Transaction costs in finance and accounting offshore outsourcing: a case of Malaysia

Abstract

Purpose Finance and accounting (FA) offshore outsourcing is a growing trend involving a relocation of business processes to Asia but only few studies focus on understanding the issues that underlie the relocation of FA services. This paper aims to provide understanding of transaction costs economics (TCE) issues in FA offshore outsourcing using a case study of the Malaysia outsourcing industry which is growing and experiencing significant change. Design/methodology/approach This study uses a qualitative case study approach. Interviews cover several foreign firms, which are based in Malaysia and involved in FA offshore outsourcing services worldwide. Interviews also include related regulatory bodies in Malaysia. Findings Using TCE and management control theoretical framework, findings indicate issues and challenges faced by the firms and the need for contract management skills to mitigate the issues. Research limitations/implications This study is limited to a broad discussion of FA offshore outsourcing, TCE and contract management but it could be a basis for future studies on specific issues of managing attrition in FA offshore outsourcing. This study contributes to prior works in TCE and FA offshore outsourcing by establishing controls to minimise costs at contact, contract and control stage. Specifically, this study emphasises contract management such as negotiating contract and using long‐term contractual arrangement. Practical implications This study not only identifies TCE issues in offshore FA outsourcing, but also provides suggestions for minimising transaction costs. For example, firms should consider the type of transaction costs involved and plan for appropriate contract management to mitigate the costs. Originality/value There is no study yet that discusses in‐depth the issues of TCE in FA offshore outsourcing especially in Malaysia and the need for contract management in mitigating such issues.

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