The Dynamics of Outsourcing and Offshoring Business Models:

The growing academic attention given to outsourcing and offshoring reflects a trend to develop offshore business models that capitalises on both the effectiveness and efficiencies that might be offered by the business network. Recent innovations in information communications technologies have made transacting and co-ordination business activities at a distance much easier. However, managers still face the challenge of working out what they can offshore and how – an issue paid little attention in the extant offshore literature. Using empirical data from an engineering firm who decides to outsource and offshore high value services for the first time, this paper examines transaction costs, transactions and firm capabilities in a way that allows us to consider the issues surrounding how managers identify and define the transactions to be carried out. Drawing on the theory of mundane transaction cost and indirect capabilities, our findings suggest that; 1) the firms in the offshore business model need to develop and understand the indirect capabilities of the multiple firms in the network – what can our network help us do? 2) mundane transaction costs are necessarily dynamic because they exist in a time of rapid and disruptive change and 3) being able to identify what is to be transacted has fundamental implications for both efficiency and effectiveness that can be achieved by offshore business models.