This study shows that, when sourcing business services in foreign countries, the fragmentation of processes across production units acts as an operational-level adjustment variable for firms to adapt their information protection approach to the regulative environment of the host country they have selected and to the possibility to use internal controls over the activities performed abroad.
We hypothesize that, when the above mechanisms are not available, firms are more likely to fragment processes across multiple foreign production units instead of collocating all process tasks in the same unit.
Thanks to IT-enabled integration capabilities, firms can exploit the complementarities between the dispersed fragments of a process while reducing the misappropriation hazard of individual fragments. Empirical results and robustness tests are strongly congruent with these hypotheses.
We find also that the propensity to turn to the process fragmentation protection mechanism increases with firm host-country-specific experience and with the alternative value of the proprietary information involved in the activity sourced abroad.