In this paper we explore the question of why firms offshore particular services to specific geographic locations. We draw on research related to the unique characteristics of services in trade and commerce, and more recent analyses of the transnational unbundling and spatial dispersion of business processes. We move beyond a simple assessment of the cost sensitivity or relative sophistication of offshoring services and develop a typology emphasizing the degree to which offshoring services activities are interactive, repetitive, or innovative. We suggest that the location of offshoring projects will depend on the particular mix of these attributes, and test this assertion using a data set of 595 export-oriented offshore services projects initiated from 2002 to 2005 by US and UK company parents in 45 developed and developing countries. We find that offshore location choices greatly depend on these services characteristics, and in sometimes surprising ways, and draw implications from our findings for international business theory, policy, and practice. Journal of International Business Studies (2009) 40, 926–943. doi:10.1057/jibs.2008.89

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Offshoring has emerged as an important economic and social phenomenon that has generated intense interest from practitioners, the popular media, and policy makers. In addition, there is a nascent but rich research literature on offshoring developing in management, international business (IB), and related fields. In this review, we survey and integrate offshoring literature from several disciplines and draw implications of this review for management and IB research. We conclude that offshoring may challenge some aspects of established management and IB theory or require revision and/ or modification of those theories. We adopt a multilevel coevolutionary perspective as one potential integrative approach to offshoring research and identify important future areas for further enrichment of this emerging area.

Empirical research on the growing wave of services offshoring has examined the impact of several key factors such as wages and personnel quality on firm choices of offshore locations. However, examinations of culture in services offshoring to date have largely been confined to the relatively coarse concept of aggregate cultural differences between the home and host countries. We propose that specific cultural attributes are more closely aligned with successful service provision. We empirically examine our theoretical development of service cultural alignment and investigate the impact of cultural dimensions on the location of service offshoring projects. In addition, we examine whether Western and Asian firms have different cultural preferences in terms of the location of services offshoring projects. We find that host countries with lower levels of Hofstede's uncertainty avoidance as well as higher levels of individualism and power distance are able to attract greater numbers of service offshoring projects, even after controlling for macroeconomic, linguistic, and risk‐related factors. We did not find that Western and Asian firms have different cultural preferences in this regard. We discuss implications of the findings with respect to theory, managerial practice, and governmental policy.