely to get into a strategic and long term relationship. This stream of research can also be related to the notion of 'transformational outsourcing' which does not directly and primarily aim at cost savings or acquiring resources that are unavailable internally. The transformational outsourcing is adopted to achieve the structures and form of a virtual firm. The search for these flexible and dynamic structures have given rise to organizational forms such as the virtual organizations, network organizations, modular organizations, barrier less organizations etc. (Hatonen and Eriksson, 2009, Montreuil, Vallerand and Poulin, 1996). The competitive advantage of a company is largely determined by the competitive advantage of the network the company belongs to, (Lakhal, Martel, Oral and Montreuil, 1999). In consequence of this changing paradigm of offshore outsourcing, theoretical foundation of research in this field is also changing from purely Transaction cost economics (TCE) and Resource based view (RBV) towards knowledge based view (KBV) and social exchange theories such as collaborative relationship based view (CRBV).

The emerging theoretical framework of offshore outsourcing can be put in the following graph:

[FIGURE 1 OMITTED]

Emerging Research Questions and Topics on Offshore Outsourcing

The extensive literature review led us to assume that the basic questions in offshore outsourcing such as What, Where and how will remain key topics for outsourcing research in the future:

Firstly, firms are increasingly trading off their options on what to outsource and to what extent. The increasing variety of suppliers has created an outsourcing market in which almost any business process or activity can be sourced.

Secondly, globalization, development in NTIC and other communication and logistics development and rapid economic development of many emerging countries has added versatility to the outsourcing location decisions. For example, Eastern Europe is replacing in certain sectors the offshore outsourcing activities which were supposed to migrate to India or China.

Thirdly, with respect to the "how" question, firms are continuously developing new outsourcing models to maximize the value while minimizing the risks of using external sources. The outsourcing management decision has, thus, gone beyond make-or-buy.

Fourthly, more and more offshore outsourcing projects are coming under rigorous scrutiny and value creation out of these manoeuvres.

The management of outsourcing relations has become a key managerial interest. The costs of managing the relationship portfolio also increases as the distinct number of vendors increase, because the managerial task of managing and aligning the portfolio becomes more complicated. The relationship management issue of the suppliers is increasingly becoming the only sustainable competitive edge (Doig et al., 2001). From the theoretical perspective this issue can be addressed with the use of portfolio management theory into future outsourcing research. Prominent researchers such as Markowitz (1952) introduced portfolio management in the early 1950s for the purposes of financial management. It has not yet been widely picked up by outsourcing researchers.

Emerging Contexts of Offshore Outsourcing Research

The context of the offshore outsourcing has been changed lately. The ever increasing global supplier base have made it possible for firms of all sizes larges as well as the SMEs to capitalize on the benefits of outsourcing. There is very few existing research on small and medium-sized firm's (SMEs) offshore outsourcing activities. In contrast to large firms, SMEs face different kinds of challenges in outsourcing management. This is emerging as an important research field in offshore outsourcing research.

Offshore outsourcing in foreign countries increases risks not only from financial point of view but also the political one. Therefore, the analysis of possible risks is an essential part of studying offshore outsourcing (Jahns et al., 2006; Pai and Basu, 2007). In addition to the financial risks, the risk of intellectual property (IP) loss must be taken into consideration since many countries have not developed a strong IP regime. The role of the local governments (in both the home and the target country) as well as the role of international organizations and treaties can be very important field to investigate for offshore outsourcing (Mankiw and Swagel, 2006).

The decision of the location for the offshore outsourcing destination, time differences between the outsourcing firms and contracting firms as well as the time for outsourcing in a particular market are vital questions to investigate. Par example, 'Destination China' could be great for the moment but it can lose its advantages in certain sectors and the outsourcing firms which intend to offshore should decide precisely where and when to relocate their activities in a given industry. This leads to one further research question regarding outsourcing that probably will rise in the future-"when".

