Offshoring and Transfer of Intellectual Property

Offshore outsourcing of work to support software development and services is seen primarily as a transfer of labor to another shore. But intellectual property is transferred as well. Such transfers have significant long term effects on the balance of intellectual property (IP) generation and consumption. Software is such an intangible good, and the value of intangibles is based on the income that these intangibles are expected to generate in the future. The paper presents the relationships of IP residing in software to the business models used for outsourcing. The use of a quantitative model for software valuation allows formal exploration of business alternatives. The motivation for this paper is to increase the awareness of the need for software valuation when developers of software and the users of such software reside in different countries.