Offshoring in Business Services Sector Over the Business Cycle: A Case of Growth of the International Cooperation

In this paper I analyze the role of business service offshoring in international cooperation over the recession. In business services - as described in Schumpeterian literature - external restructuring including resource and production relocation is more intensive during recession periods while intensive internal restructuring accompanies expansion periods. As external restructuring encompass business processes fragmentation and offshoring of services, I also argue - taking into account historical evidence - that current economic crisis would result in growing service offshoring in business service sector. I expect that many financial institutions would relocate part of their business processes abroad, where operating costs are lower, as they find that external restructuring via offshoring is the way to survive. This, in turn, will be the most possible result in growth of service offshoring projects located in CEE and Asia, as these two locations were the most attractive ones in recent years for service offshoring. The process is reflected by growth of FDI outflows from developed economies to CEE and Asia as well as growth of business and IT services trade between the mentioned economies. However, I also expect that in short run (one year perspective) we will experience tremendous decrease of FDI flows including investment in service offshoring, nevertheless the share of FDI flows related to service offshoring in total FDI flows will increase.