Outsourcing destination choices: the role of economic and cultural attributes

The purpose of this paper is to examine how country-of-origin (COO) perceptions of managers affect their provider selection for offshoring and offshore-outsourcing of services. In particular, it examines how economic and cultural attributes of the supplier’s host nation shape these choices and identifies whether these attributes have a substitutive, complementary, or competing relationship.

A quantitative study was performed using data collected from 235 managers in Saudi Arabia, which has relatively homogeneous managerial population with a clear significant cultural attribute and so presents an ideal setting to study the theory developed in this paper. Data were analyzed using a repeated-measures analysis of variance and a repeated-measures and doubly multivariate analysis of variance.

Building on signaling theory, it is shown that buyers from developing countries prefer suppliers from developed rather than culturally distant developing economies as stronger institutions in developed nations increase the credibility of firms. It is also shown that they prefer suppliers from developing countries that share a common cultural attribute such as religion over other developing countries, supporting social identification behavior and a substitutive relationship between cultural and economic attributes. Finally, they are indifferent between suppliers located in a developed and in a culturally similar developing country, even when the cost of obtaining the service is the same in both countries. In such cases, economic and cultural COO attributes have a competing relationship in provider selection.

It would be interesting to examine if the results of the current study extend to cultural attributes/cues other than religion that may shrink the social distance between buyers and suppliers.

Service multinationals from developing countries may struggle to establish credibility in the eyes of potential customers, who consistently evaluate them lower than firms in developed markets or firms from developing countries that share a common social trait with the potential customers. They can compensate for this by adopting policies that enhance pre-contract trust, invest in homogeneity capital that decreases the social distance between the two firms, or by focussing their sales efforts on countries with which they share a social/cultural attribute.

This paper contributes to the marketing and international business literatures by providing insights on how firms from developing countries can effectively compete in the global marketplace given COO effects. Overall, the results provide novel evidence of the importance of co-membership in transnational communities (for instance, religious groups across countries) in supplier selection and its relationship to economic attributes.