1. ¹The Fuqua School of Business, Duke University, Durham, USA
2. ²Manchester Business School, University of Manchester, Manchester, UK
3. ³Solvay Brussels School of Economics and Management, Brussels, Belgium

Correspondence: AY Lewin, The Fuqua School of Business, Duke University, 1 Towerview Drive, Box 90120, Durham, NC 27708, USA. Tel: +1 919 660 7654; Fax: +1 919 660 7769

Received 27 June 2007; Revised 5 August 2008; Accepted 6 August 2008; Published online 7 May 2009.

Abstract

This paper empirically studies determinants of decision by companies to offshore innovation activities. It uses survey data from the international Offshoring Research Network project to estimate the impact of managerial intentionality, past experience, and environmental factors on the probability of offshoring innovation projects. The results show that the emerging shortage of highly skilled science and engineering talent in the US and, more generally, the need to access qualified personnel are important explanatory factors for offshoring innovation decisions. Moreover, contrary to drivers of many other functions, labor arbitrage is less important than other forms of cost savings. The paper concludes with a discussion of the changing dynamics underlying offshoring of innovation activities, suggesting that companies are entering a global race for talent.