Service multinationals and forward linkages with client firms: The case of IT outsourcing in Argentina and Brazil

This paper draws on exploratory data to investigate the conditions that shape the nature of forward linkages between multinational services firms and their client firms in (middle income) less developed countries. Drawing on detailed case studies of three IT services multinationals and 10 IT outsourcing contracts in Argentina and Brazil, the paper argues that forward linkages depend on both a particular feature of client firm absorptive capacity--namely the expertise of client firm managers in designing and operating IT outsourcing contracts--and the type of global strategy of IT services suppliers and their client firms. The effect of both these factors, however, is in turn influenced by institutional and economic features of the host economy. The evidence suggests that IT services firms move between countries not only their own operations, but also the execution of contracts with client firms. These practices relocate client firms' outsourcing from subsidiaries of IT firms within the same national economy to subsidiaries located outside it, in turn facilitating consolidation and regionalisation of business segments of (multinational) client firms and thereby potentially reducing the economic contribution of client firms to the host economy.