Theoretical Aspects of Offshore Outsourcing

Abstract: This thesis investigates the offshore outsourcing phenomenon and tries to build a solid foundation on which further studies can be based on. Research from such websites as the McKinsey Quarterly website http://www.mckinseyquarterly.com and the CIO website http://www.cio.com are used to depict not only the potentially huge profits that can be made due to wage differentials, but also some of the easily forgotten additional costs that comes with the territory, which can cause firms serious headaches in their offshore outsourcing endeavors. Theory from the fields of industrial organization, microeconomics and labor economics are later used to analyze these hidden costs from a theoretical perspective, hopefully giving the reader better insight into the very complex nature of the decision to outsourcing individual functions or entire processes to a low wage country such as India.