SMEs, Intellectual Capital, and Offshoring of Service Activities: An Empirical Investigation

Drawing on the extant research on offshoring in international business, entrepreneurship and strategy literature, we develop a model of offshoring of service activities by small and medium-sized firms (SMEs). Using the intellectual capital perspective as a theoretical framework, we hypothesize that the unique configuration of human, social and organizational capital of SMEs will be linked to offshoring of services to international providers. Using data from 119 SMEs in three industry sectors in the US and South Korea, we empirically test the hypothesized relationships and find at least some support for our predictions. Specifically, while we found no country-specific differences in offshoring, SMEs with more social capital and less human capital are more likely to engage in offshoring of service activities. However, the relationship between human and organizational capital and offshoring of such activities is contingent on the size of the SMEs. Implications for theory and practice are discussed.