Chapter 5: International Social Capital and the Offshoring of Intangibles
This chapter introduces the concept of international social capital and investigates how international social capital influences the relationship between the offshoring of intangibles and firm performance. Intangibles offshoring is a global production strategy based on the decision to externalize intangible activities to foreign countries. It is becoming common practice for firms to delocalize parts of their internal production processes to other countries. This practice is resulting in a global realignment of jobs. Initially, offshoring was motivated largely by cost reductions: production processes were delocalized to low-cost countries with little attention paid to losses in quality or reputation (for example Slack and Lewis, 2002). The current approach to offshoring is for firms to delocalize both low and high value activities and, in some cases, activities that are central to their core business (Sako, 2006). There are some important examples of this phenomenon related to a variety of sectors and companies: pharmaceutical firms in New Jersey are increasingly outsourcing research and development (R&D) to firms in India whose researchers studied in the best Western universities; DuPont, the giant chemicals company, offshores legal work to Asia; and General Electrics offshored the task of monitoring licensing agreements and old contracts, and preparing its defence in a pharmaceutical liability lawsuit, to a team of lawyers and medical professionals in India (Engardio, 2006). Other ‘high-end services are also attracting attention. With Western companies under pressure to pare costs, they are looking to companies in India to take on an array of jobs – from market research...
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