Offshoring: Economic geography and the multinational firm

Loosely defined as the relocation of business processes from one country to another, offshoring is currently one of the most hotly debated aspects of globalization. As part of the global disaggregation of the value chain, it provides a critical template against which to view the intertwined issues of geography and the multinational firm. This disaggregation is the outcome of firms combining the comparative advantages of geographic locations with their own resources and competencies to maximize their competitive advantage. (McCann and Mudambi, 2005). The interplay of comparative advantage and competitive advantage determines both the boundaries of the firm (outsourcing decisions) as well as the optimal location of value chain components (offshoring decisions). The importance of this analysis transcends the strategy of international business, for it is a key aspect of unraveling one of the most critical questions in modern social science – why are some nations rich while others are poor? One of the most important insights to emerge from Pyndt and Pedersen’s (2006) new book is the crucial link between knowledge and value creation in the Danish context. This ‘smile of value creation ’ echoes findings in the US, where ‘taking out costs ’ is th