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Fine slicing of the value chain and offshoring of essential activities: empirical evidence from European multinationals

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  • Esmeralda Linares-Navarro
  • Torben Pedersen
  • José Pla-Barber

Abstract

The offshoring of more advanced activities is increasing and a debate about the limits of offshoring has emerged. Companies are fine-slicing their value chains, and moving beyond the offshoring of peripheral and non-core activities to the offshoring of advanced and essential activities that are closer to their core (e.g. research, design and product development). The challenge is to understand the limits of offshoring and the most appropriate modes of offshoring. The purpose of this paper is to analyze what activities are offshorable and how best to govern offshored activities. We argue that companies are redefining their core activities and in this process, some essential activities previously viewed as core activities are being detached from the core, and they become more offshorable.The study uses a sample of 565 offshoring operations conducted by 263 multinational companies from 15 European countries. A logistic regression was used to analyze the relationship between the activities offshored (non-core versus essential activities) and the offshoring mode implemented (captive offshoring versus offshore outsourcing). We find that essential activities are typically offshored using the captive mode, while offshore outsourcing is commonly used to offshore non-core activities; and this trend is even more pronounced in knowledge-intensive companies where interfaces between the various activities are less standardized.This paper offers managers and CEOs an integrative tool that can make easier decisions regarding offshoring modes (captive versus offshore outsourcing) and serves as a reference point for further analyses of the implementation of offshoring strategies in multinational enterprises.

Suggested Citation

  • Esmeralda Linares-Navarro & Torben Pedersen & José Pla-Barber, 2014. "Fine slicing of the value chain and offshoring of essential activities: empirical evidence from European multinationals," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 15(1), pages 111-134, February.
    • Handle: RePEc:taf:jbemgt:v:15:y:2014:i:1:p:111-134
    DOI: 10.3846/16111699.2012.745817
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    Citations

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    Cited by:

    1. Schmid, Stefan & Grosche, Philipp & Mayrhofer, Ulrike, 2016. "Configuration and coordination of international marketing activities," International Business Review, Elsevier, vol. 25(2), pages 535-547.
    2. Enderwick, Peter, 2018. "The scope of corporate social responsibility in networked multinational enterprises," International Business Review, Elsevier, vol. 27(2), pages 410-417.
    3. Martinez-Noya, Andrea & Narula, Rajneesh, 2018. "What more can we learn from R&D alliances? : A review and research agenda," MERIT Working Papers 2018-022, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    4. repec:hig:wpaper:38man2015 is not listed on IDEAS
    5. Fernando Merino, 2017. "Offshoring, outsourcing and the economic geography of Europe," Papers in Regional Science, Wiley Blackwell, vol. 96(2), pages 299-323, June.
    6. Kvedarienė Audronė, 2019. "Strategic technology management within global value systems," Open Economics, De Gruyter, vol. 2(1), pages 43-52, January.
    7. Francisco Puig & Borja Portero & Miguel González-Loureiro, 2017. "Clustering strategy and development of subsidiaries in China," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 44(2), pages 221-243, June.
    8. Szalavetz, Andrea, 2019. "Industry 4.0 and capability development in manufacturing subsidiaries," Technological Forecasting and Social Change, Elsevier, vol. 145(C), pages 384-395.
    9. Howe-Walsh, Liza & Turnbull, Sarah & Budhwar, Pawan, 2019. "An investigation into on-sourcing of advertising creativity in an emerging economy: The case of the United Arab Emirates," Journal of Business Research, Elsevier, vol. 103(C), pages 356-364.
    10. Spyros Arvanitis & Thomas Bolli & Tobias Stucki, 2017. "In or Out: How Insourcing Foreign Input Production Affects Domestic Production," Management International Review, Springer, vol. 57(6), pages 879-907, December.
    11. Scuotto, Veronica & Garcia-Perez, Alexeis & Nespoli, Chiara & Messeni Petruzzelli, Antonio, 2020. "A repositioning organizational knowledge dynamics by functional upgrading and downgrading strategy in global value chain," Journal of International Management, Elsevier, vol. 26(4).
    12. Johansson, Malin & Olhager, Jan, 2018. "Comparing offshoring and backshoring: The role of manufacturing site location factors and their impact on post-relocation performance," International Journal of Production Economics, Elsevier, vol. 205(C), pages 37-46.

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