Small and Medium Size Enterprises (SMEs) and Offshore Outsourcing

The research in offshore outsourcing holds that large multinational companies (MNCs) outsource part of their business processes internationally as a means of reducing costs and achieving greater efficiency, flexibility and access to tangible as well as intangible resources (Doh, 2005, Farrell, 2005, Ramamurti (2004). Most of the researchers, policy makers and practitioners focus their attentions on the MNCs offshore outsourcing (Levy, 2005, Lewin, Peacock, Peeters, Russell, & Sutton, 2005). On the other hand, the offshore outsourcing of the SMEs has received far less attention from the academic, policy makers and managers. Few researchers such as Scully and Fawcett (1994) studied the offshore outsourcing of the SMEs and concluded that the motivations, challenges, and performance outcomes associated with the offshore outsourcing of the SMEs may differ from those of the MNCs in several respects. Researchers typically consider the SMEs to serve local market with locally available resources. However, Scholars from the entrepreneurship and international business research streams acknowledge that small and medium (SMEs) firms also play important roles in international business (Fujita, 1995 a,b, Oviatt & McDougall, 1994, Reynolfs, 1997). This stream of research is focused on the internationalization of the SMEs to reap the entrepreneurial opportunities in international product markets. The other value chain activities such as offshore outsourcing of these firms are lacking in academic research. The existing research from the different research streams such as Economics (Gorg & Hanley, 2005, Grossman & Helpman, 2005, Grossman, Helpman & Szeidl, 2005), International Business(IB) (Parkhe, 2007), strategic management (Butler, 2001, Hoskisson et al., 1999, Morstead and Blount, 2003, Porter, 1980) and Supply chain management (Jahns, Hartmann, Bals, 2006) are mostly theoretical (Bunyaratavej, Hahn,& Doh, 2007, Kedia & Lahiri, 2007). There are very few empirical researches with limited findings and sometimes different findings from conventional wisdom and theory. For example, early researchers have found that offshore outsourcing will take place in low cost countries (LCC) (Grote & Taube, 2007). But the study of Bunyaratavej, Hahn & Doh (2007) found that "a country is more likely to be a destination of higher value offshore outsourcing as the average wage of the country increases. Research exploring why SME managers decide to outsource various business processes to foreign firms is practically non-existent (Gregorio, Musteen and Thomas, 2008). In practice, Small and medium size enterprise (SMEs) dominates the business world in Canada and Quebec with 96% of all type of (for profit) enterprises, 35% of export value and employ half of the work force in the province (statistics Canada, 2007). The importance of the SMEs in Canadian and Quebecker economy and society is enormous. That's why it is very important to explore the venue of offshore outsourcing of Canadian and Quebeckers SMEs and specially the impact of this strategy on competitiveness in international markets. Outsourcing of non-core activities could allow them to focus on the activities they are best at, which in turn improves competitiveness. SMEs become more efficient as a result of the information flow that helps them improve technology and learn from the experience of other partnering (suppliers) firms and develop network in order to reap the synergetic or complementary benefits of partnerships. The efficiency and flexibility enhancing benefits of offshore outsourcing can allow the SMEs operating under resource constraints to tap into valuable resources from the suppliers firms in the emerging country. This can help them to gain competitive advantages. SMEs are very often size and resource constraints that inhibit their ability to internalize international activities (Dunning 1980). Offshore outsourcing can allow them to overcome size disadvantages and resource constraints and tapping resources owned by others (McGrath & MacMillan, 2000). In fact, through offshore outsourcing, SMEs can obtain the benefits of foreign-location-specific advantages such as access to world class capabilities and innovation without needing to build internal multinational operations. This allows the SMEs to gain both cost savings and access to innovative capabilities. SMEs can be even more motivated to enter into offshore outsourcing activities comparing with the MNCs. Diminishing transportation and communication costs enable SMEs to explore outsourcing opportunities internationally. In the past, such international opportunities may have been beyond their reach and only within the reach of larger MNCs. Integrating the literature on offshore outsourcing (Gorg, Aoife, & Strobl, 2004) with that of 'role of networks and learning' in the internationalization process (Chetty & Agndal, 2007, Johanson & Vahne, 2003, 2006) is needed in order to study the phenomena of the offshore outsourcing of the SME. It appears from this literature that offshore outsourcing is an important mechanism for improving international competitiveness (Gregorio, Musteen & Thomas, 2008).

New Streams of Offshore Outsourcing Research

The offshore outsourcing phenomenon needs to be examined from multidimensional such as economic, strategic and social point of view. More research should focus on the impact of offshore outsourcing on the firm's ability to compete and succeed in the globalized economy. The offshore outsourcing is a highly debated issue and very often accused of all sort of socioeconomic deterioration in the developed countries without any firm level data. That's why it's very important to study the performance of those firms which have entered into offshore outsourcing activities. The investigation on macro-level is also needed and specifically can address the questions of job losses and job creation in total and find the real differences. Since the 1980s offshore outsourcing as a corporate strategy has evolved from the transactional approach to a more broader form in which the outsourced process is co-developed with the outsourcing provider, and in which cost is no more the principal objective to attain. Since 90s, Academic interest is increasing in offshore outsourcing research field (Jiang & Qureshi, 2006).

