This pivotal work uncovers an empirical relationship between governance style and location choice—previously treated as independent.
By Steve Heisler
When outsourcing and offshoring decisions need to be made, companies often turn to academic papers as guideposts to ensure they haven’t missed a single consideration. A new study suggests the importance of more fully considering the interdependence between these choices.
The paper, “Are Governance Mode and Foreign Location Choices Independent?”—by Michael J. Leiblein, Ohio State University; Marcus M. Larsen, Copenhagen Business School; and Torben Pedersen, Bocconi University—uncovers the simple truth that these variables are inextricably linked. Previous work assumed wrong and, therefore, presents findings that are fundamentally flawed.
These findings have a direct impact on the bottom line. By considering governance and location together, we can not only better predict a firm’s choice but, ultimately, save time and encourage a stronger return on investment. This speaks directly to a company’s objectives from the start: According to Deloitte’s 2020 Global Outsourcing Survey, 70% of those surveyed say cost is the primary objective when outsourcing, with flexibility at 40% and speed-to-market at 20%.
“Overall, our paper suggests new opportunities to bridge the governance and location literature streams by more fully recognizing the correlations and potential feedback loops between governance and location choices,” write the authors, “and by highlighting the importance of interdependent choices.”
The paper observes the relationship between governance and location on a granular level. For example, the study’s authors found that links exist between the number of suppliers in a country and the level of experience its local firms have within the industry, as well as the latter’s relationship to the complexity of the business problem. Similarly, the amount of production experience is correlated to the physical distance between locations. These figures may seem unrelated, but when taken together, they highlight just how many biases could arise if considered separately.
The work by Leiblein, Larsen and Pedersen serves as a foundation for any future outsourcing decisions—as well as a warning to those who ignore its findings.
Leiblein, M. J., Larsen, M.M., Pedersen, T. (2021). Are governance mode and foreign location choices independent?. Global Strategy Journal. https://doi.org/10.1002/gsj.1420.
Steve Heisler is a Chicago-based copywriter, journalist, and content manager with a profound understanding of marketing, journalism, branding, social media and SEO.