Following the preliminary literature review, an a priori conceptual framework for the research was constructed (Figure 6). Although not being all-inclusive, the framework provides a preliminary grouping for the factors relevant in the inspection of the phenomenon.
The general factors affecting offshore sourcing decisions have been classified into 1) internal characteristics of the firm, 2) the firm’s product development strategy, and 3) aspects of international networks.
Figure 6: A priori conceptual framework of the study
The internal characteristics of the firm include general concept of resources and capabilities, and more specifically technological expertise of the firm, because of the focus on cooperation in product development activities. The influence of an enterprising decision is acknowledged by including the concept of managerial attitude, which affects motivation for the formation of interorganisational relationships. The motivation to internationalise refers to international cooperation in particular. The concept of network management skills refers to ability to manage relationships with various suppliers. The firm’s product development strategy has been singled out as a separate factor, since product development is the object of offshore sourcing in this study. The factor is divided into specialisation, cooperation in general, and use of suppliers (i.e. sourcing). Whereas the first two factors chiefly explain the
motivation for sourcing regardless of the origin of a supplier, the international networks factor was added to explain the motivation for sourcing from foreign suppliers in particular.
The reasons for such cooperation include access to specific external resources and market knowledge, as well as cost regulation by sourcing from countries with a lower wage level.
When conducting a more extensive literature review, it was decided that the three most relevant streams of academic discussion are the topics of resources and capabilities, product development cooperation, and networking and international cooperation.
The study looks at motivational factors for the formation of interorganisational relationships.
Because the objective of the thesis is to provide a holistic view on factors affecting decisions about offshore sourcing in software development, the theoretical background needed to incorporate several theoretical approaches. This chapter proposed that the decision about offshore sourcing can be understood as an intersection of perspectives addressing resources and capabilities, product development cooperation, and networking and international cooperation. The approach of the resource-based view to a firm is that it is a collection of productive resources, which also determine the firm’s competitive advantage. The need for resources in product development activities motivates cooperation with external actors. The resource ties and activity links create a network in which the firm operates. The chosen focus of the study is the strategic rationale at the company level, in particular in small and medium-sized enterprises. Thus, international entrepreneurship and strategic networks were also discussed in the literature review. Furthermore, challenges of international cooperation were briefly described, because they were seen to affect the motivation for cooperation with foreign suppliers. Offshore sourcing in product development is a new and relatively little studied field. The novelty of the context of this study comes from the combination of product development, contractual cooperation in the form of sourcing, and cooperation with foreign suppliers.
The resource-based view assumes heterogeneous distribution of resources across firms and imperfect mobility of resources. However, its applicability for this study is limited, as it mostly concentrates on internal development of resources. The relational view presents some applications of the resource-based view in cooperative settings. It suggests that cooperative relationships can provide a firm access to critical resources and create interorganisational competitive advantage. Nonetheless, the question how firms decide to use cooperative relationships to access resources instead of creating them internally has not been extensively studied in the context of resources and capabilities.
Product development is one of the most complex activities of the firm and there are many related uncertainties. The availability of resources for product development is a topic of high strategic importance for a firm, especially taken into consideration the constantly increasing complexity and resource consumption of product development activities. Strategic cooperation in product development has often been thought to be limited to equity forms of cooperative agreements. However, non-equity agreements are becoming more common, which is particularly apparent in high-technology industries (Narula and Hagedoorn, 1999).
The trend is motivated by changes in the business and technology environments, as well as lower organisational complexity of such agreements. Based on the literature, it appears possible that cooperation with suppliers providing complementary resources can significantly contribute to product development activities of a firm, while allowing it to retain its flexibility. The study aims to identify if this proposition is a motivational factor in the context of offshore sourcing in software development.
Cooperation in product development leads to a situation where product development can be seen as a process that exceeds the company’s boundaries and involves a network of relationships. Network relationships interlink activities, resources, and actors. The industrial network approach addresses the question how firms are able to identify and have access to the resources needed to build up and exploit their competitive advantage (Johanson and Mattsson, 1988). Consequently, the approach sees product development and the development of relationships as connected processes. The decisions about the extent and type of interaction with external actors are strategically important, because they affect the amount of available resources, the intensity of the relationship and the level of dependency on a single supplier.
Inter-firm cooperation across national borders provides firms access to distinct resources available at different locations. By increasing their involvement in international business activities, firms become more and more internationalised. Cooperation with foreign suppliers in product development activities can be seen as a form of inward internationalisation.
Inward activities can provide a firm with valuable resources and thus enhance internal functions, but they have typically been considered low-status activities. Similarly, past studies of international entrepreneurship have paid little attention to internationalisation of the firm’s value chain (Zahra and George, 2002). However, a network of relationships can allow the firm to increase its competitiveness even when there are liabilities of smallness and newness (Jarillo, 1989). Based on the literature, it appears possible that inward internationalisation in the form of cooperation with foreign suppliers in product development activities can be used to supplement the strategic competences of a firm. Thus, it could provide a motivational factor and affect decisions about offshore sourcing in software development. The study aims to identify if international cooperation holds strategic importance for a firm in the context of offshore sourcing in software development.
4 Methodology and research design
This section concerns the methodology and research design of the study. The chapter also addresses the criteria for judging the quality of the research and discusses the validity, generalisability and reliability of the results.