Outsourcing Information Technology to India: Explaining Patterns of Foreign Direct Investment and Contracting in the Software Industry

BYU International Law and Management Review, Vol. 2, p. 285, Spring 2006

Stanford Public Law Working Paper No. 908928

37 Pages Posted: 16 Jun 2006

See all articles by Michael Meehan

Michael Meehan

Stanford Law School; Knobbe Martens Olson & Bear LLP

Abstract

In the past decade, U.S. software firms have increasingly utilized the low-cost information technology (IT) labor force in India. Companies wishing to capture the benefits of outsourcing can engage in contracting (hiring an Indian contracting company to perform the service) or foreign direct investment (FDI, opening an Indian subsidiary and hiring Indian employees). Modern FDI theories predict that Indian software outsourcing should occur primarily in the form of FDI. Contrary to the FDI theories, however, many U.S. companies are hiring Indian software contracting companies in order to use the lower-cost Indian IT labor force. This paper analyzes Indian IT outsourcing firms in order to understand the prevalence of contracting. The paper then refines previous FDI theory by recognizing a Hybrid Model in which contracting companies provide their clients with a combination of the advantages of both FDI and contracting.

Keywords: India, outsourcing, software, high technology, foreign direct investment

JEL Classification: C93,D20,D43,D81,D92,F00,F12,F20,F21,F22,F43,K22

Suggested Citation

Meehan, Michael, Outsourcing Information Technology to India: Explaining Patterns of Foreign Direct Investment and Contracting in the Software Industry. BYU International Law and Management Review, Vol. 2, p. 285, Spring 2006; Stanford Public Law Working Paper No. 908928. Available at SSRN: https://ssrn.com/abstract=908928

Michael Meehan (Contact Author)

Stanford Law School ( email )

559 Nathan Abbott Way
Stanford, CA 94305
United States

Knobbe Martens Olson & Bear LLP

1717 Pennsylvania Ave NW
Suite 900
Washington, DC 20006
United States

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