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Title: Service Offshoring and Export Experience

Author(s): Giuseppe Berlingieri, Luca Marcolin and Emanuel Ornelas

Publication Date: June 2021

Keyword(s): Commercial presence, Export dynamics, firm boundaries, Global sourcing and Services

Programme Area(s): International Trade and Regional Economics

Abstract: Service inputs are a key component of the costs of exporting, and contribute to explain the process of internationalization of firms. A new dataset on the participation of French firms in global value chains reveals that firms with longer export experience in a market are more likely to source service inputs from there. We rationalize this fact in a model where firms are initially uncertain about how successful they are as exporters, but learn their export profitability as they keep selling abroad. Because offshoring requires larger sunk costs than domestic sourcing, some firms decide to offshore only when they become sufficiently confident about their export prospects, i.e., once they acquire enough export experience. More export experience in a foreign destination also induces firms to offshore within the boundaries of the firm rather than at arm's length. The model further implies that firms are more likely to offshore when frictions in the provision of services between the domestic and the foreign market are greater. In turn, offshoring firms sell greater volumes, display less volatility, and are less likely to exit foreign markets. Exploiting our novel dataset, we provide strong empirical support for each of these predictions.

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Bibliographic Reference

Berlingieri, G, Marcolin, L and Ornelas, E. 2021. 'Service Offshoring and Export Experience'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=16215