Learning Paths to Offshore Outsourcing: From Cost Reduction to Knowledge Seeking

Abstract

A corporation's offshore outsourcing may be seen as the result of a discrete, strategic decision taken in response to an increasing pressure from worldwide competition. However, empirical evidence of a representative cross‐sector sample of international Danish firms indicates that offshore sourcing in low‐cost countries is best described as a learning‐by‐doing process in which the offshore outsourcing of a corporation goes through a sequence of stages towards sourcing for innovation. Initially, a corporation's outsourcing is driven by a desire for cost minimization. Over a period of time the outsourcing experience lessens the cognitive limitations of decision‐makers as to the advantages that can be achieved through outsourcing in low‐cost countries: the insourcer/vendor may not only offer cost advantages, but also quality improvement and innovation. The quality improvements that offshore outsourcing may bring about evoke a realization in the corporation that even innovative processes can be outsourced.