Country Environments and the Adoption of IT Outsourcing

Introduction

Since the landmark decision by Eastman Kodak to hand over IT functions to IBM, Businessland, and DEC, the practice of outsourcing a firm’s IT facilities and services to outside vendors has become increasingly popular (Dibbern et al., 2004). IT outsourcing refers to a significant contribution by external vendors in the physical and/or human resources associated with all or part of the IT infrastructure in the user organization (Loh & Venkatraman, 1992). In general, IT outsourcing may involve IT functions such as data processing services, communication and network services, facilities management services, application development services, etc. (Cullen, Seddon, & Willcocks, 2005). A report by the Gartner Group indicated that worldwide spending on IT outsourcing would rise rapidly from $268 billion in 2009 to $325 billion in 2013 (Harris et al., 2009). Willcocks et al. (2006) predicted that spending on IT outsourcing will rise by at least 7% per annum over the next five years. While IT outsourcing has recently evolved to new forms such as offshore outsourcing (Hahn, Doh, & Bunyaratavej, 2009; Remus & Wiener, 2009; Schwaig, Gillam, & Leeds, 2006), our study focuses on domestic IT outsourcing.

The value of IT outsourcing has been long documented in the literature and it is suggested that IT outsourcing can provide firms with various economic benefits, technological benefits, as well as strategic benefits (Grover, Cheon, & Teng, 1996). For instance, it is suggested that IT outsourcing may reduce IT operation costs, improve technical competence, and increase business value (DiRomualdo & Gurbaxani, 1998; Levina & Ross, 2003). Since IT outsourcing was recognized as one of the most pervasive organizational practices, many studies have investigated factors that affect the adoption of IT outsourcing (Dibbern et al., 2004). Research found that, in general, two groups of factors are key antecedents of IT outsourcing adoption: the attributes of IS functions and the comparative advantages of IT outsourcing over in-house provision of IT services.

Though insightful, research on the adoption of IT outsourcing has been mainly conducted based on a single-country perspective. As a result, we still lack a clear understanding on how country-specific factors influence IT outsourcing adoption. For instance, after reviewing 84 papers on IT outsourcing from 1992 to 2000, Dibbern et al. (2004, p. 90) concluded: “research to date has mainly been confined to a single-country perspective and this neglects the insight to be gained from multinational or cross-cultural research.” Similarly, Gonzalez et al. (2006) reviewed IT outsourcing research until 2005 and found that only 1.9% of the studies attempted either to account for national differences or analyze outsourcing in different country contexts.

A few studies have examined the differences in IT outsourcing practices between two or three countries. These studies suggest that the institutional environments (e.g., employee power, norms and common beliefs) and resource environments (e.g., IT supply and demand markets) of a country can affect firm adoption of IT outsourcing (e.g., Grimshaw & Miozzo, 2006; Slaughter & Ang, 1995). However, data from two or three countries cannot be used to test the effects of country-level factors on the adoption of IT outsourcing. In order to study these effects, data from more countries are needed. In addition, no research to date has identified important dimensions of country environments for understanding how country influences firm IT outsourcing decisions. In this study, we attempt to address these issues.