Asia’s Innovation Systems in Transition
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Asia’s Innovation Systems in Transition

Edited by Bengt-Åke Lundvall, Patarapong Intarakumnerd and Jan Vang

The success of Asian economies (first Japan, then Taiwan, South Korea, Singapore, Hong Kong and, more recently, China and India) has made it tempting to look for ‘an Asian model of development’. However, the strength of Asian development lies less in strategies that reproduce successful national systems of innovation and more in the capacity for institutional change to open up new development trajectories with greater emphasis on knowledge and learning. The select group of contributors demonstrate that although there are important differences among Asian countries in terms of institutional set-ups supporting innovation, government policies and industrial structures, they share common transitional processes to cope with the globalizing learning economy.
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Chapter 3: Transnational Communities, Offshore Outsourcing and Offshore Subsidiaries: The Case of the Indian IT Service Industry

Jan Vang and Mikkel Lucas Overby


Jan Vang and Mikkel Lucas Overby INTRODUCTION Globalization and increased emigration have recently spurred a surge of interest among researchers and policy-makers in the role transnational communities play as agents of development in their home countries. This research finds that transnational community networks are becoming increasingly important in fostering economic development. Despite the fact that multinational corporations increasingly rely on outsourcing and offshoring to realize cost and innovation advantages through globally distributed resources and competences, traditional theorizing on the issue mostly neglects the insights from this literature. In this chapter we use the term ‘offshore outsourcing’ to denote situations in which a firm contracts out or sells its assets to a third party supplier located in a different country for an agreed time period, whereas ‘offshoring’ refers to situations where a firm establishes a subsidiary in a foreign country. Transaction cost economics, which has emerged as the dominating theory for explaining whether firms choose to outsource or organize activities in-house, is silent on the offshore aspect. Transaction cost theory focuses on how economic hold-up threats limit the firm’s propensity to outsource but disregards the different challenges firms face when outsourcing to or establishing subsidiaries in institutionally distant contexts. Development researchers, in contrast, deal with the offshore aspect through their focus on migration. Development researchers have traditionally treated transnational communities – globally dispersed migrant networks1 – as synonymous with emigration of skilled labour as expressed in the ‘brain drain hypothesis’. According to the brain drain hypothesis,...

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