The basic questions in offshore outsourcing research such as what to outsource, how and where to outsource have been the primary questions guiding the outsourcing research in the past and continuously remain pertinent, however, new questions are arising. Among them Institutional effects, outsourcing timing, incremental outsourcing is prominent (Hatonen & Eriksson, 2009). Although, many existing management theories were used individually to explain different facets of the offshore outsourcing, more and more authors are combining several theories to explain more integratively the offshore outsourcing phenomenon. On the top of cost savings, research is promising with issues such as access to resources and skills or to gaining operational flexibility. The current research promotes a more cooperative approach to outsourcing management. In offshore outsourcing research, the relational view and transaction cost approach do not contradict each other, but they co-exist.

SYSTEMATIC LITERATURE REVIEW (SLR)

There are two major reasons exist for reviewing the literature (Sharp & Howard, 1996). The preliminary literature review helps to generate and refine research ideas. The critical literature review or systematic literature review will enable us to get the update current state of knowledge, its limitations and to fit the current research project in the wider context (Gill & Johnson, 1997). A systematic review is a summary of research that uses explicit methods to perform a thorough literature search and critical appraisal of individual studies to identify the valid and applicable evidence. Our critical review respected the following criteria:

* Included the key academic theories within the research area of offshore outsourcing ;

* Demonstrated the up-to-date knowledge of offshore outsourcing field;

* Shows how the current research relates to previous published research;

* Asses the strength and weaknesses of previous work, including omissions or bias

* Justify the arguments of current research by referencing previous research.

A systematic review is a methodological process which identifies, evaluates and analyzes research evidence to synthesize and map it (Kitchenham, 2004; Staples and Niazi, 2007). The systematic review is based on a process which is a defined and methodical way of identifying, assessing, and analyzing published primary studies in order to investigate a specific research question (Staples and Niazi, 2007). It is based on a rigorous, transparent and reproducible process allowing developing the most complete view of the literature for researchers and policymakers (Tranfield et al., 2003; Kitchenham, 2004). Undertaking a systematic review is increasingly regarded as a fundamental scientific activity, and the frequency of this kind of review is increasing in management (Tranfield et al., 2003).

The basic steps of a systematic review include: 1) identifying the need for a review, 2) developing a research protocol (formulating an explicit research question, fixing inclusion and exclusion criteria), 3) identifying relevant studies, 4) selecting the studies according to the inclusion and exclusion criteria, 5) assessing the quality of retained studies, 6) summarizing and synthesizing study results (Tranfield et al., 2003); (Kitchenham, 2004; Staples and Niazi, 2007). Systematic literature review is widely used in many research fields. The current research project is not an exception. According to Becheikh et al., (2006)" Principal objective of a systematic literature review is to survey the fundamental contributions in a given research field. Conducting an exploratory literature review before the systematic literature review can be beneficial in order to better capture the terminology and the taxonomy of the field of research such as offshore outsourcing. Systematic literature review should be based on a specific objective which will guide the selection process, extraction, filtering and text analysis (Becheikh et al., 2006). Thus the systematic literature review became an important research instrument in

Management science research in order to augment research validity by a rigorous process and to reduce subjective characteristics.

Inclusion and Exclusion Criteria

This systematic review sets out to answer the two following research questions: 1) what are the research gaps in offshore outsourcing and, 2) what are the emerging research issues on offshore-outsourcing?

Selection of the Articles

In the papers retrieving phase, we used some popular databases such as EBHOcast, ABI/informa, FACTIVA, ISI, sciencedirect, FRANCIS etc. with the key words like offshore outsourcing research, offshoring and performance research, evolution of research in offshoring, and future of offshoring outsourcing research etc. Articles were selected if they addressed one of the two principal questions mentioned earlier. The current systematic review took in consideration published peer-reviewed papers, as well as research reports. Books, dissertations and book reviews were excluded, due to time and resource limitations. Relevant ideas and significant scientific contributions included in books and dissertations are often published afterwards in peer-reviewed articles.

At the end of this phase, 2359 documents were identified and reviewed, according to the inclusion and exclusion criteria. A first sorting based on the documents' titles and abstracts led to exclude 2169 documents that did not meet the inclusion/exclusion criteria. The thorough reading of the full text of the remaining 190 documents concluded with the exclusion of 133 citations. Hence, 57 documents crossed the double sorting and were definitely included in the first phase of the systematic review. 81 percent of them came from three electronic databases which are, in order, ISI web of science, Academic search premier, and proquest/ABI. Among these 57 articles, 13 articles were cited more than 50 times and through the manual search of references of these articles, 8 new articles were chosen. Thus total 65 articles and research reports were analyzed for this current paper.

