Contribution to practice

In practical terms, the research is in line with the call for more research on the questions of how and where to source (Kotabe and Murray, 2004). While the political risk research is extensive, research remains unable to analytically disentangle causality between political risk types and their impact on various investment strategies. The key practical contribution is the development of

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differentiated political risk map of typologies that can capture the nuances in offshore business risks, allowing for more accurate risk assessment of various offshoring locations and advise on the optimal risk-adjusted investment model, plus ensure effective monitoring of post-contract political risk exposure. The research findings has allowed for a clear classification of political risk indicators influencing offshoring location decisions and forms the basis for establishing a framework for more effective post-contract award risk monitoring.

The categorization of barriers and enablers attracting offshore investment in the form of captive hubs or offshore outsourcing is a strong tool for informing policy formulation and investment partnership strategies formulated by national governments. As potential host countries compete to attract offshored business activities, as a basis to enhance employment and knowledge transfer opportunities into their economies, it would be important to take note of the perceived importance of strengthening institutional and regulatory factors. If the host country is seeking to attract investments or outsourcing contracts within the areas of R&D, it would be especially important to ensure that the appropriate IP regulatory frameworks are in place, while for the more labour intensive BPO activities, a well-functioning labour market and minimal bureaucracy would have a high impact.

While beyond the immediate scope of this research, the findings also capture the relative importance of non-political predictors of offshoring flows including educational levels, infrastructure, and technology and innovation space. The findings provide an instrument for policy formulation beyond political risk. For example important to acknowledge that a well-functioning supporting ITC infrastructure in potential host countries is fundamental in order to attract offshore outsourcing activities. Similarly, the findings suggest opportunities for innovation centres that compete on more parameters than merely cost efficiencies, but also provides opportunities for tapping into local talent and education pools.

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1.6.3.1 Developing an industry-specific risk monitoring platform

As per the empirical findings the offshore industry have to date established limited capacity for ensuring monitoring of supplier location specific risk indicators, exposing them to potential service disruption. With an increasing volume and scope of business services being offshored, systematic monitoring of political risk indicators should feature in all business process offshoring strategies and extended Enterprise Risk Management frameworks. From a practical perspective the research highlights the need for developing managerial tools to improve timely identification and monitoring of both existing and emerging risks. The systematic categorization and impact weighting of the relevant political risk indicators within the industry, allows for the development of a web-based risk monitoring platform that can both inform the initial offshoring location decisions and continue monitoring indicators during the contract implementation period. The weighted risk index of offshoring locations can provide real-time location analysis and trends, followed by systematic event mapping in the form of heat maps informing buyers of developing location specific events with disruption potential for their specific offshoring activity. Based on the event notifications provided by the automated platform, the service buyers are able to engage in timely disruption mitigating measures with the concerned supplier, or initiate scale-up of service delivery from alternative suppliers at other locations unaffected by the emerging events. An industry-wide risk monitoring platform can potentially leverage existing Big Data sources, like Google Big Data or GDELT, providing daily codified country events data for operationalizing the identified risk indicators and activity-specific impact weightings. An automated risk monitoring platform supporting the offshoring industry in navigating location risks and proactively monitoring the supplier operating environment is a powerful contribution to enhancing confidence in offshored supply and service chains, reducing the need for investing in excess capacities, inventories or multiple sources of supply, hence improving efficiencies and overall performance of offshore operations. The domains and extent of the contribution are summarized and shown in the “Contribution to Knowledge Table”.

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Table 2: Contribution to knowledge Domains of

Contribution

Extent of Contribution (Cranfield School of Management – Table)

What has been confirmed What has been developed What has been found which is new

Theoretical Knowledge

 The traditional political risk definition confirmed insufficient to capture the exposure of offshore outsourcing firms.

 Developed and operationalized an expanded political risk definition applicable for contemporary offshoring based on a robust systematic review of extant literature.

 Findings of additional political risk factors support emerging critic contending that external uncertainty in Transaction Cost Theory needs to be conceptualized more broadly and incorporate the concept of governance infrastructure.  Findings empirically support that IP considerations and

enforcement is a key feature in companies R&D offshore location and entry mode decisions.

Empirical evidence

 Statistically confirming a positive relationship between offshore outsourcing flows and institutional and regulatory factors for both Offshore Outsourcing and FDI activities.

 The research has confirmed that the nature of offshore outsourcing risk exposure revolves increasingly around policy/legal predictability and institutional capacity of host country.

 Identified the importance of home country political fall-out or change of regulatory frameworks with implications for the offshoring business model. This observation highlights that political risk exposure has a dual nature.

 The findings validated that when institutional and regulatory factors in the host country are strengthened, the volume of overall (ITO/BPO/KPO) contract-based offshore outsourcing will increase.

Knowledge of practice

 Developed a comprehensive and systematic taxonomy of political risk constructs and impact perceptions across the offshore outsourcing industry to inform industry risk management.

 Determined the relevance of political risk management in offshore outsourcing engagements and identified relative importance of political risk indicators in supplier location choices. The findings provide the basis for development of a weighted location risk indexes for the industry.

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