Operational capabilities development in mediated offshore software services models

Abstract

The paper expands theoretical and empirical understanding of capabilities development in the mediated offshore outsourcing model whereby a small or a medium-sized firm delivers offshore software services to a larger information technology firm that in turn contracts and interfaces with the actual end-client onshore firms. Such a mediated model has received little prior research attention, although it is common particularly among Chinese firms exporting services to Japan, the largest export market for Chinese software services. We conducted case studies in four China-based software companies to understand the mechanisms used to develop their operational capabilities. We focused on client-specific, process, and human resources capabilities that have been previously associated with vendor success. We found a range of learning mechanisms to build the capabilities in offshore firms. Results show that the development of human resources capabilities was most challenging in the mediated model; yet foundational for the development of the other capabilities. This paper contributes to the information systems literature by improving our understanding of the development of operational capabilities in small- and medium-sized Chinese firms that deploy the mediated model of offshore software services.