The Handbook of Innovation and Services
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The Handbook of Innovation and Services

A Multi-disciplinary Perspective

Edited by Faïz Gallouj and Faridah Djellal

This Handbook brings together 49 international specialists to address an issue of increasing importance for the world’s post-industrial economies; innovation as it relates to services.
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Chapter 20: Outsourcing and Offshoring of Knowledge-Intensive Business Services: Implication for Innovation

Silvia Massini and Marcela Miozzo


20 Outsourcing and offshoring of knowledge-intensive business services: implications for innovation Silvia Massini and Marcela Miozzo 20.1 Introduction Outsourcing and offshoring of services has grown from basic software coding and call centre work to a range of back-office functions such as payroll and accounting, financial and legal research, and even tightly regulated work such as drug development and interpretation of radiology images. International trade of commercial services increased from under $400 billion in the early 1980s to more than $2.1 trillion in 2004 (UNCTAD, 2004). International trade of services includes both international outsourcing and in-sourcing. Outsourcing refers to the decision to buy what was previously made internally. It relates to the fundamental question of why firms exist, whether and what a firm should make or buy, and it has been studied using transaction cost economics (Williamson, 1975), core competences (Prahalad and Hamel, 1990), the evolutionary and resource-based view of the firm (Penrose, 1959; Nelson and Winter, 1982) and dynamic capabilities (Teece et al., 1997). Offshoring refers to the transfer of activities outside the domestic boundaries, whether as in-house operations (captive or fully owned subsidiaries) or outsourced to thirdparty providers. This chapter focuses on the outsourcing and offshoring of a range of high-skill services, which include more creative and knowledge-based services, such as research and development (R&D), design services, new software development, medical testing or analysis, and architecture drawings (Evangelista, 2000; Miles, 2001; Miozzo and Soete, 2001). These services, which are fundamental components of innovation processes, are also called knowledge-intensive...

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