RESEARCH GAPS AND OPPORTUNITIES

Research on 'Offshore outsourcing' is still disparately scattered among the different research field such as International Business (IB), Strategic Management (SM) and Supply chain management (SCM). The practice of borrowing theories from multiple fields of social sciences is very much present in the research community and it remains widely disparate the different subfields of research in offshore outsourcing. Some of the issues such as job losses, intellectual property losses, decision making process and contracts were adequately addressed by the researchers. While some other phases like the outsourcing partner search, collaborative relationships in organizing offshore outsourcing i.e implementation, critical evaluation of the outsourcing projects, soft issues like customer satisfaction, faster product cycle and decision to review or terminate have not been researched in detail. In this section, we identified specific research gaps and opportunities for future research in each phase.

Outsourcing Decision Making Process

A vast majority of research articles have focused on the outsourcing decision by presenting various explanations of why organizations choose to outsource part of their activities. Most view the outsourcing decision as a rational decision based on economic or resource-based factors. Goo et al. (2000) identified 14 theory-based drivers of outsourcing decision. However, most of the studies focused primarily on economic drivers. It is commonly assumed that an outside specialized firm can provide the same level of service at a lower cost than if the non-core products were made internally while the firm can focus on its core competencies. However, there is no study that has empirically investigated this important issue as a whole. Also, most research studies have focused on rational decision making based on transaction cost and resource-based theories. Alternative decision models based on institutional and political theories as well as interfirm synergetic benefits and learning and innovation have been largely ignored. With the current rush to outsourcing, there seems to be a bandwagon effect in outsourcing decision making (Lacity & Hirchheim, 1993). There is clearly a need for more research investigating the underlying process leading to outsourcing decisions. Most studies have not distinguished the differences between the decision-making processes at small & medium sizes (SMEs) and large organizations. There is a need to investigate how the processes and decision drivers differ at organizations with different sizes and scales of resources. Furthermore, offshore outsourcing is on the rise. The decision process in offshore outsourcing may differ significantly from that in onshore outsourcing. There is a need to study those differences in processes as well as offshore outsourcing decision criteria and drivers.

Offshore Outsourcing Partner Search and Selection

After deciding to outsource, the firm goes to the next step of selecting the most suitable outsourcing service provider who can offer the products and services at the appropriate cost. There are very few studies were done on this issue. Authors like Michell & Fitzgerald, (1997) focused exclusively on outsourcing provider firm selection and search. Few others touched on the idea of partner firm selection in a broader context of the overall outsourcing process or contract negotiation and/or partnership formation (Barthelemy, 2003; Lacity & Willcocks, 1998; Lee & Kim, 1999). Often partner firms are selected based on perceived complementaries between the organization's capabilities and partner firm's capabilities (Levina & Ross, 2003).

There is a need to develop matrices for finding and matching the gaps in internal firm resources and partner firm's resources for objective partner firm selection.

Outsourcing Contracting Process

A relatively large body of literature has focused on the outsourcing contract between the client organization and provider firm with the theoretical bases of social contract theory and social exchange theory. The outsourcing contract specifies in detail the exchanges of services and/or products, financial matters, assets and/or staff transfers, communication and information exchanges, service enforcements and monitoring methods, key personnel, dispute resolution procedures and other formal issues (Halvey & Murphy, 1996; Willkocks & Kern, 1998, cited in the 'Virginia Ilie and Mihir Parikh AMCIS 2004 Proceedings).

Most researchers have looked at the outsourcing contract as the mechanism to develop a balance of power between the client organization and partner firms. There is a need to evaluate the balance between the rigor and flexibility in contracts. Rigor can reduce the threat of opportunism by a partner firm (Lacity & Hirschheim, 1993), but it can develop an arm's length relationship with the partner firm. There is a need to investigate the impact of outsourcing contract complexity on outsourcing relationship and success.

Furthermore, contract governance structure may have impact on successful negotiation and development of contract and on the quality of future partnership. It has been pointed out that a well-developed contract greatly influences the resulting quality of the relationship (Lacity & Hirschheim, 1993). However, no study empirically investigated this proposition. Contracts may also play a significant role in reducing technical and business uncertainties by transferring them from the client organization to the partner firm and vice versa. There is a need for additional studies that focus on contract governance structure and the role of contract in reducing these types of uncertainties.

