Internal Labor Markets: When are Companies Better at Assesing Human Resource Redeployability?

Firms engage in offshoring activities for various reasons, ultimately to increase competitive advantage. By integrating theoretical mechanisms from the internal labor markets literature, we reason that firm-specific human capital and information availability from internal labor markets will be particularly valuable for offshoring firms. We hypothesize that firms relying to a larger degree on internal labor markets perform better, and that this effect is salient when firms engage in complex offshoring and R&D offshoring. To test our hypotheses, we use a 2009-2014 panel dataset with 18,394 company-year observations and 1,358 exactly matched Danish companies - 679 offshoring and 679 nonoffshoring companies, containing financial, mobility, and offshoring information. We find support for our hypotheses. The paper contributes to the international business and human capital literature by fostering a debate on internal labor markets as sources of valuable human capital when firms need to make offshoring decisions.