Modeling Drivers of Political Risk in Offshore Outsourcing

Abstract

Offshore outsourcing presents many opportunities that are not available domestically. Lower labor costs are the primary driver, but companies also want to focus on their core businesses and create value for their shareholders. Recently, companies even move beyond non-strategic functions into important operational and strategic functions. Smart companies have gained strategic advantage by offshoring processes. Many risks involve in offshore outsourcing of professional services because on behalf of client organization service provider provides services. Political instability in offshore destinations is one of the risks related to offshore outsourcing. Political risks are very volatile and also often more difficult to observe, so they may go unnoticed. Terrorism, Fiscal & Monetary policies, and Corruption are obvious problems that complicate offshore process management. The main objective of this paper is to identify and understand the mutual interaction among various drivers of political risk which affects the performance of offshore outsourcing.  To this effect, authors have identified various drivers through extant review of literature.  From this information, an integrated model using interpretive structural modeling (ISM) for drivers of political risk in offshore outsourcing is developed and the structural relationships between these drivers are modeled.  Further, MICMAC analysis is done to analyze the independent power and dependency of drivers which shall be helpful to managers to identify and classify important criterions and to reveal the direct and indirect effects of each criterion of political environment on offshore outsourcing. Results show that Domestic policies of host country, Civil war, Terrorism and Human resource availability are act as independent drivers

Keywords: Political risk, offshore outsourcing, interpretive structural modeling, MICMAC analysis