Service Outsourcing: The Home, the Host and the Provider

Abstract

Although offshoring service providers have grown meteorically in the last two decades, the phenomenon is still primarily analyzed through the lens of a home country and its firms. This paper presents a framework for explaining some of the stylized facts of the offshore service provider industry. The model characterizes the service choice of offshore service providers under alternative skill distribution and also explains why complex service providers employ more skilled workers, pay higher wages, and have a lower scale of provision. Finally, it sheds light on the relationship between partnering country sizes and wage inequality.