Questions Related to Implementation of Offshore Outsourcing Projects

The actual implementation phase in the overall outsourcing process has not received much attention in the research. There is a clear need for empirical studies that investigate the conditions that assure or inhibit a smooth implementation, the process of knowledge and assets transfer to partner firm/s and the cost and potential pitfalls in implementation process. Implementing an outsourcing agreement is often a complex process requiring effective management. Future research should focus on studying the effectiveness of project management concepts and practices in successful outsourcing implementation.

Strategy on Operations and Relationship

A vast majority of studies have investigated the relationship in an outsourcing arrangement. In fact, the relationship between the client organization and the partner firm is the second most researched topic in the overall outsourcing process, in the literature, after the initial decision to outsource. The outsourcing relationship has been studied mostly in an interorganizational relationship framework using resource-dependence, transaction cost and agency theory, from an economic standpoint and social exchange theory and power-political theory. Previous research has classified the outsourcing relationship between organizations in two types (Lee & Kim, 1999): transactional style and partnership style. A transactional style relationship (Lacity & Hirschheim, 1993; Fitzgerald & Willcocks, 1994; Grover et al., 1996) develops through the formal contract in which rules of the game are well specified and the failure to deliver on commitments by either party should be resolved through litigation or penalty clauses in the contract. This approach can be traced down to the supplier-customer type of relationship. A partnership approach (Lee & Kim, 1999; Saunders et al., 1997) includes risk and benefits sharing, the need to view the relationship as a series of exchanges without a definite endpoint based on trust and mutual understanding. This approach tends to view the relationship as an ongoing alliance. However, other authors (Lacity & Hirschheim, 1993) have posited that outsourcing providers cannot be strategic partners because they do not share the same profit motive. In order to resolve such differences, future studies can investigate the mechanisms that promote and factors that inhibit the evolution from an arm's length relationship to strategic partnership over time.

Critical Performance Evaluation of Offshore Outsourcing

Evaluation is the phase where the outcome of the outsourcing decision is measured against contract clauses such as the service level or performance goals (Lee & Kim, 1999). Performance has been found in the literature to be a major factor when it comes to the evaluation of outsourcing projects. It is common to measure the outcome in terms of service satisfaction, system satisfaction, user satisfaction, service quality, cost-reduction, financial, or technical performance (Lee & Kim, 1999).

However, our analysis uncovered that there is no common instrument for evaluating the outcome of outsourcing. Objective and perceptive measures on different dimensions (such as project quality, partner firm performance, productivity, financial issues, effectiveness, and technical, data security, and employee morale) need to be developed and tested. There is also a need for a comprehensive, framework that integrates various performance measures in outsourcing. Having such a framework can also help develop more effective and detailed contracts.

Decision to Renew or Terminate the Outsourcing Relationship

t the end of the outsourcing period, a decision needs to be made whether to extend or terminate the current relationship with the current partner firm. Lacity & Willcocks (1998) identified three options available to the client organization: extend the contract with the current partner firm, switch to a new partner firm or bring the outsourced work back in house. Studies on the decision at the end of the outsourcing contract are inexistent in the existing literature on offshore outsourcing. There is a clear need for a lot of research in this area. For instance, there is a need to investigate the impact of client lock-in situations such as asset specificity, and lack of internal skills on the decision to renew or terminate.

CONCLUSION

Academic interest in outsourcing continues to rise in parallel to increased interest in practice. Previous researches have focused more on some phases of the outsourcing process and much less on other. Even within more researched phases, studies have tended to focus more on one or few theories and not on many other plausible theories. For example, in outsourcing decision making, most studies have focused on transaction costs and resource availability, while not on other factors such as knowledge and innovation seeking partnerships and coopetition in offshore outsourcing. Though its widely believed the benefits of offshore outsourcing at least among the research and academic community however, few research exist with empirical data on outsourcing success or failure in offshore outsourcing. The field of firm level critical performance evaluation with intangible indicators of offshore outsourcing is extremely necessary in order to propose a sustainable offshore outsourcing strategy of the Canadian manufacturing SMEs to the practitioner as well as for the policy makers.

Based on the extensive literature review, it can be concluded that the offshore outsourcing research have many directions to which the outsourcing research can be taken in the near future. What seems to be the broad underlying managerial interest is to receive more insights about the success factors in outsourcing which is dependent on the correct management of offshore outsourcing process from A to Z. There are at least four research questions are emerging prominent are:

* Firstly, the management of versatile outsourcing relationship portfolios appears to be one of the current and future managerial challenges.

* Secondly, the appropriate timing of the offshore outsourcing

* Thirdly, The cultural differences management in offshore outsourcing dealings with ever increasing service providers from different part of the planet.

* Fourthly, offshore outsourcing of manufacturing SMEs, its performance measures and strategic management options.

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