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Abstract. IT offshoring has now become imperative not only for the IT industry but also for the manufacturing industry in Japan. The Japanese hardware industry which has long been globally competitive now faces unexpected challenges, i.e. swelling volumes of programs embedded in electronic devices and systems. The impending serious shortages of IT engineers will soon erode the competitiveness of the industry. Increased global competition and serious manpower shortages are the major background for the IT offshoring. Japanese offshoring is yet at an immature stage, turning mainly to China due to cultural similarity, Japanese language proficiency, and geographical proximity. Through analyzing both failed and successful projects, the authors try to explore fundamental causes for the poor performance and provisionally determine critical factors contributing to the successful offshoring.

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