Outsourcing and Offshoring: Implications for Productivity of Business Services

This paper reviews the implications of outsourcing and offshoring for the productivity of business services in the UK. Official statistics indicate that business-service productivity has grown by over 20 per cent in the last 7 years at the same time as employment grew by 20 per cent. The paper considers possible factors that account for the simultaneous growth of employment and productivity. First, we discuss outsourcing and offshoring, and their role in enhancing productivity through greater specialization, standardization, and consolidation of business processes, and a shift to higher value-added services. Outsourcing of business services is interpreted as part of corporate restructuring, namely as the unbundling of corporate functions as well as vertical disintegration. Second, as some services become more like products, both low-skilled and high-skilled jobs are subjected to productivity growth through standardization and digitization. It is argued, however, that the future of business-service productivity is on a knife-edge, depending on the mix of two sources of productivity enhancement--namely greater standardization and capturing value from customized solutions. Copyright 2006, Oxford University Press.