Value Appropriation in Business Process Outsourcing

We examine the relative value gains between client and vendor firms following the announcement of a BPO deal. We posit that the gains for the vendor are higher than those of the client when clients outsource primary tasks with intent to access vendor capabilities and when the clients outsource peripheral tasks with intent to minimize costs. We also posit that the gains for the clients are higher than those of the vendor when the clients outsource primary tasks with intent to minimize costs and when the clients outsource peripheral tasks to access vendor capabilities. Using an event study methodology we examine 221 BPO contracts between the years 2000 and 2013 to test our hypotheses. In general we found that, when clients outsourced with the intent to reduce costs, the vendors gained relative to the client for both primary and peripheral tasks. We interpret and discuss these findings and research implications.