Using transaction costs theory this paper argues that transaction costs are almost as significant as production costs when it comes to offshore outsourcing and, moreover, that it is in the field of transaction costs where China has been unable to compete with India in the supply of information technology outsourcing. The paper outlines a framework for analysing transaction costs and uses the framework for pinpointing where China is unable to compete. The paper concludes with a review of the policy implications for the Chinese Government.
Get full access to this article
View all access options for this article.
References
1.
AmoribietaI., BhaumikK., KanakamedalaK., and ParkheA.D. (2001). Programmers abroad: a primer on offshore software development. The McKinsey Quarterly, 2, 129–39.
2.
BravardJ. (2002). Outsourcing for Financial Services (The SMI Group, London).
3.
China Computer World (2002). Software export: a broken supply chain. China Computer World, 7, 10–13.
4.
China Software Industry Association (2002). Current Status and Trends (China Software Industry Association, Beijing).
5.
CoaseR.H. (1937). The nature of the firm. Economica, 4, 386–405.
DoumaS., and SchreuderH. (2002). Economic Approaches to Orgarnizations (Prentice-Hall, London).
9.
Economist Intelligence Unit (2001). Worldwide Business Cost Comparison – The Cost of Setting Up Business in 31 Countries (Economist Intelligence Unit, Geneva).
GurbaxaniV., and WhangS. (1991). The impact of information systems on organizations and markets. Communications of the ACM, 34, 59–73.
12.
HeeksR. (1996). India's Software Industry – State Policy, Liberalization and Industrial Development (Sage Publications, Thousand Oaks, CA).
13.
HuiP.P., and BeathC. (2002). The IT Sourcing Process: A Framework for Research. Working paper (University of Minnesota, South, MISQ Review).
14.
JurisonJ. (1995). The role of risk and return in information technology outsourcing decisions. Journal of Information Technology, 10, 239–47.
15.
LiuL. (2002). China: The Next Offshore Sourcing Frontier? Gomtner Research, COM-14–9027.
16.
LohL., and VenkatramanN. (1992). Diffusion of information technology outsourcing: influences, sources and the Kokak effect. Information Systems Research, 3, 334–58.
17.
MichellV., and FitzgeraldG. (1997). The IT outsourcing market place: vendors and their selection. Journal of Information Technology, 12, 223–37.
18.
MurrayJ.Y., and KotabeM. (1999). Sourcing strategies of US service companies: a modified transaction-cost analysis. Strategic Management Journal, 20, 791–809.
Outsource World London Yearbook (2002). Outsource World London (Craft Media, London).
21.
PorterM., SachsJ., CorneliusP.K., McArthurJ.W., and SchwabK. (2002). The Global Competitiveness Report 2001–2002 (World Economics Forum, Geneva).
22.
PrencipeL. (2001). Offshore outsourcing: many IT execs look abroad for programming talent. Infoworld, 6, 48.
23.
TerdimanR. (2002). Defining the New Frontiers of Offshore Outsourcing (Gartner Group, Stanford, CT).
24.
ThompsonG., FrancesJ., LevacicR., and MitchellJ. (1991). Markets, Hierarchies and Networks (Sage, London).
25.
TiddJ., and BrocklehurstM. (1999). Routes to technological learning and development: an assessment of Malaysia's innovation policy and performance. Technological Forecasting and Social Change, 62(3), 239–57.
26.
WangD. (2002). Science Innovation and Made in China (Greatwall Enterprise Institution, Beijing).
27.
WangE.T.G. (2002). Transaction attributes and software outsourcing success: an empirical investigation of transaction cost theory. Information System Journal, 12, 153–81.
28.
WengerE. (1998). Communities of Practice: Learning, Meaning and Identity (Cambridge University Press, Cambridge).
29.
WilliamsonO.E. (1975). Markets and Hierarchies: Analysis and Antitrust Implications (Free Press, New York).
30.
WilliamsonO.E. (1985a). The Economic Institutions of Capitalism (Free Press, New York).
31.
WilliamsonO.E. (1985b). The Economics of Governance: Framework and Implications (Cambridge University Press, Cambridge).
